SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934 for the quarterly period ended
September 30,1996 , or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934 for the transition period
from to
Commission file number 1-8637
TIME WARNER COMPANIES, INC.*
(Formerly Named Time Warner Inc.)
(Exact name of registrant as specified in its charter)
Delaware 13-1388520
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including zip code, and telephone number, including area code, of each registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common Stock - $.01 par value 384,924
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Description of Class* Shares Outstanding
as of October 31, 1996*
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* Time Warner Companies, Inc. ("Old Time Warner") was formerly known as Time Warner Inc. On October 10, 1996, Old Time Warner became a wholly owned subsidiary of TW Inc. ("New Time Warner") in connection with the acquisition by New Time Warner of the remaining 80% interest in Turner Broadcasting System, Inc. that was not already owned by Old Time Warner. Simultaneously therewith, New Time Warner was renamed Time Warner Inc. and Old Time Warner was renamed Time Warner Companies, Inc. All outstanding shares of common stock of Old Time Warner are now held directly or directly by New Time Warner. Shares of New Time Warner common stock outstanding as of October 31, 1996 consist of 508 million shares of common stock and 50.6 million shares of LMCN-V Class Common Stock, each class having a par value of $.01 per share.
TIME WARNER COMPANIES, INC. AND
TIME WARNER ENTERTAINMENT COMPANY, L.P.
INDEX TO FORM 10-Q
Page
Time
Warner TWE
PART I. FINANCIAL INFORMATION
Management's discussion and analysis of
results of operations and financial condition 1 37
Consolidated balance sheets at September
30, 1996 and December 31, 1995 20 45
Consolidated statements of operations for
the three and nine months ended September
30, 1996 and 1995 21 46
Consolidated statements of cash flows for
the nine months ended September 30, 1996
and 1995 22 47
Notes to consolidated financial statements 23 48
PART II. OTHER INFORMATION 55
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PART I. FINANCIAL INFORMATION
TIME WARNER COMPANIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Time Warner Companies, Inc. ("Old Time Warner") was formerly known as Time Warner Inc. On October 10, 1996, Old Time Warner became a wholly owned subsidiary of TW Inc. ("New Time Warner") in connection with the acquisition by New Time Warner of the remaining 80% interest in Turner Broadcasting System, Inc. ("TBS") that was not already owned by Old Time Warner, as more fully described herein. Simultaneously therewith, New Time Warner was renamed Time Warner Inc. and Old Time Warner was renamed Time Warner Companies, Inc. The following is a discussion of the results of operations and financial condition of Old Time Warner. Unless the context indicates otherwise, references herein to "Time Warner" or the "Company" refer to Old Time Warner.
Time Warner has interests in four fundamental areas of business: Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, broadcasting and theme parks; Cable Networks, consisting principally of interests in cable television programming; Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing; and Cable, consisting principally of interests in cable television systems. Substantially all of Time Warner's interests in filmed enter- tainment, broadcasting, theme parks and cable television programming, and a majority of its cable television systems, are held through Time Warner Entertainment Company, L.P. ("TWE"), a partnership in which Time Warner owns general and limited partnership interests in 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital") and 100% of the senior priority capital ("Senior Capital") and junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by a subsidiary of U S WEST, Inc. ("U S WEST"). Time Warner does not consolidate TWE and certain related companies (the "Entertainment Group") for financial reporting purposes because of certain limited partnership approval rights related to TWE's interest in certain cable television systems. Capitalized terms are as defined and described in the accompanying consolidated financial statements, or elsewhere herein.
Significant Transactions
In 1996, Time Warner and the Entertainment Group have announced or completed a number of transactions that have had or are expected to have a significant effect on their results of operations and financial condition. Such transactions include:
* The acquisition by New Time Warner in October 1996 of the remaining 80% interest in TBS that was not already owned by Old Time Warner (the "TBS Transaction"). The addition of TBS's news and entertainment programming networks, film and animation libraries, film production companies and sports franchises is expected to complement virtually all of Time Warner's business interests. In connection with the TBS Transaction, New Time Warner issued or agreed to issue approximately 178.4 million shares of common stock (including 55.6 million shares of a special class of non-redeemable, reduced-voting common stock referred to hereinafter as "LMCN-V Class Common Stock") to the former shareholders of TBS capital stock, approximately 14 million stock options to replace all outstanding TBS stock options and $67 million of consideration payable, at the election of New Time Warner, in either cash or additional shares of LMCN-V Class Common Stock. TBS had approximately $2.8 billion of indebtedness as of September 30, 1996.
* The implementation by Old Time Warner in April 1996 of a program to repurchase, from time to time, up to 15 million shares of its common stock. The common stock repurchase program was supported by a new five-year, $750 million revolving credit facility which was expected to be repaid principally from the cash proceeds to be received by Old Time Warner from the future exercise of employee stock options. As of September 30, 1996, Old Time Warner had acquired approximately 11.3 million shares of its common stock for an aggregate cost of approximately $452 million. In connection with the TBS Transaction, Old Time Warner's common stock repurchase program was discontinued and a similar program was authorized by New Time Warner to continue the repurchase, from time to time, of up to an additional 3.7 million shares of New Time Warner common stock.
* The issuance by Time Warner in April 1996 of 1.6 million shares of a new series of exchangeable preferred stock ("Series K Preferred Stock"), which pays cumulative dividends at the rate of 10-1/4% per annum. The approximate $1.55 billion of net proceeds raised from this transaction were used to reduce debt (the "Series K Refinancing") and, together with other actions since the initiation of a $2-$3 billion debt reduction program in February 1995, Time Warner and the Entertainment Group have raised approximately $3.4 billion for debt reduction.
* The redemption by Time Warner in February 1996 of approximately $1.2 billion of convertible debt using proceeds from 1995 and 1996 financings, the effect of which was to lower interest rates, stagger debt maturities and eliminate the potential dilution from the conversion of such securities into 25.7 million shares of common stock.
* The acquisition by Time Warner of Cablevision Industries Corporation ("CVI") and related companies on January 4, 1996 (the "CVI Acquisition"), which strengthened Time Warner Cable's geographic clusters of cable television systems and substantially increased the number of cable subscribers managed by Time Warner Cable. As of September 30, 1996, Time Warner Cable, which includes the cable operations of both Time Warner and TWE, served approximately 12.1 million subscribers in neighborhoods passing nearly 20% of the television homes in the U.S. In connection with the acquisition, Time Warner issued 2.9 million shares of common stock and 6.3 million shares of new convertible preferred stock, as adjusted, and assumed or incurred approximately $2 billion of indebtedness.
The nature of these transactions and their impact on the results of operations and financial condition of Time Warner and the Entertainment Group are further discussed below.
TBS Transaction
On October 10, 1996, New Time Warner acquired the remaining 80% interest in TBS that was not already owned by Old Time Warner. The transaction was structured so that each of Old Time Warner and TBS became separate, wholly owned subsidiaries of New Time Warner which will combine, for financial reporting purposes, the consolidated net assets and operating results of Old Time Warner and TBS. In connection therewith, each issued and outstanding share of each class of capital stock of Old Time Warner was converted into one share of a substantially identical class of capital stock of New Time Warner.
In connection with the TBS Transaction, New Time Warner issued (i) approximately 173.4 million shares of common stock, par value $.01 (including 50.6 million shares of LMCN-V Class Common Stock which were received by affiliates of Liberty Media Corporation ("LMC"), a former shareholder of TBS and a subsidiary of Tele-Communications, Inc.) in exchange for shares of TBS capital stock and (ii) approximately 14 million stock options to replace all outstanding TBS stock options. In addition, New Time Warner agreed to issue to LMC and its affiliates at a later date an additional five million shares of LMCN-V Class Common Stock and $67 million of consideration payable, at the election of New Time Warner, in cash or additional shares of LMCN-V Class Common Stock, pursuant to a separate option and non-competition agreement that will provide, if New Time Warner exercises its option, for a subsidiary of LMC to provide certain satellite uplink and distribution services for WTBS, a broadcast television station owned by TBS, in the event that WTBS is converted to a copyright-paid cable television programming service. The aggregate merger consideration has been valued at approximately $6.1 billion. New Time Warner has also (i) fully and unconditionally guaranteed approximately $1 billion of TBS's outstanding publicly traded indebtedness and approximately $7.7 billion of Old Time Warner's outstanding publicly traded indebtedness and (ii) assumed certain existing liabilities of Old Time Warner, including all of Old Time Warner's rights and obligations under the Stock Option Proceeds Credit Facility (as defined hereinafter).
The TBS Transaction is not reflected in the accompanying
consolidated financial statements of Old Time Warner, but will be
accounted for by New Time Warner in the fourth quarter of 1996 by
the purchase method of accounting for business combinations.
Based on TBS's financial position and results of operations as of
and for the nine months ended September 30, 1996, and giving pro
forma effect to the TBS Transaction as if it had occurred on
September 30, 1996 for balance sheet purposes and at the
beginning of the year for statement of operations purposes, the
incremental pro forma effect on New Time Warner would have been
(i) an increase in shareholders' equity of approximately $6
billion, principally due to the issuance by New Time Warner of
approximately 178.4 million additional shares of common stock,
(ii) an increase in long-term debt of approximately $2.9 billion,
principally due to the inclusion of TBS's debt, (iii) an increase
in goodwill of approximately $6.7 billion as a result of a
preliminary allocation of the excess cost over the net book value
of assets acquired, (iv) an increase in revenues of $2.8 billion,
(v) an increase in EBITDA (as defined below) of $208 million,
(vi) an increase in depreciation and amortization of $261
million, including approximately $127 million of noncash
amortization of goodwill, (vii) a decrease in operating income of
$53 million, (viii) an increase in net loss of $152 million and
(ix) a reduction in loss per common share before extraordinary
item of $.07 per common share resulting from the dilutive effect
of issuing an additional 178.4 million shares of common stock.
The increase in pro forma net loss attributable to TBS is
primarily due to disappointing results from worldwide theatrical
releases, which resulted in net writeoffs in TBS's historical
results of approximately $200 million during 1996.
Use of EBITDA
The following comparative discussion of the results of operations and financial condition of Time Warner and the Entertainment Group includes, among other factors, an analysis of changes in the operating income of the business segments before depreciation and amortization ("EBITDA") in order to eliminate the effect on the operating performance of the music, filmed entertainment and cable businesses of significant amounts of amortization of intangible assets recognized in the $14 billion acquisition of WCI in 1989, the $1.3 billion acquisition of the ATC minority interest in 1992, the $2.3 billion acquisitions of Summit, KBLCOM and CVI and related companies in 1995 and early 1996 and other business combinations accounted for by the purchase method, including the TBS Transaction with respect to certain discussions on a pro forma basis. Financial analysts generally consider EBITDA to be an important measure of comparative operating performance for the businesses of Time Warner and the Entertainment Group, and when used in comparison to debt levels or the coverage of interest expense, as a measure of liquidity. However, EBITDA should be considered in addition to, not as a substitute for, operating income, net income, cash flow and other measures of financial performance and liquidity reported in accordance with generally accepted accounting principles.
RESULTS OF OPERATIONS
EBITDA and operating income for Time Warner and the Entertainment Group for the three and nine months ended September 30, 1996 and 1995 are as follows:
Three Months Ended September 30, Nine Months Ended September 30,
EBITDA Operating Income EBITDA Operating Income
1996 1995 1996 1995 1996 1995 1996 1995
Time Warner: (millions)
Publishing $ 99 $ 86 $ 66 $ 62 $ 335 $301 $247 $231
Music(1) 143 57 48 (39) 454 395 173 114
Cable 122 45 25 (2) 352 45 44 (2)
Total $364 $188 $139 $ 21 $1,141 $741 $464 $343
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Entertainment Group:
Filmed Entertainment
$146 $129 $ 62 $ 70 $ 423 $369 $214 $196
Six Flags Theme Parks
- - - - - 60 - 29
Broadcasting - The WB Network
(27) (7) (27) (7) (63) (40) (63) (40)
Programming - HBO
91 74 86 70 259 220 245 207
Cable 390 345 156 141 1,134 920 449 357
Total $600 $541 $277 $274 $1,753 $1,529 $845 $749
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(1) Includes pretax losses of $85 million recorded in the third quarter of 1995 related to certain businesses and joint ventures owned by the Music Division which were restructured or closed.
Three Months Ended September 30, 1996 Compared to Three Months Ended September 30, 1995
Time Warner had revenues of $2.157 billion, and a net loss of $91 million ($.43 per common share) for the three months ended September 30, 1996, compared to revenues of $1.981 billion, a loss of $102 million ($.30 per common share) before an extraordinary loss on the retirement of debt and a net loss of $144 million ($.41 per common share) for the three months ended September 30, 1995. Time Warner's equity in the pretax income of the Entertainment Group was $61 million for the three months ended September 30, 1996, compared to $129 million for the three months ended September 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 and early 1996 acquisitions by Time Warner of Summit, KBLCOM and CVI and related companies, and the 1995 formation by TWE of the TWE-Advance/Newhouse Partnership, (ii) the 1995 exchange of ITOCHU Corporation's and Toshiba Corporation's interests in TWE for equity interests in Time Warner, (iii) the 1995 and early 1996 refinancing of approximately $4 billion of public debt by Time Warner and the 1995 execution of a new $8.3 billion credit agreement, under which approximately $2.7 billion of debt assumed in the cable acquisitions was refinanced by subsidiaries of Time Warner and $2.6 billion of pre-existing bank debt was refinanced by TWE, (iv) the issuance in April 1996 of 1.6 million shares of Series K Preferred Stock and the use of approximately $1.55 billion of net proceeds therefrom to reduce debt, (v) the 1995 sale of 51% of TWE's interest in Six Flags and (vi) the sale or expected sale or transfer of certain unclustered cable television systems owned by TWE, as if each of such transactions had occurred at the beginning of 1995, Time Warner would have reported for the three months ended September 30, 1995, revenues of $2.111 billion, depreciation and amortization of $237 million, operating income of $15 million, equity in the pretax income of the Entertainment Group of $130 million, a loss before extraordinary item of $113 million ($.49 per common share) and a net loss of $155 million ($.60 per common share). No pro forma financial information has been presented for Time Warner for the three months ended September 30, 1996 because all of such transactions are already reflected, in all material respects, in the historical financial statements of Time Warner.
As discussed more fully below, the improvement in Time Warner's historical net loss in 1996 as compared to the historical and pro forma net loss in 1995 reflects an overall increase in the operating income of Time Warner's business segments and the absence of a $42 million extraordinary loss on the retirement of debt ($.11 per common share) recognized in 1995, offset in part by lower income from Time Warner's equity in the pretax income of the Entertainment Group and a decrease in investment-related income. In addition, on a historical basis, the positive effect from such underlying operating trends on Time Warner's 1996 net loss per common share was more than offset by an increase in preferred dividend requirements as a result of the preferred stock issued in connection with the Series K Refinancing, the CVI Acquisition and the ITOCHU/Toshiba Transaction.
The Entertainment Group had revenues of $2.720 billion and
net income of $51 million for the three months ended September
30, 1996, compared to revenues of $2.363 billion, income of $103
million before an extraordinary loss on the retirement of debt
and net income of $79 million for the three months ended
September 30, 1995. On a pro forma basis, giving effect to (i)
the 1995 formation of the TWE-Advance/Newhouse Partnership, (ii)
the 1995 refinancing of approximately $2.6 billion of
pre-existing bank debt, (iii) the 1995 consolidation of Paragon,
(iv) the 1995 sale of 51% of TWE's interest in Six Flags and (v)
the sale or expected sale or transfer of certain unclustered
cable television systems owned by TWE, as if each of such
transactions had occurred at the beginning of 1995, the
Entertainment Group would have reported for the three months
ended September 30, 1995, revenues of $2.354 billion,
depreciation and amortization of $267 million, operating income
of $271 million, income before extraordinary item of $104 million
and net income of $80 million. No pro forma financial information
has been presented for the Entertainment Group for the three
months ended September 30, 1996 because all of such transactions
are already reflected, in all material respects, in the
historical financial statements of the Entertainment Group.
As discussed more fully below, the Entertainment Group's historical net income was lower in 1996 as compared to historical and pro forma results in 1995 due to a decrease in investment- related income, which more than offset the absence of a $24 million extraordinary loss on the retirement of debt recognized in 1995, an overall increase in operating income generated by its business segments and interest savings in 1996 on lower average debt levels related to management's debt reduction program.
The relationship between income before income taxes and income tax expense of Time Warner is principally affected by the amortization of goodwill and certain other financial statement expenses that are not deductible for income tax purposes. Income tax expense of Time Warner includes all income taxes related to its allocable share of partnership income and its equity in the income tax expense of corporate subsidiaries of the Entertainment Group.
Time Warner
Publishing. Revenues increased to $1.034 billion, compared to $914 million in the third quarter of 1995. EBITDA increased to $99 million from $86 million. Depreciation and amortization amounted to $33 million in 1996 and $24 million in 1995. Operating income increased to $66 million from $62 million. Revenues benefited from across-the-board increases in magazine circulation, advertising and book revenues. All major magazine brands achieved revenue gains, including People and Sports Illustrated, the latter of which benefited in part from Olympics-related coverage. The increase in book revenues benefited from strong contributions by the direct marketing businesses. EBITDA and operating income increased as a result of the revenue gains.
Music. Revenues decreased to $900 million, compared to $992 million in the third quarter of 1995. EBITDA increased to $143 million from $57 million. Depreciation and amortization, including amortization related to the purchase of WCI, amounted to $95 million in 1996 and $96 million in 1995. Operating income increased to $48 million in 1996 from an operating loss of $39 million in 1995. Operating results for 1995 included $85 million in losses relating to certain start-up businesses and joint ventures owned by the Music Division which were restructured or closed. With regard to 1996, despite maintaining its leading domestic market share (over 22%), the Music Division's domestic recorded music operating results were negatively affected by the industry-wide softness in the overexpanded U.S. retail marketplace, which has resulted in a number of music retail store closings and higher returns of music product. The decline in revenues principally related to the continuing effects from the current U.S. retail environment, including an increase in the Music Division's reserve for returns to provide for an anticipated higher level of returns, and the absence of revenues from certain start-up businesses which are no longer being operated by the Music Division. The increase in EBITDA and operating income principally resulted from the absence of losses from certain start-up businesses and joint ventures, and was offset in part by the decline in the recorded music business and lower results from direct marketing activities.
Cable. Revenues increased to $230 million, compared to $83 million in the third quarter of 1995. EBITDA increased to $122 million from $45 million. Depreciation and amortization amounted to $97 million in 1996 and $47 million in 1995. Operating income increased to $25 million in 1996 from an operating loss of $2 million in 1995. On a pro forma basis, giving effect to the CVI Acquisition as if it had occurred at the beginning of 1995, revenues benefited from an increase in basic cable subscribers, increases in regulated cable rates as permitted under Time Warner Cable's "social contract" with the Federal Communications Commission (the "FCC") and an increase in advertising revenues. Similarly, on a pro forma basis, EBITDA and operating income increased as a result of the revenue gains.
Interest and Other, Net. Interest and other, net, increased to $276 million in the third quarter of 1996, compared to $259 million in the third quarter of 1995. Interest expense decreased to $217 million, compared to $234 million. The decrease in interest expense was principally due to the favorable effects from Time Warner's redemption of the 8.75% Convertible Debentures and the Series K Refinancing, offset in part by the assumption or incurrence of approximately $2 billion of debt in the 1996 acquisition of CVI and related companies. There was other expense, net, of $59 million in the third quarter of 1996, compared to $25 million in 1995, principally because of a decrease in investment-related income that included losses from reductions in the carrying value of certain investments and an increase in dividend requirements on preferred securities of subsidiaries issued in 1995 in connection with the redemption of the 8.75% Convertible Debentures.
Entertainment Group
Filmed Entertainment. Revenues increased to $1.445 billion, compared to $1.176 billion in the third quarter of 1995. EBITDA increased to $146 million from $129 million. Depreciation and amortization, including amortization related to the purchase of WCI, amounted to $84 million in 1996 and $59 million in 1995. Operating income decreased to $62 million from $70 million. Revenues benefited from increases in domestic theatrical, worldwide home video and worldwide television distribution operations, offset in part by lower international theatrical revenues. EBITDA increased, and operating income benefited, principally from the revenue gains. Operating income was further affected in 1996 by higher depreciation and amortization related to the summer opening of an international theme park in Germany.
Broadcasting - The WB Network. The WB Network recorded an operating loss of $27 million on $23 million of revenues in the third quarter of 1996, compared to an operating loss of $7 million on $7 million of revenues in the third quarter of 1995. The increase in revenues and operating losses primarily resulted from the expansion of the WB Network's primetime programming schedule (now at three nights) and the expansion of Kids' WB!, the network's animated programming lineup on Saturday mornings and weekdays. In addition, operating losses for 1995 were mitigated by a favorable legal settlement. Due to the start-up nature of this new national broadcast operation, losses are expected to continue.
Programming - HBO. Revenues increased to $426 million, compared to $409 million in the third quarter of 1995. EBITDA increased to $91 million from $74 million. Depreciation and amortization amounted to $5 million in 1996 and $4 million in 1995. Operating income increased to $86 million from $70 million. Revenues benefited primarily from a significant increase in subscriptions. EBITDA and operating income improved principally as a result of the revenue gains, as well as income related to the licensing of the television series Martin for domestic syndicated television exhibition.
Cable. Revenues increased to $955 million, compared to $858 million in the third quarter of 1995. EBITDA increased to $390 million from $345 million. Depreciation and amortization, including amortization related to the purchase of WCI and the acquisition of the ATC minority interest, amounted to $234 million in 1996 and $204 million in 1995. Operating income increased to $156 million from $141 million. Revenues benefited from an aggregate increase in basic cable and Primestar-related, direct broadcast satellite subscribers, increases in regulated cable rates as permitted under Time Warner Cable's "social contract" with the FCC and increases in advertising revenues. EBITDA and operating income increased as a result of the revenue gains, offset in part, with respect to operating income only, by higher depreciation and amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, increased to $147 million in the third quarter of 1996, compared to $77 million in the third quarter of 1995. Interest expense decreased to $118 million, compared to $148 million in the third quarter of 1995, principally as a result of interest savings on lower average debt levels related to management's debt reduction program and lower short-term, floating-rates of interest paid on borrowings under TWE's former and existing bank credit agreements. There was other expense, net, of $29 million in the third quarter of 1996, compared to other income, net, of $71 million in 1995, principally due to a decrease in investment-related income. The decrease in investment-related income related to a reduction in interest income associated with lower average cash balances and lower average principal amounts due under the note receivable from U S WEST that was fully collected as of June 1996, as well as the absence of income recognized in connection with the 1995 restructuring of the Entertainment Group's interest in Court TV.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30, 1995
Time Warner had revenues of $6.364 billion, a loss of $215 million ($1.02 per common share) before an extraordinary loss on the retirement of debt and a net loss of $250 million ($1.11 per common share) for the nine months ended September 30, 1996, compared to revenues of $5.705 billion, a loss of $157 million ($.47 per common share) before an extraordinary loss on the retirement of debt and a net loss of $199 million ($.58 per common share) for the nine months ended September 30, 1995. Time Warner's equity in the pretax income of the Entertainment Group was $270 million for the nine months ended September 30, 1996, compared to $235 million for the nine months ended September 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 and early 1996 acquisitions by Time Warner of Summit, KBLCOM and CVI and related companies, and the 1995 formation by TWE of the TWE-Advance/Newhouse Partnership, (ii) the 1995 exchange of ITOCHU Corporation's and Toshiba Corporation's interests in TWE for equity interests in Time Warner, (iii) the 1995 and early 1996 refinancing of approximately $4 billion of public debt by Time Warner and the 1995 execution of a new $8.3 billion credit agreement, under which approximately $2.7 billion of debt assumed in the cable acquisitions was refinanced by subsidiaries of Time Warner and $2.6 billion of pre-existing bank debt was refinanced by TWE, (iv) the issuance in April 1996 of 1.6 million shares of Series K Preferred Stock and the use of approximately $1.55 billion of net proceeds therefrom to reduce debt, (v) the 1995 sale of 51% of TWE's interest in Six Flags and (vi) the sale or expected sale or transfer of certain unclustered cable television systems owned by TWE, as if each of such transactions had occurred at the beginning of 1995, Time Warner would have reported for the nine months ended September 30, 1996 and 1995, respectively, revenues of $6.364 billion and $6.249 billion, depreciation and amortization of $677 million and $704 million, operating income of $464 million and $305 million, equity in the pretax income of the Entertainment Group of $270 million and $258 million, a loss before extraordinary item of $193 million and $207 million ($1.09 and $1.15 per common share) and a net loss of $228 million and $249 million ($1.18 and $1.26 per common share).
As discussed more fully below, the improvement in Time Warner's pro forma net loss in 1996 as compared to pro forma results in 1995 principally relates to an overall increase in the operating income of Time Warner's business segments and increased income from its equity in the pretax income of the Entertainment Group, offset in part by a decrease in investment-related income primarily resulting from gains on the sale of certain assets recognized in 1995. However, on a historical basis, the positive effect from such underlying operating trends was more than offset by an increase in interest expense relating to approximately $3.3 billion of debt assumed or incurred in the cable acquisitions, and with respect to Time Warner's 1996 net loss per common share, by an increase in preferred dividend requirements as a result of the preferred stock issued in connection with the Series K Refinancing, the cable acquisitions and the ITOCHU/Toshiba Transaction.
The Entertainment Group had revenues of $7.817 billion and
net income of $221 million for the nine months ended September
30, 1996, compared to revenues of $6.871 billion, income of $173
million before an extraordinary loss on the retirement of debt
and net income of $149 million for the nine months ended
September 30, 1995. On a pro forma basis, giving effect to (i)
the 1995 formation of the TWE-Advance/Newhouse Partnership, (ii)
the 1995 refinancing of approximately $2.6 billion of
pre-existing bank debt, (iii) the 1995 consolidation of Paragon,
(iv) the 1995 sale of 51% of TWE's interest in Six Flags and (v)
the sale or expected sale or transfer of certain unclustered
cable television systems owned by TWE, as if each of such
transactions had occurred at the beginning of 1995, the
Entertainment Group would have reported for the nine months ended
September 30, 1995, revenues of $6.936 billion, depreciation and
amortization of $800 million, operating income of $749 million,
income before extraordinary item of $199 million and net income
of $175 million. No pro forma financial information has been
presented for the Entertainment Group for the nine months ended
September 30, 1996 because all of such transactions are already
reflected, in all material respects, in the historical financial
statements of the Entertainment Group.
As discussed more fully below, the Entertainment Group's historical net income was higher in 1996 as compared to pro forma results in 1995 due to an overall increase in operating income generated by its business segments and the absence of a $24 million extraordinary loss on the retirement of debt recognized in 1995, offset in part by a decrease in investment-related income and an increase in minority interest expense related to the TWE-Advance/Newhouse Partnership. On a historical basis, such underlying operating trends were enhanced by interest savings in 1996 on lower average debt levels related to management's debt reduction program.
The relationship between income before income taxes and income tax expense of Time Warner is principally affected by the amortization of goodwill and certain other financial statement expenses that are not deductible for income tax purposes. Income tax expense of Time Warner includes all income taxes related to its allocable share of partnership income and its equity in the income tax expense of corporate subsidiaries of the Entertainment Group.
Time Warner
Publishing. Revenues increased to $2.951 billion, compared to $2.673 billion in the first nine months of 1995. EBITDA increased to $335 million from $301 million. Depreciation and amortization amounted to $88 million in 1996 and $70 million in 1995. Operating income increased to $247 million from $231 million. Revenues benefited from across-the-board increases in magazine circulation, advertising and book revenues. All major magazine brands achieved revenue gains, including People, Entertainment Weekly and Sports Illustrated, the latter of which benefited in part from Olympics-related coverage. The increase in book revenues benefited from strong contributions by the direct marketing businesses. EBITDA and operating income increased as a result of the revenue gains.
Music. Revenues decreased to $2.759 billion, compared to $2.969 billion in the first nine months of 1995. EBITDA increased to $454 million from $395 million. Depreciation and amortization, including amortization related to the purchase of WCI, amounted to $281 million in 1996 and 1995. Operating income increased to $173 million from $114 million. Operating results for 1995 included $85 million in losses relating to certain start-up businesses and joint ventures owned by the Music Division which were restructured or closed. With regard to 1996, despite maintaining its leading domestic market share (over 22%), the Music Division's domestic recorded music operating results were negatively affected by the industry-wide softness in the overexpanded U.S. retail marketplace, which has resulted in a number of music retail store closings and higher returns of music product. The decline in revenues principally related to (i) the effects from the current U.S. retail environment, including an increase in the Music Division's reserve for returns to provide for an anticipated higher level of returns (ii) a decline in international recorded music sales and (iii) the absence of revenues from certain start-up businesses which are no longer being operated by the Music Division. The increase in EBITDA and operating income principally resulted from the absence of losses from certain start-up businesses and joint ventures, and was offset in part by the decline in the recorded music business and lower results from direct marketing activities.
Cable. Revenues increased to $677 million, compared to $83 million in the first nine months of 1995. EBITDA increased to $352 million from $45 million. Depreciation and amortization amounted to $308 million in 1996 and $47 million in 1995. Operating income increased to $44 million in 1996 from an operating loss of $2 million in 1995. On a pro forma basis, giving effect to the CVI Acquisition as if it had occurred at the beginning of 1995, revenues benefited from an increase in basic cable subscribers, increases in regulated cable rates as permitted under Time Warner Cable's "social contract" with the FCC and an increase in advertising revenues. Similarly, on a pro forma basis, EBITDA and operating income increased as a result of the revenue gains.
Interest and Other, Net. Interest and other, net, increased to $854 million in the first nine months of 1996, compared to $615 million in the first nine months of 1995. Interest expense increased to $688 million, compared to $663 million. The increase in interest expense was principally due to the assumption or incurrence of approximately $3.3 billion of debt in the cable acquisitions, offset in part by the favorable effects from Time Warner's redemption of the 8.75% Convertible Debentures and the Series K Refinancing. There was other expense, net, of $166 million in the first nine months of 1996, compared to other income, net, of $48 million in 1995, principally because of a decrease in investment-related income resulting from the absence of gains on certain asset sales recognized in 1995 in connection with management's debt reduction program, increased losses from reductions in the carrying value of certain investments and an increase in dividend requirements on preferred securities of subsidiaries issued in 1995 in connection with the redemption of the 8.75% Convertible Debentures.
Entertainment Group
Filmed Entertainment. Revenues increased to $3.935 billion, compared to $3.514 billion in the first nine months of 1995. EBITDA increased to $423 million from $369 million. Depreciation and amortization, including amortization related to the purchase of WCI, amounted to $209 million in 1996 and $173 million in 1995. Operating income increased to $214 million from $196 million. Revenues benefited from increases in domestic theatrical, worldwide home video and worldwide television distribution operations, offset in part by lower international theatrical revenues. EBITDA and operating income benefited principally from the revenue gains, offset in part, with respect to operating income only, by higher depreciation and amortization related to the 1996 summer opening of an international theme park in Germany.
Six Flags Theme Parks. As a result of TWE's sale of 51% of its interest in Six Flags, the operating results of Six Flags have been deconsolidated effective as of June 23, 1995 and TWE's remaining 49% interest in Six Flags is accounted for under the equity method of accounting.
Broadcasting - The WB Network. The WB Network recorded an operating loss of $63 million on $56 million of revenues in the first nine months of 1996, compared to an operating loss of $40 million on $13 million of revenues in the first nine months of 1995. The increase in revenues and operating losses primarily resulted from the expansion of the WB Network's primetime programming schedule (now at three nights) and the expansion of Kids' WB!, the network's animated programming lineup on Saturday mornings and weekdays. In addition, operating losses for 1995 were mitigated by a favorable legal settlement. Due to the start-up nature of this new national broadcast operation, losses are expected to continue.
Programming - HBO. Revenues increased to $1.301 billion, compared to $1.195 billion in the first nine months of 1995. EBITDA increased to $259 million from $220 million. Depreciation and amortization amounted to $14 million in 1996 and $13 million in 1995. Operating income increased to $245 million from $207 million. Revenues benefited primarily from a significant increase in subscriptions. EBITDA and operating income improved principally as a result of the revenue gains, as well as income related to the licensing of the television series Martin for domestic syndicated television exhibition.
Cable. Revenues increased to $2.863 billion, compared to $2.196 billion in the first nine months of 1995. EBITDA increased to $1.134 billion from $920 million. Depreciation and amortization, including amortization related to the purchase of WCI and the acquisition of the ATC minority interest, amounted to $685 million in 1996 and $563 million in 1995. Operating income increased to $449 million from $357 million. Revenues and operating results benefited from the contribution of the TWE-Advance/Newhouse Partnership and the consolidation of Paragon for a full nine-month period. Excluding such effects, revenues benefited from an aggregate increase in basic cable and Primestar-related, direct broadcast satellite subscribers, increases in regulated cable rates as permitted under Time Warner Cable's "social contract" with the FCC and increases in pay-per-view and advertising revenues. Excluding the TWE-Advance/Newhouse Partnership and Paragon effects noted above, EBITDA and operating income increased as a result of the revenue gains, offset in part, with respect to operating income only, by higher depreciation and amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, decreased to $369 million in the first nine months of 1996, compared to $381 million in the first nine months of 1995. Interest expense decreased to $358 million, compared to $447 million in the first nine months of 1995, principally as a result of interest savings on lower average debt levels related to management's debt reduction program and lower short-term, floating-rates of interest paid on borrowings under TWE's former and existing bank credit agreements. There was other expense, net, of $11 million in the first nine months of 1996, compared to other income, net, of $66 million in 1995, principally due to an overall decrease in investment-related income. The decrease in investment-related income resulted from a reduction in interest income, offset in part by higher gains on the sale of certain unclustered cable systems recognized in connection with management's debt reduction program. The reduction in interest income related to lower average cash balances and lower average principal amounts due under the note receivable from U S WEST that was fully collected as of June 1996.
FINANCIAL CONDITION AND LIQUIDITY
September 30, 1996
Time Warner
Financial Condition
Time Warner had $10 billion of debt, $402 million of cash and equivalents (net debt of $9.6 billion), $425 million of borrowings against future stock option proceeds, $949 million of mandatorily redeemable preferred securities of subsidiaries, $1.629 billion of Series K Preferred Stock and $3.6 billion of shareholders' equity at September 30, 1996, compared to $9.9 billion of debt, $1.2 billion of cash and equivalents (net debt of $8.7 billion), $949 million of mandatorily redeemable preferred securities of subsidiaries and $3.7 billion of shareholders' equity at December 31, 1995. The increase in net debt principally reflects the assumption of approximately $2 billion of debt related to the CVI acquisition, offset in part by the use of approximately $1.55 billion of net proceeds from the issuance of the Series K Preferred Stock for debt reduction. The decrease in shareholders' equity reflects the repurchase of approximately 11.3 million shares of Time Warner common stock at an aggregate cost of approximately $452 million and dividend requirements, which have increased as a result of the preferred stock issued in connection with the cable acquisitions and the ITOCHU/Toshiba Transaction, offset in part by the issuance in 1996 of approximately 2.9 million shares of common stock and approximately 6.3 million shares of preferred stock in connection with the CVI acquisition. On a combined basis (Time Warner and the Entertainment Group together), excluding borrowings against future stock option proceeds, there was $15.1 billion of net debt at September 30, 1996, compared to $14.7 billion of net debt at the beginning of the year.
Investment in TWE
Time Warner's investment in TWE at September 30, 1996 consisted of interests in 74.49% of the Series A Capital and Residual Capital of TWE, and 100% of the Senior Capital and Series B Capital of TWE. Such priority capital interests provide Time Warner (and with respect to the Series A Capital only, U S WEST) with certain priority claims to the net partnership income of TWE and distributions of TWE partnership capital, including certain priority distributions of partnership capital in the event of liquidation or dissolution of TWE. Each level of priority capital interest provides for an annual rate of return equal to or exceeding 8%, including an above-market 13.25% annual rate of return (11.25% to the extent concurrently distributed) related to Time Warner's Series B Capital interest, which, when taken together with Time Warner's contributed capital, represented a cumulative priority Series B Capital interest of $5.1 billion at September 30, 1996. While the TWE partnership agreement contemplates the reinvestment of significant partnership cash flows in the form of capital expenditures and otherwise provides for certain other restrictions that are expected to limit cash distributions on partnership interests for the foreseeable future, Time Warner's $1.5 billion Senior Capital interest and, to the extent not previously distributed, partnership income allocated thereto (based on an 8% annual rate of return) is required to be distributed to Time Warner in three annual installments beginning on July 1, 1997.
Series K Exchangeable Preferred Stock
In April 1996, Time Warner raised approximately $1.55 billion of net proceeds for debt reduction in a private placement of 1.6 million shares of Series K Preferred Stock, which pay cumulative dividends at the rate of 10-1/4% per annum. The issuance of the Series K Preferred Stock allowed the Company to realize cash proceeds through a security whose payment terms are principally linked (until a reorganization of TWE occurs, if any) to a portion of Time Warner's currently noncash-generating interest in the Series B Capital of TWE, as more fully described herein. Time Warner used the proceeds raised from the issuance of the Series K Preferred Stock to redeem $250 million principal amount of 8.75% Debentures due April 1, 2017 for $265 million in May 1996 (including redemption premiums and accrued interest thereon), and to reduce bank debt of TWI Cable Inc. ("TWI Cable") by approximately $1.3 billion. In connection with the redemption of the 8.75% Debentures due April 1, 2017, Time Warner recognized an extraordinary loss of $9 million in May 1996.
Generally, the terms of the Series K Preferred Stock only require Time Warner to pay cash dividends or to redeem, prior to its mandatory redemption date, any portion of the security for cash upon the receipt of certain cash distributions from TWE with respect to Time Warner's interests in the Series B Capital and Residual Capital of TWE (excluding stock option related distributions and certain tax related distributions). However, because such cash distributions are subject to restrictions under the TWE partnership agreement, Time Warner does not expect to pay cash dividends or to redeem any portion of the Series K Preferred Stock for cash in the foreseeable future. Instead, Time Warner expects to satisfy its dividend requirements through the issuance of additional shares of Series K Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. In addition, upon a reorganization of TWE, Time Warner must elect either to redeem each outstanding share of Series K Preferred Stock for cash, subject to certain conditions, or to exchange the Series K Preferred Stock for new Series L Preferred Stock, which also pays cumulative dividends at the rate of 10-1/4% per annum but is not linked to Time Warner's interest in the Series B Capital of TWE. The terms of the Series L Preferred Stock do not require Time Warner to pay cash dividends until July 2006 and provide Time Warner with an option to exchange the Series L Preferred Stock, subject to certain conditions, into 10-1/4% Senior Subordinated Debentures which do not require the payment of cash interest until July 2006. See Note 8 to the accompanying consolidated financial statements for a summary of the principal terms of the Series K Preferred Stock.
In connection with the TBS Transaction, all shares of the privately-placed Series K Preferred Stock of Old Time Warner were converted into registered shares of Series M exchangeable preferred stock of New Time Warner with substantially identical terms.
Common Stock Repurchase Program
In April 1996, Old Time Warner's Board of Directors authorized a program to repurchase, from time to time, up to 15 million shares of Old Time Warner common stock. In connection therewith, Old Time Warner entered into a five-year, $750 million revolving credit facility (the "Stock Option Proceeds Credit Facility") in May 1996 principally to support such stock repurchases. The common stock repurchased under the program was expected to be used to satisfy future share issuances related to the exercise of existing employee stock options. Actual repurchases in any period were subject to market conditions. As of September 30, 1996, Old Time Warner had acquired approximately 11.3 million shares of its common stock for an aggregate cost of approximately $452 million. Such repurchases were principally funded with borrowings under the Stock Option Proceeds Credit Facility and available cash and equivalents. In connection with the TBS Transaction, New Time Warner has assumed all of Old Time Warner's rights and obligations under the Stock Option Proceeds Credit Facility, including its obligations with respect to $425 million of outstanding borrowings. In addition, Old Time Warner's common stock repurchase program was discontinued and a similar program was authorized by New Time Warner to continue the repurchase, from time to time, of up to an additional 3.7 million shares of New Time Warner common stock.
The Stock Option Proceeds Credit Facility initially provided for borrowings of up to $750 million, of which up to $100 million is reserved solely for the payment of interest and fees thereunder. Borrowings under the Stock Option Proceeds Credit Facility generally bear interest at LIBOR plus a margin equal to 75 basis points and are principally expected to be repaid from the cash proceeds received from the exercise of designated employee stock options. The receipt of such stock option proceeds permanently reduces the borrowing availability under the facility, which has been reduced to approximately $730 million as of September 30, 1996. At September 30, 1996, based on a closing market price of Time Warner common stock of $38.50, the aggregate exercise prices of outstanding vested, "in the money" stock options was approximately $1.9 billion, representing a 2.6 to 1 coverage ratio over the related borrowing availability. To the extent that such stock option proceeds are not sufficient to satisfy New Time Warner's obligations under the Stock Option Proceeds Credit Facility, New Time Warner is generally required to repay such borrowings using proceeds from the sale of shares of its common stock held in escrow under the Stock Option Proceeds Credit Facility or, at New Time Warner's election, using available cash on hand. Old Time Warner initially placed 36 million shares in escrow under this arrangement, which shares are not considered to be issued and outstanding capital stock of the Company. Such shares were converted into shares of New Time Warner common stock as a result of the TBS Transaction. New Time Warner may be required, from time to time, to have up to 52.5 million shares held in escrow.
Because borrowings under the Stock Option Proceeds Credit Facility are expected to be principally repaid by New Time Warner from the cash proceeds from the exercise of employee stock options, New Time Warner's principal credit rating agencies have concluded that such borrowings and related financing costs are credit neutral and are excludable from debt and interest expense, respectively, for purposes of determining New Time Warner's leverage and coverage ratios.
Debt Refinancings
In 1996, as more fully described below, Time Warner continued to capitalize on favorable market conditions through certain debt refinancings, which lowered interest rates, staggered debt maturities and, with respect to the redemption of the 8.75% Convertible Debentures in February 1996, eliminated the potential dilution from the conversion of such securities into 25.7 million shares of common stock.
In January 1996, in connection with its acquisition of CVI and related companies, Time Warner assumed $500 million of public notes and debentures of CVI and a subsidiary of Time Warner borrowed $1.5 billion under its $8.3 billion credit agreement to refinance a like-amount of other indebtedness assumed or incurred in such acquisition.
In February 1996, Time Warner redeemed the remaining $1.2 billion principal amount of 8.75% Convertible Debentures for $1.28 billion, including redemption premiums and accrued interest thereon. The redemption was financed with (1) proceeds raised from a $575 million issuance of Company-obligated mandatorily redeemable preferred securities of a subsidiary in December 1995 and (2) $750 million of proceeds raised from the issuance in January 1996, of (i) $400 million principal amount of 6.85% debentures due 2026, which are redeemable at the option of the holders thereof in 2003, (ii) $200 million principal amount of 8.3% discount debentures due 2036, which do not pay cash interest until 2016, (iii) $166 million principal amount of 7.48% debentures due 2008 and (iv) $150 million principal amount of 8.05% debentures due 2016. In connection with the 1996 redemption of the 8.75% Convertible Debentures, Time Warner recognized an extraordinary loss of $26 million.
Cash Flows
During the first nine months of 1996, Time Warner's cash provided by operations amounted to $86 million and reflected $1.141 billion of EBITDA from its Publishing, Music and Cable businesses and $162 million of distributions from TWE, less $699 million of interest payments, $257 million of income taxes, $52 million of corporate expenses and $209 million related to an increase in other working capital requirements, balance sheet accounts and noncash items. Cash provided by operations of $654 million for the first nine months of 1995 reflected $741 million of business segment EBITDA and $957 million of net distributions from TWE, less $537 million of interest payments, $187 million of income taxes, $57 million of corporate expenses and $263 million related to an increase in other working capital requirements, balance sheet accounts and noncash items.
Cash used by investing activities increased to $497 million in the first nine months of 1996, compared to $197 million in the first nine months of 1995, principally as a result of the cash portion of the consideration paid to acquire CVI and related companies and a $159 million decrease in investment proceeds realized in 1995 in connection with management's debt reduction program. Capital expenditures increased to $270 million in the first nine months of 1996, compared to $176 million in 1995, principally as a result of higher cable capital spending associated with Time Warner's cable acquisitions.
Cash used by financing activities was $372 million for the first nine months of 1996, compared to $361 million for the first nine months of 1995. The use of cash in 1996 principally resulted from higher cash dividend requirements and the use of $557 million of noncurrent cash and equivalents raised in the December 1995 issuance of the Preferred Trust Securities to redeem the remaining portion of the 8.75% Convertible Debentures in February 1996, offset in part by borrowings incurred to finance the cash portion of the consideration paid to acquire CVI and related companies. In addition, Time Warner raised approximately $1.55 billion of net proceeds in 1996 from the issuance of 1.6 million shares of Series K Preferred Stock and used the net proceeds therefrom to reduce debt. Time Warner also borrowed $425 million under its Stock Options Proceeds Credit Facility and used the proceeds therefrom, together with available cash and equivalents, to repurchase approximately 11.3 million shares of its common stock at an aggregate cost of approximately $452 million. Cash used by financing activities in 1995 principally resulted from the use of approximately $200 million of available cash and equivalents, together with proceeds raised from the issuance of the PERCS and $500 million principal amount of ten-year notes, to redeem $1 billion of the then outstanding 8.75% Convertible Debentures in September 1995. Cash dividends paid increased to $203 million for the first nine months of 1996, compared to $110 million for the first nine months of 1995, principally as a result of dividends paid on the preferred stock issued in connection with the cable acquisitions and the ITOCHU/Toshiba Transaction.
The assets and cash flows of TWE are restricted by the TWE partnership agreement and are unavailable to Time Warner except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations. Under the New Credit Agreement, TWE and TWI Cable are permitted to incur additional indebtedness to make loans, advances, distributions and other cash payments to Time Warner, subject to their respective compliance with the cash flow coverage and leverage ratio covenants contained therein.
Management believes that Time Warner's operating cash flow, cash and marketable securities and additional borrowing capacity are sufficient to fund its capital and liquidity needs for the foreseeable future without distributions and loans from TWE above those permitted by existing agreements.
Entertainment Group
Financial Condition
The Entertainment Group had $5.7 billion of debt, $1.5 billion of Time Warner General Partners' Senior Capital and $6.7 billion of partners' capital at September 30, 1996, compared to $6.2 billion of debt, $1.4 billion of Time Warner General Partners' Senior Capital and $6.6 billion of partners' capital (net of the $169 million uncollected portion of the note receivable from U S WEST) at December 31, 1995. Cash and equivalents were $209 million at September 30, 1996 and December 31, 1995, reducing the debt-net-of-cash amounts for the Entertainment Group to $5.5 billion and $6 billion, respectively.
Cash Flows
In the first nine months of 1996, the Entertainment Group's cash provided by operations amounted to $1.322 billion and reflected $1.753 billion of EBITDA from the Filmed Entertainment, Broadcasting-The WB Network, Programming-HBO and Cable businesses and $64 million related to a reduction in working capital requirements, other balance sheet accounts and noncash items, less $391 million of interest payments, $52 million of income taxes and $52 million of corporate expenses. Cash provided by operations of $1.205 billion in the first nine months of 1995 reflected $1.529 billion of business segment EBITDA and $229 million related to a reduction in working capital requirements, less $447 million of interest payments, $59 million of income taxes and $47 million of corporate expenses.
Cash used by investing activities was $864 million in the first nine months of 1996, compared to $202 million in the first nine months of 1995, principally as a result of a $590 million decrease in investment proceeds realized in 1995 in connection with management's debt reduction program and higher capital expenditures. Capital expenditures increased to $1.228 billion in the first nine months of 1996, compared to $1.099 billion in the first nine months of 1995, principally as a result of higher cable capital spending as discussed more fully below.
Cash used by financing activities was $458 million in the first nine months of 1996, compared to $1.635 billion in the first nine months of 1995, principally as a result of a lower level of debt reduction realized in 1996 and a $795 million decrease in net distributions paid to Time Warner, offset in part by a $206 million decrease in collections on the note receivable from U S WEST.
Management believes that TWE's operating cash flow, cash and equivalents and additional borrowing capacity are sufficient to fund its capital and liquidity needs for the foreseeable future.
Cable Capital Spending
Since the beginning of 1994, Time Warner Cable has been engaged in a plan to upgrade the technological capability and reliability of its cable television systems and develop new services, which it believes will position the business for sustained, long-term growth. Capital spending by Time Warner Cable, including the cable operations of both Time Warner and TWE, amounted to $1.059 billion in the nine months ended September 30, 1996, compared to $853 million in the nine months ended September 30, 1995, and was financed in part through collections on the note receivable from U S WEST of $169 million and $375 million, respectively. Cable capital spending is budgeted to be approximately $500 million for the remainder of 1996 and is expected to be funded by cable operating cash flow. In exchange for certain flexibility in establishing cable rate pricing structures for regulated services that went into effect on January 1, 1996 and consistent with Time Warner Cable's long-term strategic plan, Time Warner Cable agreed with the FCC to invest a total of $4 billion in capital costs in connection with the upgrade of its cable infrastructure, which is expected to be substantially completed over a five-year period ending December 31, 2000. The agreement with the FCC covers all of the cable operations of Time Warner Cable, including the owned or managed cable television systems of Time Warner, TWE and the TWE-Advance/Newhouse Partnership. Management expects to continue to finance such level of investment principally through the growth in cable operating cash flow derived from increases in subscribers and cable rates, bank credit agreement borrowings and the development of new revenue streams from expanded programming options, high speed data transmission, telephony and other services.
Warner Bros. Backlog
Warner Bros.' backlog, representing the amount of future revenue not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, network, basic cable and syndicated television exhibition, amounted to $1.611 billion at September 30, 1996, compared to $1.056 billion at December 31, 1995 (including amounts relating to HBO of $190 million at September 30, 1996 and $175 million at December 31, 1995). Warner Bros.' backlog increased principally as a result of the licensing of the hit television series Friends and ER for domestic syndication and cable television exhibition beginning in 1998. Because backlog generally relates to contracts for the licensing of theatrical and television product which have already been produced, the recognition of revenue for such completed product is principally only dependent upon the commencement of the availability period for telecast under the terms of the related licensing agreement. In addition, cash licensing fees are collected periodically over the term of the related licensing agreements. Accordingly, the portion of backlog for which cash advances have not already been received has significant off-balance sheet asset value as a source of future funding. The backlog excludes advertising barter contracts, which are also expected to result in the future realization of cash through the sale of advertising spots received under such contracts.
Interest Rate and Foreign Currency Risk Management
Interest Rate Swap Contracts
Time Warner uses interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. At September 30, 1996, Time Warner had interest rate swap contracts to pay floating-rates of interest (average six-month LIBOR rate of 5.7%) and receive fixed-rates of interest (average rate of 5.4%) on $2.6 billion notional amount of indebtedness, which resulted in approximately 46% of Time Warner's underlying debt, and 41% of the debt of Time Warner and the Entertainment Group combined, being subject to variable interest rates. The notional amount of outstanding contracts at September 30, 1996 by year of maturity, along with the related average fixed-rates of interest to be received and the average floating-rates of interest to be paid, are as follows: 1996-$300 million (receive-4.6%; pay-5.6%); 1998-$700 million (receive-5.5%; pay-5.6%); 1999-$1.2 billion (receive-5.5%; pay-5.7%); and 2000-$400 million (receive-5.5%; pay-5.7%). At December 31, 1995, Time Warner had interest rate swap contracts on a like-amount of $2.6 billion notional amount of indebtedness.
Based on the level of interest rates prevailing at September 30, 1996, the fair value of Time Warner's fixed-rate debt exceeded its carrying value by $82 million and it would have cost $52 million to terminate the related interest rate swap contracts, which combined is the equivalent of an unrealized loss of $134 million. Based on the level of interest rates prevailing at December 31, 1995, the fair value of Time Warner's fixed-rate debt exceeded its carrying value by $407 million and it would have cost $9 million to terminate its interest rate swap contracts, which combined was the equivalent of an unrealized loss of $416 million. Unrealized gains or losses on debt or interest rate swap contracts are not recognized for financial reporting purposes unless the debt is retired or the contracts are terminated prior to their maturity.
Changes in the unrealized gains or losses on interest rate swap contracts and debt do not result in the realization or expenditure of cash unless the contracts are terminated or the debt is retired. However, based on Time Warner's variable-rate debt and related interest rate swap contracts outstanding at September 30, 1996, each 25 basis point increase or decrease in the level of interest rates would respectively increase or decrease Time Warner's annual interest expense and related cash payments by approximately $13 million, including $7 million related to interest rate swap contracts. Such potential increases or decreases are based on certain simplifying assumptions, including a constant level of variable-rate debt and related interest rate swap contracts during the period and, for all maturities, an immediate, across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period.
Foreign Exchange Contracts
Time Warner uses foreign exchange contracts primarily to hedge the risk that unremitted or future royalties and license fees owed to Time Warner or TWE domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad may be adversely affected by changes in foreign currency exchange rates. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, Time Warner hedges a portion of its and TWE's combined foreign currency exposures anticipated over the ensuing twelve month period. At September 30, 1996, Time Warner had effectively hedged approximately half of the combined estimated foreign currency exposures that principally relate to anticipated cash flows to be remitted to the U.S. over the ensuing twelve month period, using foreign exchange contracts that generally have maturities of three months or less, which are generally rolled over to provide continuing coverage throughout the year. Time Warner often closes foreign exchange sale contracts by purchasing an offsetting purchase contract. At September 30, 1996, Time Warner had contracts for the sale of $500 million and the purchase of $200 million of foreign currencies at fixed rates, primarily English pounds (23% of net contract value), German marks (26%), Canadian dollars (20%), French francs (12%) and Japanese yen (18%), compared to contracts for the sale of $504 million and the purchase of $140 million of foreign currencies at December 31, 1995.
Unrealized gains or losses related to foreign exchange contracts are recorded in income as the market value of such contracts change; accordingly, the carrying value of foreign exchange contracts approximates market value. The carrying value of foreign exchange contracts was not material at September 30, 1996 and December 31, 1995. No cash is required to be received or paid with respect to such gains and losses until the related foreign exchange contracts are settled, generally at their respective maturity dates. For the nine months ended September 30, 1996 and 1995, Time Warner recognized $12 million in gains and $20 million in losses, respectively, and TWE recognized $4 million in gains and $8 million in losses, respectively, on foreign exchange contracts, which were or are expected to be offset by corresponding decreases and increases, respectively, in the dollar value of foreign currency royalties and license fee payments that have been or are anticipated to be received in cash from the sale of U.S. copyrighted products abroad. Time Warner reimburses or is reimbursed by TWE for contract gains and losses related to TWE's foreign currency exposure. Foreign currency contracts are placed with a number of major financial institutions in order to minimize credit risk.
Based on the foreign exchange contracts outstanding at September 30, 1996, each 5% devaluation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract at September 30, 1996 would result in approximately $25 million of unrealized losses and $10 million of unrealized gains on foreign exchange contracts involving foreign currency sales and purchases, respectively. Conversely, a 5% appreciation of the U.S. dollar would result in $25 million of unrealized gains and $10 million of unrealized losses, respectively. At September 30, 1996, none of Time Warner's foreign exchange purchase contracts related to TWE's foreign currency exposure. However, with regard to the $25 million of unrealized losses or gains on foreign exchange sale contracts, Time Warner would be reimbursed by TWE, or would reimburse TWE, respectively, for approximately $5 million related to TWE's foreign currency exposure. Consistent with the nature of the economic hedge provided by such foreign exchange contracts, such unrealized gains or losses would be offset by corresponding decreases or increases, respectively, in the dollar value of future foreign currency royalty and license fee payments that would be received in cash within the ensuing twelve month period from the sale of U.S. copyrighted products abroad.
TIME WARNER COMPANIES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1996 1995
(millions, except
per share amounts)
ASSETS
Current assets Cash and equivalents $ 402 $ 628 Receivables, less allowances of $759 and $786 1,416 1,755 Inventories 475 443 Prepaid expenses 950 894 Total current assets 3,243 3,720 Cash and equivalents segregated for redemption of long-term debt - 557 Investments in and amounts due to and from Entertainment Group 5,993 5,734 Other investments 2,506 2,389 Property, plant and equipment, net 1,505 1,119 Music catalogues, contracts and copyrights 1,064 1,140 Cable television franchises 3,930 1,696 Goodwill 5,766 5,213 Other assets 460 564 Total assets $24,467 $22,132 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts and royalties payable $ 1,462 $ 1,427 Debt due within one year 105 34 Other current liabilities 1,205 1,566 Total current liabilities 2,772 3,027 Long-term debt 9,949 9,907 Borrowings against future stock option proceeds 425 - Deferred income taxes 3,935 3,420 Unearned portion of paid subscriptions 657 654 Other liabilities 571 508 Company-obligated mandatorily redeemable preferred securities of subsidiaries holding solely subordinated notes and debentures of the Company (a) 949 949 Series K exchangeable preferred stock, $1 par value, 1.7 million shares outstanding at September 30, 1996 and $1.678 billion liquidation preference 1,629 - Shareholders' equity Preferred stock, $1 par value, 35.6 million and 29.7 million shares outstanding, $3.559 billion and $2.994 billion liquidation preference 36 30 Common stock, $1 par value, 384.9 million and 387.7 million shares outstanding (excluding 55.2 million and 45.7 million treasury shares) 385 388 Paid-in capital 5,791 5,422 Unrealized gains on certain marketable securities 182 116 Accumulated deficit (2,814) (2,289) Total shareholders' equity 3,580 3,667 Total liabilities and shareholders' equity $24,467 $22,132 _______________ |
(a) Includes $374 million of preferred securities that are redeemable for cash, or at Time Warner's option, approximately 12.1 million shares of Hasbro, Inc. common stock owned by Time Warner (Note 7).
See accompanying notes.
TIME WARNER COMPANIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(millions, except per share amounts)
Revenues (a) $2,157 $1,981 $6,364 $5,705
Cost of revenues (a)(b) 1,284 1,274 3,809 3,396
Selling, general and
administrative (a)(b) 734 686 2,091 1,966
Operating expenses 2,018 1,960 5,900 5,362
Business segment operating income 139 21 464 343
Equity in pretax income of
Entertainment Group (a) 61 129 270 235
Interest and other, net (a) (276) (259) (854) (615)
Corporate expenses (a) (16) (18) (52) (57)
Loss before income taxes (92) (127) (172) (94)
Income tax (provision) benefit 1 25 (43) (63)
Loss before extraordinary item (91) (102) (215) (157)
Extraordinary loss on retirement of
debt, net of $22 million income
tax benefit in 1996 and $26 million
income tax benefit in 1995 - (42) (35) (42)
Net loss (91) (144) (250) (199)
Preferred dividend requirements (76) (16) (180) (24)
Net loss applicable to common shares $ (167) $(160) $(430) $(223)
Loss per common share:
Loss before extraordinary item $(0.43) $(0.30) $(1.02) $(0.47)
Net loss $(0.43) $(0.41) $(1.11) $(0.58)
Average common shares 385.0 386.5 388.7 382.5
__________________
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(a) Includes the following income (expenses) resulting from transactions with the Entertainment Group and other related companies for the three and nine months ended September 30, 1996, respectively, and for the corresponding periods in the prior year: revenues- $47 million and $150 million in 1996, and $50 million and $144 million in 1995; cost of revenues- $(39) million and $(118) million in 1996, and $(25) million and $(74) million in 1995; selling, general and administrative-$20 million and $25 million in 1996, and $10 million and $39 million in 1995; equity in pretax income of Entertainment Group- $(20) million and $(24) million in 1996, and $(19) million and $(79) million in 1995; interest and other, net-$(7) million and $(24) million in 1996, and $(14) million and $(13) million in 1995; and corporate expenses- $17 million and $52 million in 1996, and $17 million and $47 million in 1995.
(b) Includes depreciation and amortization expense of: $ 225 $ 167 $ 677 $ 398
See accompanying notes.
TIME WARNER COMPANIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
1996 1995
(millions)
OPERATIONS
Net loss $ (250) $ (199) Adjustments for noncash and nonoperating items: Extraordinary loss on retirement of debt 35 42 Depreciation and amortization 677 398 Noncash interest expense 68 156 Excess (deficiency) of distributions over equity in pretax income of Entertainment Group (108) 722 Changes in operating assets and liabilities (336) (465) Cash provided by operations 86 654 INVESTING ACTIVITIES Investments and acquisitions (400) (353) Capital expenditures (270) (176) Investment proceeds 173 332 Cash used by investing activities (497) (197) FINANCING ACTIVITIES Borrowings 2,394 1,997 Debt repayments (4,109) (2,643) Borrowings against future stock option proceeds 425 - Repurchases of Time Warner common stock (452) - Issuance of Series K Preferred Stock 1,552 - Issuance of PERCS - 374 Dividends paid (203) (110) Other 21 21 Cash used by financing activities (372) (361) INCREASE (DECREASE) IN CASH AND EQUIVALENTS (783) 96 CASH AND EQUIVALENTS AT BEGINNING OF PERIOD (a) 1,185 282 CASH AND EQUIVALENTS AT END OF PERIOD $ 402 $378 _______________ |
(a) Includes current and noncurrent cash and equivalents at December 31, 1995.
See accompanying notes.
TIME WARNER COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Time Warner Companies, Inc. ("Old Time Warner") was formerly known as Time Warner Inc. On October 10, 1996, Old Time Warner became a wholly owned subsidiary of TW Inc. ("New Time Warner") in connection with the acquisition by New Time Warner of the remaining 80% interest in Turner Broadcasting System, Inc. ("TBS") that was not already owned by Old Time Warner, as more fully described herein (Note 3). Simultaneously therewith, New Time Warner was renamed Time Warner Inc. and Old Time Warner was renamed Time Warner Companies, Inc. The accompanying consolidated financial statements present the financial position, results of operations and cash flows of Old Time Warner. Unless the context indicates otherwise, references herein to "Time Warner" or the "Company" refer to Old Time Warner.
Time Warner is one of the world's leading media and entertainment companies, whose principal business objective is to create and distribute branded information and entertainment copyrights throughout the world. Time Warner has interests in four fundamental areas of business: Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, broadcasting and theme parks; Cable Networks, consisting principally of interests in cable television programming; Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing; and Cable, consisting principally of interests in cable television systems. Substantially all of Time Warner's interests in filmed entertainment, broadcasting, theme parks and cable television programming, and a majority of its cable television systems, are held through Time Warner Entertainment Company, L.P. ("TWE"), a partnership in which Time Warner owns general and limited partnership interests in 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital") and 100% of the senior priority capital ("Senior Capital") and junior priority capital ("Series B Capital"). The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by a subsidiary of U S WEST, Inc. ("U S WEST"). Time Warner does not consolidate TWE and certain related companies (the "Entertainment Group") for financial reporting purposes because of certain limited partnership approval rights related to TWE's interest in certain cable television systems.
Each of the business interests within Entertainment, Cable
Networks, Publishing and Cable is important to management's
objective of increasing shareholder value through the creation,
extension and distribution of recognizable brands and copyrights
throughout the world. Such brands and copyrights include (1)
copyrighted music from many of the world's leading recording
artists that is produced and distributed by a family of
established record labels such as Warner Bros. Records, the
Atlantic and Elektra Entertainment Groups and Warner Music
International, (2) the unique and extensive film and television
libraries of Warner Bros. and trademarks such as the Looney Tunes
characters and Batman, (3) The WB Network, a new national
broadcasting network launched in 1995 as an extension of the
Warner Bros. brand and as an additional distribution outlet for
Warner Bros.' collection of children cartoons and television
programming, (4) Six Flags, the largest regional theme park
operator in the United States, in which TWE owns a 49% interest,
(5) HBO and Cinemax, the leading pay television services, (6)
magazine franchises such as Time, People and Sports Illustrated
and direct marketing brands such as Time Life Inc. and
Book-of-the-Month Club and (7) Time Warner Cable, the second
largest operator of cable television systems in the U.S.
The operating results of Time Warner's various business interests are presented herein as an indication of financial performance (Note 10). Except for start-up losses incurred in connection with The WB Network, Time Warner's principal business interests generate significant operating income and cash flow from operations. The cash flow from operations generated by such business interests is significantly greater than their operating income due to significant amounts of noncash amortization of intangible assets recognized in various acquisitions accounted for by the purchase method of accounting. Noncash amortization of intangible assets recorded by Time Warner's business interests, including the unconsolidated business interests of the Entertainment Group, amounted to $261 million and $227 million for the three months ended September 30, 1996 and 1995, respectively, and $784 million and $615 million for the nine months ended September 30, 1996 and 1995, respectively.
Basis of Presentation
The accompanying financial statements are unaudited but, in the opinion of management, contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements of Time Warner for the year ended December 31, 1995.
The consolidated financial statements of Time Warner reflect the acquisitions of Summit Communications Group, Inc. ("Summit") effective as of May 2, 1995, KBLCOM Incorporated ("KBLCOM") effective as of July 6, 1995 and Cablevision Industries Corporation ("CVI") and related companies effective as of January 4, 1996 (collectively, the "Cable Acquisitions"). Certain reclassifications have been made to the 1995 financial statements to conform to the 1996 presentation.
Effective January 1, 1996, Time Warner adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), which established standards for the recognition and measurement of impairment losses on long-lived assets and certain intangible assets. The adoption of FAS 121 did not have a material effect on Time Warner's financial statements.
2. ENTERTAINMENT GROUP
Time Warner's investment in and amounts due to and from the Entertainment Group at September 30, 1996 and December 31, 1995 consists of the following:
September 30, December 31,
1996 1995
(millions)
Investment in TWE $6,275 $6,179
Stock option related distributions due from TWE 121 122
Credit agreement debt due to TWE (400) (400)
Other liabilities due to TWE, principally
related to home video distribution (295) (354)
Other receivables due from TWE 171 76
Investment in and amounts due to and from TWE 5,872 5,623
Investment in other Entertainment Group companies 121 111
Total $5,993 $5,734
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TWE is a Delaware limited partnership that was capitalized on June 30, 1992 to own and operate substantially all of the Filmed Entertainment, Programming-HBO and Cable businesses previously owned by subsidiaries of Time Warner. Certain Time Warner subsidiaries are the general partners of TWE ("Time Warner General Partners"). Time Warner acquired the aggregate 11.22% limited partnership interests previously held by subsidiaries of each of ITOCHU Corporation and Toshiba Corporation in 1995 for an aggregate cost of $1.36 billion, consisting of 15 million shares of convertible preferred stock (Series G Preferred Stock, Series H Preferred Stock and Series I Preferred Stock) and $10 million in cash (the "ITOCHU/Toshiba Transaction"). Accordingly, Time Warner and certain of its wholly owned subsidiaries collectively own general and limited partnership interests in 74.49% of the Series A Capital and Residual Capital of TWE, and 100% of the Senior Capital and Series B Capital of TWE. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are owned by U S WEST. The ITOCHU/Toshiba Transaction was accounted for by the purchase method of accounting for business combinations.
The TWE partnership agreement provides for special allocations of income, loss and distributions of partnership capital, including priority distributions in the event of liquidation. TWE reported net income of $213 million and $83 million in the nine months ended September 30, 1996 and 1995, respectively, no portion of which was allocated to the limited partnership interests.
Each Time Warner General Partner has guaranteed a pro rata portion of approximately $5.4 billion of TWE's debt and accrued interest at September 30, 1996, based on the relative fair value of the net assets each Time Warner General Partner contributed to TWE. Such indebtedness is recourse to each Time Warner General Partner only to the extent of its guarantee.
Set forth below is summarized financial information of the Entertainment Group, which reflects the consolidation by TWE of the TWE-Advance/Newhouse Partnership effective as of April 1, 1995, the deconsolidation of Six Flags Entertainment Corporation ("Six Flags") effective as of June 23, 1995 and the consolidation of Paragon Communications ("Paragon") effective as of July 6, 1995.
TIME WARNER ENTERTAINMENT GROUP
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(millions)
Operating Statement Information
Revenues $2,720 $2,363 $7,817 $6,871
Depreciation and amortization 323 267 908 780
Business segment operating income 277 274 845 749
Interest and other, net 147 77 369 381
Minority interest 52 51 154 86
Income before income taxes 61 129 270 235
Income before extraordinary item 51 103 221 173
Net income 51 79 221 149
Nine Months
Ended September 30,
1996 1995
(millions)
Cash Flow Information
Cash provided by operations $1,322 $1,205
Capital expenditures (1,228) (1,099)
Investments and acquisitions (86) (143)
Investment proceeds 450 1,040
Borrowings 190 2,041
Debt repayments (697) (3,135)
Collections on note receivable from U S WEST 169 375
Capital distributions (162) (957)
Decrease in cash and equivalents - (632)
September 30, December 31,
1996 1995
(millions)
Balance Sheet Information
Cash and equivalents $ 209 $ 209
Total current assets 3,095 2,909
Total assets 19,498 18,960
Total current liabilities 3,615 3,230
Long-term debt 5,673 6,137
Minority interests 900 726
Time Warner General Partners' Senior Capital 1,513 1,426
Partners' capital 6,742 6,576
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The assets and cash flows of TWE are restricted by the TWE partnership and credit agreements and are unavailable for use by the partners except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations. At September 30, 1996 and December 31, 1995, the Time Warner General Partners had recorded $121 million and $122 million, respectively, of stock option related distributions due from TWE, based on closing prices of Time Warner common stock of $38.50 and $37.875, respectively. Time Warner is paid when the options are exercised. The Time Warner General Partners also receive tax-related distributions from TWE. The payment of such distributions was previously subject to restrictions until July 1995 and is now made to the Time Warner General Partners on a current basis. During the nine months ended September 30, 1996, the Time Warner General Partners received distributions from TWE in the amount of $162 million, consisting of $153 million of tax-related distributions and $9 million of stock option related distributions. During the nine months ended September 30, 1995, the Time Warner General Partners received distributions from TWE in the amount of $957 million, consisting of $575 million of tax-related distributions, $16 million of stock option related distributions and $366 million of TWE partnership income allocated to the Time Warner General Partners' Senior Capital interest.
On June 23, 1995, TWE sold 51% of its interest in Six Flags to an investment group led by Boston Ventures for $204 million and received $640 million in additional proceeds from Six Flags, representing payment of certain intercompany indebtedness and licensing fees. As a result of the transaction, Six Flags has been deconsolidated and TWE's remaining 49% interest in Six Flags is accounted for under the equity method of accounting. TWE reduced debt by approximately $850 million in 1995 in connection with the transaction, and a portion of the income on the transaction has been deferred by TWE principally as a result of its guarantee of certain third-party, zero-coupon indebtedness of Six Flags due in 1999.
3. TBS TRANSACTION
On October 10, 1996, New Time Warner acquired the remaining 80% interest in TBS that was not already owned by Old Time Warner (the "TBS Transaction"). The transaction was structured so that each of Old Time Warner and TBS became separate, wholly owned subsidiaries of New Time Warner which will combine, for financial reporting purposes, the consolidated net assets and operating results of Old Time Warner and TBS. In connection therewith, each issued and outstanding share of each class of capital stock of Old Time Warner was converted into one share of a substantially identical class of capital stock of New Time Warner.
In connection with the TBS Transaction, New Time Warner
issued (i) approximately 173.4 million shares of common stock,
par value $.01 (including 50.6 million shares of a special class
of non-redeemable common stock having 1/100th of a vote per share
("LMCN-V Class Common Stock") which were received by affiliates
of Liberty Media Corporation ("LMC"), a former shareholder of TBS
and a subsidiary of Tele-Communications, Inc.) in exchange for
shares of TBS capital stock and (ii) approximately 14 million
stock options to replace all outstanding TBS stock options. In
addition, New Time Warner agreed to issue to LMC and its
affiliates at a later date an additional five million shares of
LMCN-V Class Common Stock and $67 million of consideration
payable, at the election of New Time Warner, in cash or
additional shares of LMCN-V Class Common Stock, pursuant to a
separate option and non-competition agreement that will provide,
if New Time Warner exercises its option, for a subsidiary of LMC
to provide certain satellite uplink and distribution services for
WTBS, a broadcast television station owned by TBS, in the event
that WTBS is converted to a copyright-paid cable television
programming service. The aggregate merger consideration has been
valued at approximately $6.1 billion. New Time Warner has also
(i) fully and unconditionally guaranteed approximately $1 billion
of TBS's outstanding publicly traded indebtedness and approximately
$7.7 billion of Old Time Warner's outstanding publicly traded
indebtedness and (ii) assumed certain existing liabilities of
Old Time Warner, including all of Old Time Warner's rights and
obligations under a $750 million revolving credit facility
used principally to support common stock repurchases (Note 6).
The TBS Transaction is not reflected in the accompanying consolidated financial statements of Old Time Warner, but will be accounted for by New Time Warner in the fourth quarter of 1996 by the purchase method of accounting for business combinations.
4. CABLE TRANSACTIONS
On April 1, 1995, TWE formed a cable television joint venture with the Advance/Newhouse Partnership ("Advance/Newhouse") to which Advance/Newhouse and TWE contributed cable television systems (or interests therein) serving approximately 4.5 million subscribers, as well as certain foreign cable investments and programming investments that included Advance/Newhouse's 10% interest in Primestar Partners, L.P. ("Primestar"). TWE owns a two-thirds equity interest in the TWE-Advance/Newhouse Partnership and is the managing partner. TWE consolidates the partnership and the one-third equity interest owned by Advance/Newhouse is reflected in TWE's consolidated financial statements as minority interest. In accordance with the partnership agreement, Advance/Newhouse can require TWE to purchase its equity interest for fair market value at specified intervals following the death of both of its principal shareholders. Beginning in the third year, either partner can initiate a dissolution in which TWE would receive two-thirds and Advance/Newhouse would receive one-third of the partnership's net assets. The assets contributed by TWE and Advance/Newhouse to the partnership were recorded at their predecessor's historical cost. No gain was recognized by TWE upon the capitalization of the partnership.
On May 2, 1995, Time Warner acquired Summit, which owned cable television systems serving approximately 162,000 subscribers, in exchange for the issuance of approximately 1.6 million shares of common stock and approximately 3.3 million shares of a new convertible preferred stock ("Series C Preferred Stock") and the assumption of $140 million of indebtedness. The acquisition was accounted for by the purchase method of accounting for business combinations; accordingly, the cost to acquire Summit of approximately $351 million was allocated to the assets acquired in proportion to their respective fair values, as follows: cable television franchises-$372 million; goodwill-$146 million; other current and noncurrent assets-$144 million; long-term debt-$140 million; deferred income taxes-$166 million; and other current liabilities-$5 million. In August 1996, all shares of Series C Preferred Stock were exchanged for shares of a new series of convertible preferred stock with substantially identical terms ("Series J Preferred Stock").
On July 6, 1995, Time Warner acquired KBLCOM which owned cable television systems serving approximately 700,000 subscribers and a 50% interest in Paragon, which owned cable television systems serving an additional 972,000 subscribers. The other 50% interest in Paragon was already owned by TWE. To acquire KBLCOM, Time Warner issued 1 million shares of common stock and 11 million shares of a new convertible preferred stock ("Series D Preferred Stock") and assumed or incurred approximately $1.2 billion of indebtedness. The acquisition was accounted for by the purchase method of accounting for business combinations; accordingly, the cost to acquire KBLCOM of approximately $1.033 billion was allocated to the net assets acquired in proportion to their respective fair values, as follows: investments-$950 million; cable television franchises-$1.366 billion; goodwill-$586 million; other current and noncurrent assets-$289 million; long-term debt-$1.213 billion; deferred income taxes-$895 million; and other current liabilities-$50 million.
On January 4, 1996, Time Warner acquired CVI and related companies that owned cable television systems serving approximately 1.3 million subscribers, in exchange for the issuance of approximately 2.9 million shares of common stock and approximately 6.3 million shares of new convertible preferred stock ("Series E Preferred Stock" and "Series F Preferred Stock"), as adjusted, and the assumption or incurrence of approximately $2 billion of indebtedness. The acquisition was accounted for by the purchase method of accounting for business combinations; accordingly, the cost to acquire CVI and related companies of $904 million was preliminarily allocated to the net assets acquired in proportion to estimates of their respective fair values, as follows: cable television franchises-$2.390 billion; goodwill-$688 million; other current and noncurrent assets-$481 million; long-term debt-$1.766 billion; deferred income taxes-$731 million; and other current and noncurrent liabilities-$158 million.
The accompanying consolidated statement of operations includes the operating results of each business from the respective closing date of each transaction. On a pro forma basis, giving effect to (i) the 1995 and early 1996 acquisitions by Time Warner of Summit, KBLCOM and CVI and related companies, and the 1995 formation by TWE of the TWE-Advance/Newhouse Partnership, (ii) the ITOCHU/Toshiba Transaction, (iii) the 1995 and early 1996 refinancing of approximately $4 billion of public debt by Time Warner and the 1995 execution of a new $8.3 billion credit agreement, under which approximately $2.7 billion of debt assumed in the cable acquisitions was refinanced by subsidiaries of Time Warner and $2.6 billion of pre-existing bank debt was refinanced by TWE, (iv) the issuance in April 1996 of 1.6 million shares of 10-1/4% Series K exchangeable preferred stock and the use of approximately $1.55 billion of net proceeds therefrom to reduce debt, (v) the sale of 51% of TWE's interest in Six Flags and (vi) the sale or expected sale or transfer of certain unclustered cable television systems owned by TWE, as if each of such transactions had occurred at the beginning of 1995, Time Warner would have reported for the three months ended September 30, 1995, revenues of $2.111 billion, depreciation and amortization of $237 million, operating income of $15 million, equity in the pretax income of the Entertainment Group of $130 million, a loss before extraordinary item of $113 million ($.49 per common share) and a net loss of $155 million ($.60 per common share). No pro forma financial information has been presented for Time Warner for the three months ended September 30, 1996 because all of such transactions are already reflected, in all material respects, in the historical financial statements of Time Warner.
On a pro forma basis, giving effect to the transactions described above as if each had occurred at the beginning of 1995, Time Warner would have reported for the nine months ended September 30, 1996 and 1995, respectively, revenues of $6.364 billion and $6.249 billion, depreciation and amortization of $677 million and $704 million, operating income of $464 million and $305 million, equity in the pretax income of the Entertainment Group of $270 million and $258 million, a loss before extraordinary item of $193 million and $207 million ($1.09 and $1.15 per common share) and a net loss of $228 million and $249 million ($1.18 and $1.26 per common share).
5. LONG-TERM DEBT
In January 1996, in connection with its acquisition of CVI and related companies, Time Warner assumed $500 million of public notes and debentures of CVI and a subsidiary of Time Warner borrowed $1.5 billion under its $8.3 billion credit agreement to refinance a like-amount of other indebtedness assumed or incurred in such acquisition.
In February 1996, Time Warner redeemed the remaining $1.2 billion principal amount of 8.75% Convertible Subordinated Debentures due 2015 (the "8.75% Convertible Debentures") for $1.28 billion, including redemption premiums and accrued interest thereon. The redemption was financed with (1) proceeds raised from a $575 million issuance of Company-obligated mandatorily redeemable preferred securities of a subsidiary in December 1995 and (2) $750 million of proceeds raised from the issuance in January 1996, of (i) $400 million principal amount of 6.85% debentures due 2026, which are redeemable at the option of the holders thereof in 2003, (ii) $200 million principal amount of 8.3% discount debentures due 2036, which do not pay cash interest until 2016, (iii) $166 million principal amount of 7.48% debentures due 2008 and (iv) $150 million principal amount of 8.05% debentures due 2016.
In April 1996, Time Warner raised approximately $1.55 billion of net proceeds in a private placement of 10-1/4% Series K exchangeable preferred stock (Note 8). The proceeds were used by Time Warner to redeem $250 million principal amount of 8.75% Debentures due April 1, 2017 (the "8.75% Non-Convertible Debentures" and when taken together with the 8.75% Convertible Debentures, the "8.75% Debentures") for approximately $265 million in May 1996 (including redemption premiums and accrued interest thereon), and to reduce bank debt of TWI Cable Inc. by approximately $1.3 billion.
An extraordinary loss of $35 million was incurred in 1996 in connection with Time Warner's redemption of the 8.75% Debentures. An extraordinary loss of $42 million was recognized in 1995 in connection with Time Warner's partial redemption of the 8.75% Convertible Debentures and the write-off by TWE of deferred financing costs related to its former bank credit agreement that was terminated.
6. BORROWINGS AGAINST FUTURE STOCK OPTION PROCEEDS
In connection with Time Warner's common stock repurchase program (Note 9), Old Time Warner entered into a five-year, $750 million revolving credit facility (the "Stock Option Proceeds Credit Facility") in May 1996 principally to support such stock repurchases. In connection with the TBS Transaction, New Time Warner has assumed all of Old Time Warner's rights and obligations under the Stock Option Proceeds Credit Facility, including its obligations with respect to its $425 million of borrowings.
The Stock Option Proceeds Credit Facility initially provided for borrowings of up to $750 million, of which up to $100 million is reserved solely for the payment of interest and fees thereunder. Borrowings under the Stock Option Proceeds Credit Facility generally bear interest at LIBOR plus a margin equal to 75 basis points and are principally expected to be repaid from the cash proceeds received from the exercise of designated employee stock options. The receipt of such stock option proceeds permanently reduces the borrowing availability under the facility, which has been reduced to approximately $730 million as of September 30, 1996. At September 30, 1996, based on a closing market price of Time Warner common stock of $38.50, the aggregate exercise prices of outstanding vested, "in the money" stock options was approximately $1.9 billion, representing a 2.6 to 1 coverage ratio over the related borrowing availability. To the extent that such stock option proceeds are not sufficient to satisfy New Time Warner's obligations under the Stock Option Proceeds Credit Facility, New Time Warner is generally required to repay such borrowings using proceeds from the sale of shares of its common stock held in escrow under the Stock Option Proceeds Credit Facility or, at New Time Warner's election, using available cash on hand. Old Time Warner initially placed 36 million shares in escrow under this arrangement, which shares are not considered to be issued and outstanding capital stock of the Company. Such shares were converted into shares of New Time Warner common stock as a result of the TBS Transaction. New Time Warner may be required, from time to time, to have up to 52.5 million shares held in escrow.
7. MANDATORILY REDEEMABLE PREFERRED SECURITIES OF SUBSIDIARIES
In August 1995, Time Warner issued approximately 12.1 million Company-obligated mandatorily redeemable preferred securities of a wholly owned subsidiary ("PERCS") for aggregate gross proceeds of $374 million. The sole assets of the subsidiary that is the obligor on the PERCS are $385 million principal amount of 4% subordinated notes of Time Warner due December 23, 1997. Cumulative cash distributions are payable on the PERCS at an annual rate of 4%. The PERCS are mandatorily redeemable on December 23, 1997, for an amount per PERCS equal to the lesser of $54.41, and the market value of a share of common stock of Hasbro, Inc. ("Hasbro") on December 17, 1997, payable in cash or, at Time Warner's option, Hasbro common stock. Time Warner has the right to redeem the PERCS at any time prior to December 23, 1997, at an amount per PERCS equal to $54.41 (or in certain limited circumstances the lesser of such amount and the market value of a share of Hasbro common stock at the time of redemption) plus accrued and unpaid distributions thereon and a declining premium, payable in cash or, at Time Warner's option, Hasbro common stock. Time Warner owns approximately 12.1 million shares of Hasbro common stock, which can be used by Time Warner, at its election, to satisfy its obligations under the PERCS or its obligations under its zero coupon exchangeable notes due 2012. Such zero coupon notes are exchangeable and redeemable into an aggregate 12.1 million shares of Hasbro common stock.
In December 1995, Time Warner issued approximately 23 million Company-obligated mandatorily redeemable preferred securities of a wholly owned subsidiary ("Preferred Trust Securities") for aggregate gross proceeds of $575 million. The sole assets of the subsidiary that is the obligor on the Preferred Trust Securities are $592 million principal amount of 8-7/8% subordinated debentures of Time Warner due December 31, 2025. Cumulative cash distributions are payable on the Preferred Trust Securities at an annual rate of 8-7/8%. Cash distributions may be deferred at the election of Time Warner for any period not exceeding 20 consecutive quarters. The Preferred Trust Securities are mandatorily redeemable for cash on December 31, 2025, and Time Warner has the right to redeem the Preferred Trust Securities, in whole or in part, on or after December 31, 2000, or in other certain circumstances, in each case at an amount per Preferred Trust Security equal to $25 plus accrued and unpaid distributions thereon.
Old Time Warner has certain obligations relating to the PERCS and the Preferred Trust Securities which amount to a full and unconditional guaranty of each subsidiary's obligations with respect thereto. In connection with the TBS Transaction, New Time Warner has guaranteed such obligations of Old Time Warner.
8. SERIES K EXCHANGEABLE PREFERRED STOCK
In April 1996, Time Warner raised approximately $1.55 billion of net proceeds in a private placement of 1.6 million shares of 10-1/4% Series K exchangeable preferred stock ("Series K Preferred Stock"). The issuance of the Series K Preferred Stock allowed the Company to realize cash proceeds through a security whose payment terms are principally linked (until a reorganization of TWE occurs, if any) to a portion of Time Warner's currently noncash-generating interest in the Series B Capital of TWE. The proceeds raised from this transaction were used by Time Warner to reduce debt.
Each share of Series K Preferred Stock is entitled to a
liquidation preference of $1,000 and entitles the holder thereof
to receive cumulative dividends at the rate of 10-1/4% per annum,
payable quarterly (1) in cash, to the extent of an amount equal
to the Pro Rata Percentage (as defined below) multiplied by the
amount of cash distributions received by Time Warner from TWE
with respect to its interests in the Series B Capital and
Residual Capital of TWE, excluding stock option related distributions
and certain tax related distributions (collectively, "Eligible
TWE Cash Distributions"), or (2) to the extent of any balance, at
Time Warner's option, (i) in cash or (ii) in-kind, through the
issuance of additional shares of Series K Preferred Stock with
an aggregate liquidation preference equal to the amount of such
dividends. The "Pro Rata Percentage" is equal to the ratio of
(1) the aggregate liquidation preference of the outstanding
shares of Series K Preferred Stock, including any accumulated and
unpaid dividends thereon, to (2) Time Warner's total interest in
the Series B Capital of TWE, including any undistributed priority
capital return thereon. Because cash distributions to Time Warner
with respect to its interests in the Series B Capital and Residual
Capital of TWE are generally restricted until June 30, 1998 and
are subject to additional limitations thereafter under the TWE
partnership agreement, Time Warner does not expect to pay
cash dividends in the foreseeable future.
The Series K Preferred Stock may be redeemed at the option of Time Warner, in whole or in part, on or after July 1, 2006, subject to certain conditions, at an amount per share equal to its liquidation preference plus accumulated and accrued and unpaid dividends thereon, and a declining premium through July 1, 2010 (the "Optional Redemption Price"). Time Warner is required to redeem shares of Series K Preferred Stock representing up to 20%, 25%, 33 % and 50% of the then outstanding liquidation preference of the Series K Preferred Stock on July 1 of 2012, 2013, 2014 and 2015, respectively, at an amount equal to the aggregate liquidation preference of the number of shares to be redeemed plus accumulated and accrued and unpaid dividends thereon (the "Mandatory Redemption Price"). Total payments in respect of such mandatory redemption obligations on any redemption date are limited to an amount equal to the Pro Rata Percentage of any cash distributions received by Time Warner from TWE in the preceding year in connection with the redemption of Time Warner's interest in the Series B Capital of TWE and in connection with certain cash distributions related to Time Warner's interest in the Residual Capital of TWE. The redemption of the Series B Capital of TWE is scheduled to occur ratably over a five-year period commencing on June 30, 2011. Time Warner is required to redeem any remaining outstanding shares of Series K Preferred Stock on July 1, 2016 at the Mandatory Redemption Price; however, in the event that Time Warner's interest in the Series B Capital of TWE has not been redeemed in full prior to such final mandatory redemption date, payments in respect of the final mandatory redemption obligation of the Series K Preferred Stock in 2016 will be limited to an amount equal to the lesser of the Mandatory Redemption Price and an amount equal to the Pro Rata Percentage of the fair market value of TWE (net of taxes) attributable to Time Warner's interests in the Series B Capital and Residual Capital of TWE. Accordingly, there is no assurance that such value will result in the redemption of the Series K Preferred Stock at its full liquidation preference plus accumulated and accrued and unpaid dividends thereon.
Upon a reorganization of TWE, as defined in the related certificate of designation, Time Warner must elect either to (1) exchange each outstanding share of Series K Preferred Stock for shares of a new series of 10-1/4% exchangeable preferred stock ("Series L Preferred Stock") or (2) subject to certain conditions, redeem the outstanding shares of Series K Preferred Stock at an amount per share equal to 110% of the liquidation preference thereof, plus accumulated and accrued and unpaid dividends thereon or, after July 1, 2006, at the Optional Redemption Price. The Series L Preferred Stock has terms similar to those of the Series K Preferred Stock, except that (i) Time Warner may only pay dividends in-kind until June 30, 2006, (ii) Time Warner is required to redeem the outstanding shares of Series L Preferred Stock on July 1, 2011 at an amount per share equal to the liquidation preference thereof, plus accumulated and accrued and unpaid dividends thereon and (iii) Time Warner has the option to exchange, in whole but not in part, subject to certain conditions, the outstanding shares of Series L Preferred Stock for Time Warner 10-1/4% Senior Subordinated Debentures due July 1, 2011 (the "Senior Subordinated Debentures") having a principal amount equal to the liquidation preference of the Series L Preferred Stock plus accrued and unpaid dividends thereon. Interest on the Senior Subordinated Debentures is payable in cash or, at Time Warner's option through June 30, 2006, in-kind through the issuance of additional Senior Subordinated Debentures with a principal amount equal to such interest. The Senior Subordinated Debentures may be redeemed at the option of Time Warner, in whole or in part, on or after July 1, 2006, subject to certain conditions, at an amount per debenture equal to its principal amount plus accrued and unpaid interest, and a declining premium through July 1, 2010.
In connection with the TBS Transaction, all shares of the privately-placed Series K Preferred Stock of Old Time Warner were converted into registered shares of Series M exchangeable preferred stock of New Time Warner with substantially identical terms.
9. CAPITAL STOCK
Changes in shareholders' equity are as follows:
Nine Months
Ended September 30,
1996 1995
(millions)
Balance at beginning of year $3,667 $1,148
Net loss (250) (199)
Common dividends declared (105) (103)
Preferred dividends declared (180) (24)
Repurchases of Time Warner common stock (452) -
Issuance of common stock and preferred stock
in the Cable Acquisitions 680 1,384
Issuance of preferred stock in ITOCHU/Toshiba transaction - 1,350
Unrealized gains on certain marketable equity investments 66 4
Other, principally shares issued pursuant to stock option
and dividend reinvestment plans 154 132
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Balance at September 30 $3,580 $3,692
In April 1996, Old Time Warner's Board of Directors authorized a program to repurchase, from time to time, up to 15 million shares of Old Time Warner common stock. The common stock repurchased under the program was expected to be used to satisfy future share issuances related to the exercise of existing employee stock options. Actual repurchases in any period were subject to market conditions. As of September 30, 1996, Time Warner had acquired approximately 11.3 million shares of its common stock for an aggregate cost of approximately $452 million. Such repurchases were principally funded with borrowings under the Stock Option Proceeds Credit Facility (Note 6) and available cash and equivalents. In connection with the TBS Transaction, Old Time Warner's common stock repurchase program was discontinued and a similar program was authorized by New Time Warner to continue the repurchase, from time to time, of up to an additional 3.7 million shares of New Time Warner common stock.
In connection with the TBS Transaction, Old Time Warner was recapitalized resulting in a reduction in the number of outstanding shares of each class of Old Time Warner capital stock by a factor of 1/1000, and a reduction in the par value of each class of such capital stock from $1 per share to $.01 per share. All of such shares are held directly and indirectly by New Time Warner.
10. SEGMENT INFORMATION
Time Warner's businesses are conducted in four fundamental areas: Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, broadcasting and theme parks; Cable Networks, consisting principally of interests in cable television programming; Publishing, consisting principally of interests in magazine publishing, book publishing and direct marketing; and Cable, consisting principally of interests in cable television systems. Substantially all of Time Warner's interests in filmed entertainment, broadcasting, theme parks and cable television programming, and a majority of its cable television systems, are held by the Entertainment Group, which is not consolidated for financial reporting purposes.
Information as to the operations of Time Warner and the Entertainment Group in different business segments is set forth below. The operating results of Time Warner reflect the acquisitions of Summit effective as of May 2, 1995, KBLCOM effective as of July 6, 1995 and CVI and related companies effective as of January 4, 1996. The operating results of the Entertainment Group reflect the formation of the TWE-Advance/Newhouse Partnership effective as of April 1, 1995, the deconsolidation of Six Flags effective as of June 23, 1995 and the consolidation of Paragon effective as of July 6, 1995. The operating results of Six Flags prior to June 23, 1995 are reported separately to facilitate comparability.
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Revenues (millions)
Time Warner:
Publishing $1,034 $ 914 $2,951 $2,673
Music 900 992 2,759 2,969
Cable 230 83 677 83
Intersegment elimination (7) (8) (23) (20)
Total $2,157 $1,981 $6,364 $5,705
Entertainment Group:
Filmed Entertainment $1,445 $1,176 $3,935 $3,514
Six Flags Theme Parks - - - 227
Broadcasting - The WB Network 23 7 56 13
Programming - HBO 426 409 1,301 1,195
Cable 955 858 2,863 2,196
Intersegment elimination (129) (87) (338) (274)
Total $2,720 $2,363 $7,817 $6,871
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Operating Income (millions)
Time Warner:
Publishing $ 66 $ 62 $ 247 $ 231
Music(1) 48 (39) 173 114
Cable 25 (2) 44 (2)
Total $ 139 $ 21 $ 464 $ 343
Entertainment Group:
Filmed Entertainment $ 62 $ 70 $ 214 $ 196
Six Flags Theme Parks - - - 29
Broadcasting - The WB Network (27) (7) (63) (40)
Programming - HBO 86 70 245 207
Cable 156 141 449 357
Total $ 277 $ 274 $ 845 $ 749
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(1) Includes pretax losses of $85 million recorded in the third quarter of 1995 related to certain businesses and joint ventures owned by the Music Division which were restructured or closed.
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Depreciation of Property, Plant and Equipment (millions)
Time Warner:
Publishing $ 21 $ 15 $ 53 $ 43
Music 26 24 68 71
Cable 32 13 98 13
Total $ 79 $ 52 $ 219 $ 127
Entertainment Group:
Filmed Entertainment $ 52 $ 28 $ 117 $ 73
Six Flags Theme Parks - - - 20
Broadcasting - The WB Network - - - -
Programming - HBO 5 4 14 13
Cable 151 123 451 330
Total $ 208 $ 155 $ 582 $ 436
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
Amortization of Intangible Assets (1) (millions)
Time Warner:
Publishing $ 12 $ 9 $ 35 $ 27
Music 69 72 213 210
Cable 65 34 210 34
Total $ 146 $ 115 $ 458 $ 271
Entertainment Group:
Filmed Entertainment $ 32 $ 31 $ 92 $ 100
Six Flags Theme Parks - - - 11
Broadcasting - The WB Network - - - -
Programming - HBO - - - -
Cable 83 81 234 233
Total $ 115 $ 112 $ 326 $ 344
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(1) Amortization includes all amortization relating to the acquisitions of Warner Communications Inc. ("WCI") in 1989, the American Television and Communications Corporation ("ATC") minority interest in 1992, the acquisitions of KBLCOM and Summit in 1995 and CVI and related companies in 1996, and to other business combinations accounted for by the purchase method.
11. CONTINGENCIES
Pending legal proceedings are substantially limited to litigation incidental to businesses of Time Warner and alleged damages in connection with class action lawsuits. In the opinion of counsel and management, the ultimate resolution of these matters will not have a material effect on the consolidated financial statements of Time Warner.
12. ADDITIONAL FINANCIAL INFORMATION
Additional financial information is as follows:
Nine Months
Ended September 30,
1996 1995
(millions)
Interest expense $ 688 $ 663
Cash payments made for interest 699 537
Cash payments made for income taxes 294 207
Tax-related distributions received from TWE 153 575
Income tax refunds received 37 20
Noncash dividends 79 -
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TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TWE is engaged principally in three fundamental areas of business: Entertainment, consisting principally of interests in filmed entertainment, broadcasting and theme parks; Cable Networks, consisting principally of interests in cable television programming; and Cable, consisting principally of interests in cable television systems. TWE also manages the cable properties owned by Time Warner Companies, Inc. ("Time Warner")* and the combined cable television operations are conducted under the name of Time Warner Cable. Capitalized terms are as defined and described in the accompanying consolidated financial statements, or elsewhere herein.
Significant Transactions
In 1996, certain transactions were completed by Time Warner and TWE that have had an effect on TWE's results of operations and financial condition. Such transactions include:
* The acquisition by Time Warner of Cablevision Industries Corporation ("CVI") and related companies on January 4, 1996, which strengthened Time Warner Cable's geographic clusters of cable television systems and substantially increased the number of cable subscribers managed by Time Warner Cable. As of September 30, 1996, Time Warner Cable served approximately 12.1 million subscribers in neighborhoods passing nearly 20% of the television homes in the U.S.
* The closing of certain previously-announced sales by TWE of unclustered cable television systems which raised approximately $150 million of net proceeds for debt reduction. Including the 1995 sale of 51% of its interest in Six Flags Entertainment Corporation ("Six Flags"), TWE has now completed transactions that have raised approximately $1.3 billion for debt reduction.
The nature of these transactions and their impact on the results of operations and financial condition of TWE are further discussed below.
Use of EBITDA
The following comparative discussion of the results of operations and financial condition of TWE includes, among other factors, an analysis of changes in the operating income of the business segments before depreciation and amortization ("EBITDA") in order to eliminate the effect on the operating performance of the filmed entertainment and cable businesses of significant amounts of amortization of intangible assets recognized in Time Warner's $14 billion acquisition of WCI in 1989, the $1.3 billion acquisition of the ATC minority interest in 1992 and other business combinations accounted for by the purchase method. Financial analysts generally consider EBITDA to be an important measure of comparative operating performance for the businesses of TWE, and when used in comparison to debt levels or the coverage of interest expense, as a measure of liquidity. However, EBITDA should be considered in addition to, not as a substitute for, operating income, net income, cash flow and other measures of financial performance and liquidity reported in accordance with generally accepted accounting principles.
RESULTS OF OPERATIONS
EBITDA and operating income for TWE for the three and nine months ended September 30, 1996 and 1995 are as follows:
Three Months Ended September 30, Nine Months Ended September 30,
EBITDA Operating Income EBITDA Operating Income
1996 1995 1996 1995 1996 1995 1996 1995
(millions)
Filmed
Entertainment $139 $118 $ 56 $ 60 $ 410 $ 348 $205 $179
Six Flags
Theme Parks - - - - - 60 - 29
Broadcasting -
The WB Network (27) (7) (27) (7) (63) (40) (63) (40)
Programming -
HBO 91 73 86 70 259 218 245 207
Cable 390 344 156 145 1,134 900 449 350
Total $593 $528 $271 $268 $1,740 $1,486 $836 $725
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Three Months Ended September 30, 1996 Compared to the Three Months Ended September 30, 1995
TWE had revenues of $2.718 billion, and net income of $45 million for the three months ended September 30, 1996, compared to revenues of $2.324 billion, income of $47 million before an extraordinary loss on the retirement of debt and net income of $23 million for the three months ended September 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 formation of the TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing of approximately $2.6 billion of pre-existing bank debt, (iii) the 1995 consolidation of Paragon, (iv) the 1995 reacquisition of the Time Warner Service Partnership Assets, (v) the 1995 sale of 51% of TWE's interest in Six Flags and (vi) the sale or expected sale or transfer of certain unclustered cable television systems owned by TWE, as if each of such transactions had occurred at the beginning of 1995, TWE would have reported for the three months ended September 30, 1995, revenues of $2.352 billion, depreciation and amortization of $265 million, operating income of $265 million, income before extraordinary item of $98 million and net income of $74 million. No pro forma financial information has been presented for TWE for the three months ended September 30, 1996 because all of such transactions are already reflected, in all material respects, in the historical financial statements of TWE.
As discussed more fully below, TWE's historical net income was lower in 1996 as compared to historical and pro forma results in 1995 due to a decrease in investment-related income, which more than offset the absence of a $24 million extraordinary loss on the retirement of debt recognized in 1995, an overall increase in operating income generated by its business segments and interest savings in 1996 on lower average debt levels related to management's debt reduction program.
As a U.S. partnership, TWE is not subject to U.S. federal and state income taxation. Income and withholding taxes of $10 million and $26 million in the three months ended September 30, 1996 and 1995, respectively, have been provided in respect of the operations of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment. Revenues increased to $1.443 billion, compared to $1.174 billion in the third quarter of 1995. EBITDA increased to $139 million from $118 million. Depreciation and amortization, including amortization related to the purchase of WCI, amounted to $83 million in 1996 and $58 million in 1995. Operating income decreased to $56 million from $60 million. Revenues benefited from increases in domestic theatrical, worldwide home video and worldwide television distribution operations, offset in part by lower international theatrical revenues. EBITDA increased, and operating income benefited, principally from the revenue gains. Operating income was further affected in 1996 by higher depreciation and amortization related to the summer opening of an international theme park in Germany.
Broadcasting - The WB Network. The WB Network recorded an operating loss of $27 million on $23 million of revenues in the third quarter of 1996, compared to $7 million of an operating loss on $7 million of revenues in the third quarter of 1995. The increase in revenues and operating losses primarily resulted from the expansion of the WB Network's primetime programming schedule (now at three nights) and the expansion of Kids' WB!, the network's animated programming lineup on Saturday mornings and weekdays. In addition, operating losses for 1995 were mitigated by a favorable legal settlement. Due to the start-up nature of this new national broadcast operation, losses are expected to continue.
Programming - HBO. Revenues increased to $426 million, compared to $404 million in the third quarter of 1995. EBITDA increased to $91 million from $73 million. Depreciation and amortization amounted to $5 million in 1996 and $3 million in 1995. Operating income increased to $86 million from $70 million. Revenues benefited primarily from a significant increase in subscriptions. EBITDA and operating income improved principally as a result of the revenue gains, as well as income related to the licensing of the television series Martin for domestic syndicated television exhibition.
Cable. Revenues increased to $955 million, compared to $826 million in the third quarter of 1995. EBITDA increased to $390 million from $344 million. Depreciation and amortization, including amortization related to the purchase of WCI and the acquisition of the ATC minority interest, amounted to $234 million in 1996 and $199 million in 1995. Operating income increased to $156 million from $145 million. Revenues benefited from an aggregate increase in basic cable and Primestar-related, direct broadcast satellite subscribers, increases in regulated cable rates as permitted under Time Warner Cable's "social contract" with the Federal Communications Commission (the "FCC") and increases in advertising revenues. EBITDA and operating income increased as a result of the revenue gains, offset in part, with respect to operating income only, by higher depreciation and amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, increased to $147 million in the third quarter of 1996, compared to $127 million in the third quarter of 1995. Interest expense decreased to $117 million, compared to $144 million in the third quarter of 1995, principally as a result of interest savings on lower average debt levels related to management's debt reduction program and lower short-term, floating-rates of interest paid on borrowings under TWE's former and existing bank credit agreements. There was other expense, net, of $30 million in the third quarter of 1996, compared to other income, net, of $17 million in 1995, principally due to a decrease in investment-related income. The decrease in investment-related income related to a reduction in interest income associated with lower average cash balances and lower average principal amounts due under the note receivable from U S WEST that was fully collected as of June 1996.
Nine Months Ended September 30, 1996 Compared to the Nine Months Ended September 30, 1995
TWE had revenues of $7.811 billion and net income of $213 million for the nine months ended September 30, 1996, compared to revenues of $6.762 billion, income of $107 million before an extraordinary loss on the retirement of debt and net income of $83 million for the nine months ended September 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 formation of the TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing of approximately $2.6 billion of pre-existing bank debt, (iii) the 1995 consolidation of Paragon, (iv) the 1995 reacquisition of the Time Warner Service Partnership Assets, (v) the 1995 sale of 51% of TWE's interest in Six Flags and (vi) the sale or expected sale or transfer of certain unclustered cable television systems owned by TWE, as if each of such transactions had occurred at the beginning of 1995, TWE would have reported for the nine months ended September 30, 1995, revenues of $6.935 billion, depreciation and amortization of $793 million, operating income of $725 million, income before extraordinary item of $175 million and net income of $151 million. No pro forma financial information has been presented for TWE for the nine months ended September 30, 1996 because all of such transactions are already reflected, in all material respects, in the historical financial statements of TWE.
As discussed more fully below, TWE's historical net income was higher in 1996 as compared to pro forma results in 1995 due to an overall increase in operating income generated by its business segments and the absence of a $24 million extraordinary loss on the retirement of debt recognized in 1995, offset in part by a decrease in investment-related income and an increase in minority interest expense related to the TWE-Advance/Newhouse Partnership. On a historical basis, such underlying operating trends were enhanced by interest savings in 1996 on lower average debt levels related to management's debt reduction program.
As a U.S. partnership, TWE is not subject to U.S. federal and state income taxation. Income and withholding taxes of $49 million in the nine months ended September 30, 1996, and $62 million in the nine months ended September 30, 1995, have been provided in respect of the operations of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment. Revenues increased to $3.929 billion, compared to $3.508 billion in the first nine months of 1995. EBITDA increased to $410 million from $348 million. Depreciation and amortization, including amortization related to the purchase of WCI, amounted to $205 million in 1996 and $169 million in 1995. Operating income increased to $205 million from $179 million. Revenues benefited from increases in domestic theatrical, worldwide home video and worldwide television distribution operations, offset in part by lower international theatrical revenues. EBITDA and operating income benefited principally from the revenue gains, offset in part, with respect to operating income only, by higher depreciation and amortization related to the 1996 summer opening of an international theme park in Germany.
Six Flags Theme Parks. As a result of TWE's sale of 51% of its interest in Six Flags, the operating results of Six Flags have been deconsolidated effective as of June 23, 1995 and TWE's remaining 49% interest in Six Flags is accounted for under the equity method of accounting.
Broadcasting - The WB Network. The WB Network recorded an operating loss of $63 million on $56 million of revenues in the first nine months of 1996, compared to an operating loss of $40 million on $13 million of revenues in the first nine months of 1995. The increase in revenues and operating losses primarily resulted from the expansion of the WB Network's primetime programming schedule (now at three nights) and the expansion of Kids' WB!, the network's animated programming lineup on Saturday mornings and weekdays. In addition, operating losses for 1995 were mitigated by a favorable legal settlement. Due to the start-up nature of this new national broadcast operation, losses are expected to continue.
Programming - HBO. Revenues increased to $1.301 billion, compared to $1.181 billion in the first nine months of 1995. EBITDA increased to $259 million from $218 million. Depreciation and amortization amounted to $14 million in 1996 and $11 million in 1995. Operating income increased to $245 million from $207 million. Revenues benefited primarily from a significant increase in subscriptions. EBITDA and operating income improved principally as a result of the revenue gains, as well as income related to the licensing of the television series Martin for domestic syndicated television exhibition.
Cable. Revenues increased to $2.863 billion, compared to $2.107 billion in the first nine months of 1995. EBITDA increased to $1.134 billion from $900 million. Depreciation and amortization, including amortization related to the purchase of WCI and the acquisition of the ATC minority interest, amounted to $685 million in 1996 and $550 million in 1995. Operating income increased to $449 million from $350 million. Revenues and operating results benefited from the contribution of the TWE-Advance/Newhouse Partnership and the consolidation of Paragon for a full nine-month period. Excluding such effects, revenues benefited from an aggregate increase in basic cable and Primestar-related, direct broadcast satellite subscribers, increases in regulated cable rates as permitted under Time Warner Cable's "social contract" with the FCC and increases in pay-per-view and advertising revenues. Excluding the TWE-Advance/Newhouse Partnership and Paragon effects noted above, EBITDA and operating income increased as a result of the revenue gains, offset in part, with respect to operating income only, by higher depreciation and amortization relating to increased capital spending.
Interest and Other, Net. Interest and other, net, decreased to $368 million in the first nine months of 1996, compared to $423 million in the first nine months of 1995. Interest expense decreased to $356 million, compared to $440 million in the first nine months of 1995, principally as a result of interest savings on lower average debt levels related to management's debt reduction program and lower short-term, floating-rates of interest paid on borrowings under TWE's former and existing bank credit agreements. There was other expense, net, of $12 million in the first nine months of 1996 compared to other income, net, of $17 million in 1995, principally due to an overall decrease in investment-related income. The decrease in investment-related income resulted from a reduction in interest income, offset in part by higher gains on the sale of certain unclustered cable systems recognized in connection with management's debt reduction program. The reduction in interest income related to lower average cash balances and lower average principal amounts due under the note receivable from U S WEST that was fully collected as of June 1996.
FINANCIAL CONDITION AND LIQUIDITY
September 30, 1996
Financial Condition
TWE had $5.7 billion of debt, $1.5 billion of Time Warner General Partners' Senior Capital and $6.6 billion of partners' capital at September 30, 1996, compared to $6.2 billion of debt, $1.4 billion of Time Warner General Partners' Senior Capital and $6.5 billion of partners' capital (net of the $169 million uncollected portion of the note receivable from U S WEST) at December 31, 1995. Cash and equivalents were $209 million at September 30, 1996, and December 31, 1995, reducing the debt-net-of-cash amounts for TWE to $5.5 billion and $6 billion, respectively.
Debt Reduction Program
In the first nine months of 1996, TWE closed certain previously-announced sales of unclustered cable television systems which raised approximately $150 million of proceeds for debt reduction. Including the 1995 sale of 51% of its interest in Six Flags, TWE has now completed transactions that have raised approximately $1.3 billion for debt reduction.
Cash Flows
In the first nine months of 1996, TWE's cash provided by operations amounted to $1.322 billion and reflected $1.740 billion of EBITDA from the Filmed Entertainment, Broadcasting-The WB Network, Programming-HBO and Cable businesses and $77 million related to a reduction in working capital requirements, other balance sheet accounts and noncash items, less $391 million of interest payments, $52 million of income taxes and $52 million of corporate expenses. Cash provided by operations of $1.194 billion in the first nine months of 1995 reflected $1.486 billion of business segment EBITDA and $256 million related to a reduction in working capital requirements, other balance sheet accounts and noncash items, less $442 million of interest payments, $59 million of income taxes and $47 million of corporate expenses.
Cash used by investing activities was $864 million in the first nine months of 1996, compared to $82 million in the first nine months of 1995, principally as a result of a $581 million decrease in investment proceeds realized in 1995 in connection with management's debt reduction program and higher capital expenditures. Capital expenditures increased to $1.228 billion in the first nine months of 1996, compared to $983 million in the first nine months of 1995, principally as a result of higher cable capital spending as discussed more fully below.
Cash used by financing activities was $458 million in the first nine months of 1996, compared to $1.744 billion in the first nine months of 1995, principally as a result of a lower level of debt reduction realized in 1996 and an $820 million decrease in distributions paid to Time Warner, offset in part by a $206 million decrease in collections on the note receivable from U S WEST.
Management believes that TWE's operating cash flow, cash and equivalents and additional borrowing capacity are sufficient to meet its capital and liquidity needs for the foreseeable future.
Cable Capital Spending
Since the beginning of 1994, Time Warner Cable has been engaged in a plan to upgrade the technological capability and reliability of its cable television systems and develop new services, which it believes will position the business for sustained, long-term growth. Capital spending by TWE's Cable division amounted to $936 million in the nine months ended September 30, 1996, compared to $718 million in the nine months ended September 30, 1995, and was financed in part through collections on the note receivable from U S WEST of $169 million and $375 million, respectively. Cable capital spending by TWE's Cable division is budgeted to be approximately $400 million for the remainder of 1996 and is expected to be funded by cable operating cash flow. In exchange for certain flexibility in establishing cable rate pricing structures for regulated services that went into effect on January 1, 1996 and consistent with Time Warner Cable's long-term strategic plan, Time Warner Cable has agreed with the FCC to invest a total of $4 billion in capital costs in connection with the upgrade of its cable infrastructure, which is expected to be substantially completed over a five-year period ending December 31, 2000. The agreement with the FCC covers all of the cable operations of Time Warner Cable, including the owned or managed cable television systems of Time Warner, TWE and the TWE-Advance/Newhouse Partnership. Management expects to continue to finance such level of investment principally through the growth in cable operating cash flow derived from increases in subscribers and cable rates, bank credit agreement borrowings and the development of new revenue streams from expanded programming options, high speed data transmission, telephony and other services.
Warner Bros. Backlog
Warner Bros.' backlog, representing the amount of future revenue not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, network, basic cable and syndicated television exhibition, amounted to $1.611 billion at September 30, 1996, compared to $1.056 billion at December 31, 1995 (including amounts relating to HBO of $190 million at September 30, 1996 and $175 million at December 31, 1995). Warner Bros.' backlog increased principally as a result of the licensing of the hit television series Friends and ER for domestic syndication and cable television exhibition beginning in 1998. Because backlog generally relates to contracts for the licensing of theatrical and television product which have already been produced, the recognition of revenue for such completed product is principally only dependent upon the commencement of the availability period for telecast under the terms of the related licensing agreement. In addition, cash licensing fees are collected periodically over the term of the related licensing agreements. Accordingly, the portion of backlog for which cash advances have not already been received has significant off-balance sheet asset value as a source of future funding. The backlog excludes advertising barter contracts, which are also expected to result in the future realization of cash through the sale of advertising spots received under such contracts.
Foreign Currency Risk Management
Time Warner uses foreign exchange contracts primarily to hedge the risk that unremitted or future license fees owed to TWE domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad may be adversely affected by changes in foreign currency exchange rates. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, Time Warner hedges a portion of its foreign currency exposures anticipated over the ensuing twelve month period, including those related to TWE. At September 30, 1996, Time Warner had effectively hedged approximately half of TWE's estimated foreign currency exposures that principally relate to anticipated cash flows to be remitted to the U.S. over the ensuing twelve month period, using foreign exchange contracts that generally have maturities of three months or less, which are generally rolled over to provide continuing coverage throughout the year. TWE is reimbursed by or reimburses Time Warner for Time Warner contract gains and losses related to TWE's foreign currency exposure. Time Warner often closes foreign exchange sale contracts by purchasing an offsetting purchase contract. At September 30, 1996, Time Warner had contracts for the sale of $500 million and the purchase of $200 million of foreign currencies at fixed rates. Of Time Warner's $300 million net sale contract position, none of the foreign exchange purchase contracts and $103 million of the foreign exchange sale contracts related to TWE's foreign currency exposure, primarily Japanese yen (21% of net contract position related to TWE), French francs (22%), German marks (11%) and Canadian dollars (18%), compared to a net sale contract position of $113 million of foreign currencies at December 31, 1995.
Unrealized gains or losses related to foreign exchange contracts are recorded in income as the market value of such contracts change; accordingly, the carrying value of foreign exchange contracts approximates market value. The carrying value of foreign exchange contracts was not material at September 30, 1996 and December 31, 1995. No cash is required to be received or paid with respect to such gains and losses until the related foreign exchange contracts are settled, generally at their respective maturity dates. For the nine months ended September 30, 1996 and 1995, TWE recognized $4 million in gains and $8 million in losses, respectively, on foreign exchange contracts, which were or are expected to be offset by corresponding decreases and increases, respectively, in the dollar value of foreign currency license fee payments that have been or are anticipated to be received in cash from the sale of U.S. copyrighted products abroad. Time Warner places foreign currency contracts with a number of major financial institutions in order to minimize credit risk.
Based on Time Warner's outstanding foreign exchange contracts related to TWE's exposure outstanding at September 30, 1996, each 5% devaluation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract at September 30, 1996 would result in approximately $5 million of unrealized losses on foreign exchange contracts. Conversely, a 5% appreciation of the U.S. dollar as compared to the level of foreign exchange rates for currencies under contract at September 30, 1996 would result in $5 million of unrealized gains on contracts. Consistent with the nature of the economic hedge provided by such foreign exchange contracts, such unrealized gains or losses would be offset by corresponding decreases or increases, respectively, in the dollar value of future foreign currency license fee payments that would be received in cash within the ensuing twelve month period from the sale of U.S. copyrighted products abroad.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1996 1995
(millions)
ASSETS
Current assets
Cash and equivalents $ 209 $ 209
Receivables, including $295 and $354 due from
Time Warner, less allowances of $366 and $365 1,542 1,635
Inventories 1,200 904
Prepaid expenses 142 161
Total current assets 3,093 2,909
Noncurrent inventories 2,063 1,909
Loan receivable from Time Warner 400 400
Investments 296 383
Property, plant and equipment, net 5,780 5,205
Cable television franchises 3,101 3,360
Goodwill 4,027 4,119
Other assets 681 620
Total assets $19,441 $18,905
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 670 $ 697
Participations and programming costs 1,354 1,090
Debt due within one year 2 47
Other current liabilities 1,571 1,380
Total current liabilities 3,597 3,214
Long-term debt 5,673 6,137
Other long-term liabilities, including
$292 and $198 due to Time Warner 1,120 924
Minority interests 900 726
Time Warner General Partners' Senior Capital 1,513 1,426
Partners' capital
Contributed capital 7,537 7,522
Undistributed partnership earnings (deficit) (899) (875)
Note receivable from U S WEST - (169)
Total partners' capital 6,638 6,478
Total liabilities and partners' capital $19,441 $18,905
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See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(millions)
Revenues (a) $2,718 $2,324 $7,811 $6,762
Cost of revenues (a)(b) 1,855 1,589 5,250 4,640
Selling, general and
administrative (a)(b) 592 467 1,725 1,397
Operating expenses 2,447 2,056 6,975 6,037
Business segment operating income 271 268 836 725
Interest and other, net (a) (147) (127) (368) (423)
Minority interest (52) (51) (154) (86)
Corporate services (a) (17) (17) (52) (47)
Income before income taxes 55 73 262 169
Income taxes (10) (26) (49) (62)
Income before extraordinary item 45 47 213 107
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Extraordinary loss on retirement of debt - (24) - (24)
(b) Includes depreciation and amortization expense of: $ 322 $ 260 $ 904 $ 761
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
1996 1995
(millions)
OPERATIONS
Net income $ 213 $ 83 Adjustments for noncash and nonoperating items: Extraordinary loss on retirement of debt - 24 Depreciation and amortization 904 761 Changes in operating assets and liabilities 205 326 Cash provided by operations 1,322 1,194 INVESTING ACTIVITIES Investments and acquisitions (86) (130) Capital expenditures (1,228) (983) Investment proceeds 450 1,031 Cash used by investing activities (864) (82) FINANCING ACTIVITIES Borrowings 190 2,041 Debt repayments (697) (3,135) Capital distributions (162) (982) Collections on note receivable from U S WEST 169 375 Other 42 (43) Cash used by financing activities (458) (1,744) DECREASE IN CASH AND EQUIVALENTS - (632) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 209 1,071 CASH AND EQUIVALENTS AT END OF PERIOD $ 209 $ 439 |
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Time Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), is engaged principally in three fundamental areas of business: Entertainment, consisting principally of interests in filmed entertainment, broadcasting and theme parks; Cable Networks, consisting principally of interests in cable television programming; and Cable, consisting principally of interests in cable television systems.
Each of the business interests within Entertainment, Cable Networks and Cable is important to TWE's objective of increasing partner value through the creation, extension and distribution of recognizable brands and copyrights throughout the world. Such brands and copyrights include (1) the unique and extensive film and television libraries of Warner Bros. and trademarks such as the Looney Tunes characters and Batman, (2) The WB Network, a new national broadcasting network launched in 1995 as an extension of the Warner Bros. brand and as an additional distribution outlet for Warner Bros.' collection of children's cartoons and television programming, (3) Six Flags, the largest regional theme park operator in the United States, in which TWE owns a 49% interest, (4) HBO and Cinemax, the leading pay television services and (5) Time Warner Cable, the second largest operator of cable television systems in the U.S.
The operating results of TWE's various business interests are presented herein as an indication of financial performance (Note 7). Except for start-up losses incurred in connection with The WB Network, TWE's principal business interests generate significant operating income and cash flow from operations. The cash flow from operations generated by such business interests is significantly greater than their operating income due to significant amounts of noncash amortization of intangible assets recognized principally in Time Warner Companies, Inc.'s ("Time Warner")* $14 billion acquisition of Warner Communications Inc. ("WCI") in 1989 and $1.3 billion acquisition of the minority interest in American Television and Communications Corporation ("ATC") in 1992, a portion of which cost was allocated to TWE in accordance with the pushdown method of accounting. Noncash amortization of intangible assets recorded by TWE's businesses amounted to $115 million and $112 million for the three months ended September 30, 1996 and 1995, respectively, and $326 million and $344 million for the nine months ended September 30, 1996 and 1995, respectively.
Subsidiaries of Time Warner are the general partners of TWE ("Time Warner General Partners"). During 1995, Time Warner acquired the aggregate 11.22% limited partnership interests previously held by subsidiaries of each of ITOCHU Corporation and Toshiba Corporation. As a result, Time Warner and certain of its wholly owned subsidiaries collectively own general and limited partnership interests in 74.49% of the pro rata priority capital ("Series A Capital") and residual equity capital ("Residual Capital") of TWE, and 100% of the senior priority capital ("Senior Capital") and junior priority capital ("Series B Capital") of TWE. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are held by a subsidiary of U S WEST, Inc. ("U S WEST").
Basis of Presentation
The accompanying financial statements are unaudited but in the opinion of management contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position and the results of operations and cash flows for the periods presented, in conformity with generally accepted accounting principles applicable to interim periods. The accompanying financial statements should be read in conjunction with the audited consolidated financial statements of TWE for the year ended December 31, 1995.
The consolidated financial statements reflect (i) the formation by TWE of the TWE-Advance/Newhouse Partnership effective as of April 1, 1995, (ii) the deconsolidation of Six Flags Entertainment Corporation ("Six Flags") effective as of June 23, 1995 and (iii) the consolidation of Paragon Communications ("Paragon") effective as of July 6, 1995. Certain reclassifications have been made to 1995 financial statements to conform to the 1996 presentation.
Effective January 1, 1996, TWE adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," ("FAS 121") which established standards for the recognition and measurement of impairment losses on long-lived assets and certain intangible assets. The adoption of FAS 121 did not have a material effect on TWE's financial statements.
2. TWE-ADVANCE/NEWHOUSE PARTNERSHIP
On April 1, 1995, TWE formed a cable television joint venture with the Advance/Newhouse Partnership ("Advance/Newhouse") to which Advance/Newhouse and TWE contributed cable television systems (or interests therein) serving approximately 4.5 million subscribers, as well as certain foreign cable investments and programming investments that included Advance/Newhouse's 10% interest in Primestar Partners, L.P. ("Primestar"). TWE owns a two-thirds equity interest in the TWE-Advance/Newhouse Partnership and is the managing partner. TWE consolidates the partnership and the one-third equity interest owned by Advance/Newhouse is reflected in TWE's consolidated financial statements as minority interest. In accordance with the partnership agreement, Advance/Newhouse can require TWE to purchase its equity interest for fair market value at specified intervals following the death of both of its principal shareholders. Beginning in the third year, either partner can initiate a dissolution in which TWE would receive two-thirds and Advance/Newhouse would receive one-third of the partnership's net assets. The assets contributed by TWE and Advance/Newhouse to the partnership were recorded at their predecessor's historical cost, which, with respect to Advance/Newhouse, consisted of assets contributed to the partnership of approximately $338 million and liabilities assumed by the partnership of approximately $9 million. No gain was recognized by TWE upon the capitalization of the partnership.
The accompanying consolidated statement of operations includes the operating results of the Advance/Newhouse businesses from the date of contribution to the partnership. On a pro forma basis, giving effect to (i) the 1995 formation of the TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing of approximately $2.6 billion of pre-existing bank debt, (iii) the 1995 consolidation of Paragon, (iv) the 1995 reacquisition of the Time Warner Service Partnership Assets (Note 6), (v) the 1995 sale of 51% of TWE's interest in Six Flags and (vi) the sale or expected sale or transfer of certain unclustered cable television systems owned by TWE, as if each of such transactions had occurred at the beginning of 1995, TWE would have reported for the three and nine months ended September 30, 1995, respectively, revenues of $2.352 billion and $6.935 billion, depreciation and amortization of $265 million and $793 million, operating income of $265 million and $725 million and net income of $74 million and $151 million. No pro forma financial information has been presented for TWE for the three and nine months ended September 30, 1996 because all of such transactions are already reflected, in all material respects, in the historical financial statements of TWE.
3. SIX FLAGS
On June 23, 1995, TWE sold 51% of its interest in Six Flags to an investment group led by Boston Ventures for $204 million and received $640 million in additional proceeds from Six Flags, representing payment of certain intercompany indebtedness and licensing fees. As a result of the transaction, Six Flags has been deconsolidated and TWE's remaining 49% interest in Six Flags is accounted for under the equity method of accounting. TWE reduced debt by approximately $850 million in 1995 in connection with the transaction, and a portion of the income on the transaction has been deferred by TWE principally as a result of its guarantee of certain third-party, zero-coupon indebtedness of Six Flags due in 1999.
4. INVENTORIES
Inventories consist of:
September 30, 1996 December 31, 1995
Current Noncurrent Current Noncurrent
(millions)
Film costs:
Released, less amortization $ 501 $ 448 $ 529 $ 437
Completed and not released 312 72 74 22
In process and other 34 541 11 396
Library, less amortization - 677 - 717
Programming costs, less amortization 251 325 219 337
Merchandise 102 - 71 -
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Total $1,200 $2,063 $ 904 $1,909
5. LONG-TERM DEBT
Long-term debt consists of:
September 30, December 31,
1996 1995
(millions)
Credit agreement, weighted average interest
rates of 6.0% and 6.4% $1,335 $2,185
Commercial paper, weighted average interest
rates of 5.8% and 6.2% 545 157
Publicly held notes and debentures 3,781 3,781
Other 12 14
Total $5,673 $6,137
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Each Time Warner General Partner has guaranteed a pro rata portion of approximately $5.4 billion of TWE's debt and accrued interest thereon based on the relative fair value of the net assets each Time Warner General Partner contributed to TWE. Such indebtedness is recourse to each Time Warner General Partner only to the extent of its guarantee.
An extraordinary loss of $24 million was recognized in 1995 in connection with the write-off of deferred financing costs related to TWE's former bank credit agreement that was terminated.
6. PARTNERS' CAPITAL
Changes in partners' capital were as follows:
Nine Months
Ended September 30,
1996 1995
(millions)
Balance at beginning of year $6,478 $6,233
Net income 213 83
Capital contributions 15 -
Distributions (161) (371)
Allocation of income to Time Warner General
Partners' Senior Capital (87) (101)
Collections on note receivable from U S WEST 169 375
Reacquisition of Time Warner Service Partnership Assets - 124
Other 11 8
Balance at September 30 $6,638 $6,351
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In September 1995, TWE reacquired substantially all of the assets of the Time Warner Service Partnerships, subject to the liabilities relating thereto (the "Time Warner Service Partnership Assets"), in exchange for Series B Capital interests in TWE equal to approximately $400 million. The reacquisition was recorded for financial statement purposes based on the $124 million historical cost of the Time Warner Service Partnership Assets. Prior to such reacquisition, the Time Warner Service Partnerships owned and operated certain assets of TWE which had been distributed to the Time Warner General Partners in September 1993 in order to ensure compliance with the Modification of Final Judgment entered on August 24, 1982 by the United States District Court for the District of Columbia applicable to U S WEST and its affiliated companies, which may have included TWE. Prior to September 1995, TWE was required to make quarterly cash distributions related to its Series B Capital in the amount of $12.5 million to the Time Warner General Partners ("TWSP Distributions"), which the General Partners were then required to contribute to the Time Warner Service Partnerships.
TWE is required to make distributions to reimburse the partners for income taxes at statutory rates based on their allocable share of taxable income, and to reimburse Time Warner for its stock options granted to employees of TWE based on the amount by which the market price of Time Warner common stock exceeds the option exercise price on the exercise date or, with respect to options granted prior to the TWE capitalization on September 30, 1992, the greater of the exercise price and the $27.75 market price of Time Warner common stock at the time of the TWE capitalization. TWE accrues a stock option distribution and a corresponding liability with respect to unexercised options when the market price of Time Warner common stock increases during the accounting period, and reverses previously-accrued stock option distributions and the corresponding liability when the market price of Time Warner common stock declines.
During the nine months ended September 30, 1996, TWE accrued $153 million of tax-related distributions and $8 million of stock option distributions, based on closing prices of Time Warner common stock of $38.50 at September 30, 1996 and $37.875 at December 31, 1995. During the nine months ended September 30, 1995, TWE accrued $25 million of TWSP Distributions and $241 million of tax-related distributions, as well as $105 million of stock option distributions as a result of an increase at that time in the market price of Time Warner common stock. In the nine months ended September 30, 1996, TWE paid distributions to the Time Warner General Partners in the amount of $162 million, consisting of $153 million of tax-related distributions and $9 million of stock option related distributions. In the nine months ended September 30, 1995, TWE paid the Time Warner General Partners distributions in the amount of $982 million, consisting of $575 million of tax-related distributions, $25 million of TWSP Distributions, $16 million of stock option related distributions and $366 million of distributions of TWE partnership income that had been allocated to the Time Warner General Partners' Senior Capital interest.
7. SEGMENT INFORMATION
TWE's businesses are conducted in three fundamental areas of business: Entertainment, consisting principally of interests in filmed entertainment, broadcasting and theme parks; Cable Networks, consisting principally of interests in cable television programming; and Cable, consisting principally of interests in cable television systems.
Information as to the operations of TWE in different business segments is set forth below. The operating results of TWE reflect the formation of the TWE-Advance/Newhouse Partnership effective as of April 1, 1995, the deconsolidation of Six Flags effective as of June 23, 1995 and the consolidation of Paragon effective as of July 6, 1995. The operating results of Six Flags prior to June 23, 1995 are reported separately to facilitate comparability.
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(millions)
Revenues
Filmed Entertainment $1,443 $1,174 $3,929 $3,508
Six Flags Theme Parks - - - 227
Broadcasting - The WB Network 23 7 56 13
Programming - HBO 426 404 1,301 1,181
Cable 955 826 2,863 2,107
Intersegment elimination (129) (87) (338) (274)
Total $2,718 $2,324 $7,811 $6,762
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(millions)
Operating Income
Filmed Entertainment $ 56 $ 60 $ 205 $ 179
Six Flags Theme Parks - - - 29
Broadcasting - The WB Network (27) (7) (63) (40)
Programming - HBO 86 70 245 207
Cable 156 145 449 350
Total $ 271 $ 268 $ 836 $ 725
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(millions)
Depreciation of Property, Plant and Equipment
Filmed Entertainment $ 51 $ 27 $ 113 $ 69
Six Flags Theme Parks - - - 20
Broadcasting - The WB Network - - - -
Programming - HBO 5 3 14 11
Cable 151 118 451 317
Total $ 207 $ 148 $ 578 $ 417
Three Months Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(millions)
Amortization of Intangible Assets (1)
Filmed Entertainment $ 32 $ 31 $ 92 $ 100
Six Flags Theme Parks - - - 11
Broadcasting - The WB Network - - - -
Programming - HBO - - - -
Cable 83 81 234 233
Total $ 115 $ 112 $ 326 $ 344
______________
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(1) Amortization includes amortization relating to the acquisition of WCI in 1989 and the ATC minority interest in 1992 and to other business combinations accounted for by the purchase method.
8. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation incidental to the businesses of TWE. In the opinion of counsel and management, the ultimate resolution of these matters will not have a material effect on the consolidated financial statements of TWE.
9. ADDITIONAL FINANCIAL INFORMATION
Additional financial information is as follows:
Nine Months
Ended September 30,
1996 1995
(millions)
Interest expense $ 356 $ 440
Cash payments made for interest 391 442
Cash payments made for income taxes (net) 52 59
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Part II. Other Information
Item 1. Legal Proceedings.
On October 8, 1996, the New York State Attorney General began an investigation by serving a subpoena duces tecum on Time Warner. In re New York State Attorney General's Investigation. The subpoena seeks information regarding whether Time Warner and Time Warner Cable may have violated Section 340 of the General Business Law of New York and/or Sections 1 and/or 2 of the Sherman Antitrust Act in making certain decisions regarding the carriage of video programming services on Time Warner's cable systems, including its decision to carry the MSNBC news service and not the Fox News Channel ("FNC").
On October 9, 1996, an action was commenced in the United States District Court for the Eastern District of New York entitled Fox News Network, L.L.C. v. Time Warner Inc., Time Warner Entertainment Company, L.P., Turner Broadcasting System, Inc., and R.E. "Ted" Turner III. The plaintiff seeks to have Time Warner divest the TBS assets acquired alleging that the TBS transaction is violative of Section 7 of the Clayton Act. The plaintiff also seeks damages flowing from alleged violations of Section 1 of the Sherman Act, the Donnelly Act, New York State's antitrust statute, as well as alleged breach of contract and fraudulent misrepresentations regarding carriage of the FNC on defendants' cable television systems. In total, the plaintiff seeks $1.75 billion in damages. While the schedule of the proceedings remains the subject of dispute between the parties, trial is tentatively set to begin April 2, 1997.
On October 7, 1996, a hearing was held to consider whether the consummation of the TBS Transaction constituted a "change in control" within the meaning of Time Warner Cable's franchise agreements with the City of New York (collectively, the "Franchise Agreements"). On October 9, 1996, the New York City Franchise Concession and Review Committee met to consider this issue, but took no action on the matter after the City advised that the matter required further consideration. Effecting a change in control within such meaning without the City's consent could give the City various rights, which could include the right to terminate the Franchise Agreements. Time Warner does not believe there has been such a change in control.
On October 10, 1996, the holders of Time Warner's New York City cable franchises filed a complaint against the City of New York in the United States District Court for the Southern District of New York alleging that the City's announced plan to carry two commercial cable programs, Bloomberg Information Television ("BIT") and the FNC, over the City's municipal access channels is a violation of the Franchise Agreements, the 1984 Cable Act, the First Amendment, New York Public Service Law and certain other legal rights of such holders. In addition to seeking to enjoin the City's activity, the complaint seeks a declaratory judgment that the TBS Transaction does not effect a change in control for the purposes of the Franchise Agreements.
On October 11, 1996, the judge in this action issued a temporary restraining order preventing the City from carrying either BIT or the FNC over its municipal access channels. After a hearing on October 28, 1996, the judge on November 6, 1996 granted the Time Warner plaintiffs a preliminary injunction that will continue to prevent the City from carrying these services on its municipal access channels until a trial on the matter is completed. The City has announced its intention to appeal the judge's decision. Thus far, all activity in this action has related to Time Warner's request for an injunction, and proceedings with respect to the declaratory judgment that the TBS Transaction does not effect a change in control for the purposes of the Franchise Agreements have not as yet commenced.
Reference is made to the Federal lawsuit filed by TWE in November 1992 seeking to overturn major provisions of the 1992 Cable Act, described on page 51 of Time Warner's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (the "June 1996 Form 10-Q"). On August 30, 1996, the D.C. Circuit Court of Appeals rejected TWE's challenges to certain provisions of the 1984 and 1992 Cable Acts, held unripe the challenge to the program creation provision of Section 11(c) of the 1992 Cable Act, and consolidated the remaining challenges to Section 11(c) with Time Warner Entertainment Company, L.P. v. FCC. On October 29, 1996, TWE and the other plaintiffs filed a Petition for Rehearing and Suggestion for Rehearing En Banc with the Court, asking the Court to reconsider its application of First Amendment law and specifically asking it to reconsider its holding that Section 15 of the 1992 Cable Act is constitutional. Amici filed a petition asking for rehearing on the Court's holding that Section 25 of the 1992 Cable Act is constitutional.
Reference is made to the investigation commenced in 1993 by the Federal Trade Commission ("FTC"), described on page I-42 of Time Warner's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K"). By letter dated October 21, 1996, the FTC informed Warner Elektra Atlantic Corporation that its investigation has been closed.
Reference is made to the litigation entitled Robinson and Silvey v. EMI Music Distribution, Inc., Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, UNI Distribution Corporation, Bertelsmann Music Group, Inc. and PolyGram Group Distribution, Inc., described on page 51 of the June 1996 Form 10-Q. On August 5, 1996, defendants jointly filed a Notice of Removal from the Circuit Court of Blount County, Tennessee, to the United States District Court for the Eastern District of Tennessee. On August 21, 1996, plaintiffs filed a Motion to Remand the case to the Circuit Court of Blount County, and on October 4, 1996, defendants jointly filed their Response in Opposition to the Motion to Remand.
Reference is made to the litigation entitled Lewis et al.
v. Turner Broadcasting System, Inc., et al., described on page 51
of the June 1996 Form 10-Q. On September 13, 1996, plaintiffs,
who were TBS shareholders, filed a motion for a preliminary
injunction (and related relief) seeking, among other things, an
order enjoining consummation of the TBS Transaction. Their motion was
denied by Order of the Superior Court of Fulton County for the
State of Georgia dated October 3, 1996. In addition, on
September 19, 1996, plaintiffs sought leave to file a Fourth
Amended Complaint. Defendants filed a brief in opposition to
plaintiffs' motion arguing that the "new allegations" plaintiffs
seek to add to their complaint are baseless. Plaintiffs have
indicated that they intend to go forward with this matter despite
the denial of their motion for a preliminary injunction and the
closing of the TBS transaction.
Reference is made to the litigation entitled Shingala v. R.E. Turner, et al. described at page I-45 of the 1995 Form 10-K. On September 13, 1996, plaintiffs filed a motion for a preliminary injunction (and related relief) seeking, among other things, an order enjoining consummation of the TBS Transaction. Their motion was denied by order of the Superior Court of Fulton County for the State of Georgia dated October 3, 1996.
Item 2. Changes in Securities.
(a) On October 10, 1996, each outstanding share of common stock, par value $1.00 per share, of Time Warner, other than shares held directly or indirectly by Time Warner, was converted into one share of common stock, par value $.01 per share, of New Time Warner.
(b) In connection with the TBS Transaction, Time Warner was recapitalized resulting in a reduction (i) in the number of outstanding shares of each class of Time Warner capital stock by a factor of 1/1000 and (ii) in the par value of each class of such capital stock from $1.00 per share to $.01 per share. All of such shares are held directly and indirectly by New Time Warner.
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) A Special Meeting of Stockholders of Time Warner was held on October 10, 1996 (the "1996 Special Meeting").
(b) The following matter was voted upon at the 1996 Special Meeting:
Approval of the Amended and Restated Agreement and Plan of Merger dated as of September 22, 1995, as amended, among Time Warner, TBS, New Time Warner, Time Warner Acquisition Corp. and TW Acquisition Corp. (the "TBS Merger Agreement"):
Broker
Votes For Votes Against Abstentions Non-Votes
344,719,756 4,747,689 1,478,435 None
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as a part of this report and such Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K.
(i) Time Warner filed a Current Report on Form 8-K dated August 6, 1996, reporting in Item 5 that it had issued a press release dated August 6, 1996 announcing that as a result of a printer's error, a preliminary draft of a report on Form 8-K relating to the acquisition of TBS was inadvertently filed through the SEC's electronic filing system.
(ii) Time Warner filed a Current Report on Form 8-K dated August 14, 1996 setting forth in Item 7 certain pro forma financial statements of Time Warner and Time Warner Entertainment Group at June 30, 1996, reflecting certain transactions entered into by Time Warner and TWE during 1995 and 1996.
(iii) Time Warner filed a Current Report on Form 8-K dated September 6, 1996 reporting in Item 5 (A) the signing of the Agreement Containing Consent Order dated August 14, 1996 by Time Warner, TBS, TCI and LMC (together with the Interim Agreement contemplated thereby, the "FTC Consent Decree") and (B) certain amendments to the TBS Merger Agreement and related documents as a result of the FTC Consent Decree.
(iv) Time Warner filed a Current Report on Form 8-K dated September 12, 1996 reporting in Item 5 that it had issued a press release on September 12, 1996 announcing that the FTC had given its initial approval to the FTC Consent decree.
(v) New Time Warner filed a Current Report on Form 8-K dated October 10, 1996 reporting in (A) Item 2 that on October 10, 1996 the mergers (the "Merger") contemplated by the TBS Merger Agreement were approved by the stockholders of Time Warner and the shareholders of TBS and that the Merger and certain related transactions were consummated on that date and (B) Item 5 certain events relating to Time Warner's decision not to carry the FNC on its cable system in New York City and certain matters related to the Merger.
TIME WARNER COMPANIES, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Time Warner Companies, Inc.
(Registrant)
By: /s/ Richard J. Bressler
Name: Richard J. Bressler
Title: Senior Vice President
and Chief Financial Officer
Dated: November 14, 1996
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EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit No. Description of Exhibit
2.1 Amendment No. 1 dated as of August 8, 1996 to the Amended and Restated Agreement and Plan of Merger dated as of September 22, 1995 among Time Warner Inc. (the "Registrant"), TW Inc. ("TW"), Time Warner Acquisition Corp., TW Acquisition Corp. and Turner Broadcasting System, Inc. ("TBS") (which is incorporated herein by reference to Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated September 6, 1996 (the "September 1996 Form 8-K")).
2.2 Agreement Containing Consent Order dated August 14, 1996 among the Registrant, TBS, Tele-Communications, Inc., Liberty Media Corporation ("LMC") and the Federal Trade Commission (which is incorporated herein by reference to Exhibit 2(b) to the September 1996 Form 8-K).
3.1 Certificate of Merger of Time Warner Acquisition Corp. into the Registrant as filed with the Secretary of State of the State of Delaware on October 10, 1996.
3.2 Certificate of Amendment of Restated Certificate of Incorporation of the Registrant as filed with the Secretary of State of the State of Delaware on October 11, 1996.
3.3 By-laws of the Registrant effective as of October 10, 1996.
4.1 Second Supplemental Indenture dated as of October 10, 1996 among the Registrant, New Time Warner and The Chase Manhattan Bank, as Trustee, to the Indenture dated as of January 15, 1993 between the Registrant and the Trustee.
4.2 Third Supplemental Indenture dated as of October 10, 1996 among the Registrant, New Time Warner and The Chase Manhattan Bank, as Trustee, to the Indenture dated as of October 15, 1992 between the Registrant and the Trustee.
4.3 Second Supplemental Indenture dated as of October 10, 1996, among the Registrant, New Time Warner and The Chase Manhattan Bank, as Trustee, to the Indenture dated as of December 5, 1995 between the Registrant and the Trustee.
4.4 First Supplemental Indenture dated as of October 10, 1996 among the Registrant, New Time Warner and The Chase Manhattan Bank, as Trustee, to the Indenture dated as of August 15, 1995.
4.5 Declaration Guarantee dated as of October 10, 1996 among the Registrant, New Time Warner and the Trustees under an Amended and Restated Declaration of Trust dated as of August 15, 1995 pursuant to which the Trust issued $1.24 Preferred Exchangeable Redemption Cumulative Securities (the "PERCS").
4.6 Guarantee Agreement dated as of October 10, 1996 among the Registrant, New Time Warner and First National Bank of Chicago, as Trustee, relating to the PERCS.
4.7 Declaration Guarantee dated as of October 10, 1996 among the Registrant, New Time Warner and the Trustees under an Amended and Restated Declaration of Trust dated as of December 5, 1995 pursuant to which the Trust issued 8-7/8% Preferred Trust Securities (the "Preferred Trust Securities").
4.8 Guarantee Agreement dated as of October 10, 1996 among the Registrant, New Time Warner and First National Bank of Chicago, as Trustee, relating to the Preferred Trust Securities.
10.1 Second Amended and Restated LMC Agreement dated
as of September 22, 1995 among TW, LMC, TCI
Turner Preferred, Inc., Communication Capital
Corp. and United Cable Turner Investment, Inc.
(which is incorporated herein by reference to
Exhibit 10(a) to the September 1996 Form 8-K).
27 Financial Data Schedule.
|
Exhibit 3.1
CERTIFICATE OF MERGER
OF
TIME WARNER ACQUISITION CORP.
INTO
TIME WARNER INC.
TIME WARNER INC., a Delaware corporation, hereby certifies as follows:
1. The name and state of incorporation of each of the constituent corporations to the merger are as follows:
Name State of Incorporation
Time Warner Acquisition Corp. Delaware
Time Warner Inc. Delaware
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2. An Amended and Restated Agreement and Plan of Merger, dated as of September 22, 1995, as amended, among Time Warner Inc., TW Inc., a Delaware corporation, Time Warner Acquisition Corp., TW Acquisition Corp., a Georgia corporation, and Turner Broadcasting System, Inc., a Georgia corporation (the "Merger Agreement"), has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations named in paragraph 1 hereof in accordance with the requirements of Section 251 of the General Corporation Law of the State of Delaware and, in the case of Time Warner Acquisition Corp., by the written consent of the sole stockholder thereof in accordance with Section 228 of the General Corporation Law of the State of Delaware.
3. Time Warner Inc. shall be the surviving corporation of the merger.
4. The Restated Certificate of Incorporation of Time Warner Inc., the surviving corporation, shall be the certificate of incorporation of the surviving corporation except that at the effective time of the merger Article I thereof shall be amended to read in its entirety as follows:
"The name of the corporation (hereinafter
called the "Corporation") is TIME WARNER
COMPANIES INC."
5. The executed Merger Agreement is on file at the principal office of the surviving corporation. The address of the principal office of the surviving corporation is 75 Rockefeller Plaza, New York, NY 10019.
6. A copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation.
7. This Certificate of Merger, and the merger provided for herein, shall not become effective until and shall become effective at 6:00 p.m. (local time in Dover, Delaware) on October 10, 1996.
IN WITNESS WHEREOF, Time Warner Inc. has caused this Certificate of Merger to be signed by Thomas W. McEnerney, its authorized officer, as of this 10th day of October, 1996.
TIME WARNER INC.
By: /s/Thomas W. McEnerney Name: Thomas W. McEnerney Title: Vice President |
Exhibit 3.2
Certificate of Amendment
of
Restated Certificate of Incorporation
of
Time Warner Companies Inc.
TIME WARNER COMPANIES INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify as follows:
1. Article I of the Restated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
"The name of the corporation (hereinafter called the "Corporation") is TIME WARNER COMPANIES, INC."
2. Article III of the Restated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
"The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware."
3. Section 1 of Article IV of the Restated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
"The total number of shares of all classes of stock which the Corporation shall have authority to issue is 60,500,000, consisting of (1) 60,000,000 shares of Preferred Stock, par value $0.01 per share ("Preferred Stock"), and (2) 500,000 shares of Common Stock, par value $0.01 per share ("Common Stock")."
4. Article IV of the Restated Certificate of Incorporation of the Corporation is hereby amended to delete Sections 5 and 6 thereof.
5. Article V of the Restated Certificate of Incorporation of the Corporation is hereby deleted in its entirety.
6. Article VI of the Restated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
"Except as otherwise fixed by or pursuant to the provisions of Article IV hereof relating to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, the number of the directors of the Corporation shall be fixed from time to time by or pursuant to the By-laws of the Corporation."
7. Article VII of the Restated Certificate of Incorpo-ration of the Corporation is hereby deleted in its entirety.
8. Article VIII of the Restated Certificate of Incorpo-ration of the Corporation is hereby amended to read in its entirety as follows:
"In furtherance and not in limitation of the powers conferred upon it by law, the Board of Directors is expressly authorized to adopt, repeal, alter or amend the By-laws of the Corporation."
9. Article IX of the Restated Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
"The Corporation reserves the right to amend, alter or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter proscribed by statute, and all rights conferred upon stockholders herein are subject to this reservation."
10. Article X of the Restated Certificate of Incorporation of the Corporation is hereby amended to delete Section 2 thereof.
11. The foregoing amendments to the Restated Certificate of Incorporation of the Corporation, were duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
12. This Certificate of Amendment of Restated Certificate of Incorporation of the Corporation, and the amendments to the Restated Certificate of Incorporation of the Corporation provided for herein, shall not become effective until and shall become effective at 9:00 a.m. (local time in Dover, Delaware) on October 11, 1996
IN WITNESS WHEREOF, Time Warner Companies Inc. has caused this Certificate of Amendment of Restated Certificate of Incorporation to be signed by Thomas W. McEnerney, its authorized officer, as of this 11th day of October, 1996.
TIME WARNER COMPANIES INC.
By: /s/Thomas W. McEnerney Name: Thomas W. McEnerney Title: Vice President |
Exhibit 3.3
BY-LAWS
OF
TIME WARNER COMPANIES, INC.
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of Time Warner Companies, Inc. (the "Corporation"), in the State of Delaware shall be at 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, Delaware 19904. The name of the registered agent in charge thereof is The Prentice-Hall Corporation System, Inc.
SECTION 2. Other Offices. The Corporation may have such other office or offices in such place or places, within or without the State of Delaware, as the Board of Directors (the "Board") may from time to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Stockholders' Consent in Lieu of Meeting
SECTION 1. Place of Meetings. All meetings of the stockholders of the Corporation (the "stockholders") shall be held at the office of the Corporation or at such other place or places, within or without the State of Delaware, as may from time to time be fixed by the Board or the President.
SECTION 2. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such place and hour as shall be fixed by the Board and specified in the notice of such meeting.
SECTION 3. Special Meeting. A special meeting of the stockholders for any purpose or purposes, unless otherwise prescribed by law, may be called at any time by the President or by order of the Board or by a stockholder or stockholders holding of record at least 50% of all the shares of stock of the Corporation then outstanding and entitled to vote thereat, to be held on such date and at such place and hour as shall be specified in the notice thereof.
SECTION 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of the stockholders shall be given not less than 10 days nor more than 60 days before the date on which the meeting is to be held, to each stockholder of record entitled to notice of, or to vote at, such meeting by delivering a notice thereof to such stockholder personally, or by depositing such notice in the United States mail in a postage-prepaid envelope addressed to him at his post office address furnished by him to the Secretary for such purpose, or, if he shall not have furnished his address to the Secretary for such purpose, then at his post office address as it appears on the records of the Corporation, or by transmitting a notice thereof to him at such address by telegraph, cable or other form of recorded communication. Every such notice shall state the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes thereof.
Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy (other than a stockholder who attends such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened), or who shall have waived notice thereof as provided in Article XII.
SECTION 5. List of Stockholders. It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of its stock ledger, to prepare and make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in such stockholder's name. Such list shall be produced and kept available at the time and places required by law.
SECTION 6. Quorum. At each meeting of the stockholders, except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, stockholders holding of record a majority of the shares of stock of the Corporation entitled to be voted thereat shall be present in person or by proxy to constitute a quorum for the transaction of business. The absence from any meeting of stockholders holding the number of shares of stock of the Corporation required by the laws of the State of Delaware or by the Certificate of Incorporation of the Corporation or by these By-laws for action upon any given matter shall not prevent action at such meeting upon any other matter or matters which may properly come before the meeting, if there shall be present thereat in person or by proxy stockholders holding the number of shares of stock of the Corporation required in respect of such other matter or matters.
SECTION 7. Adjournments. In the absence of a quorum at any meeting of stockholders or any adjournment or adjournments thereof, a majority in voting interest of those present in person or by proxy and entitled to vote thereat, or in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time. At any such adjourned meeting at which a quorum may be present, any business may be transacted which might have been transacted at the meeting as originally called. Notice of any adjourned meeting of the stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken, except if the adjournment is for more than 30 days or if after the adjournment a new record date is fixed for the adjourned meeting.
SECTION 8. Organization. At each meeting of the stockholders, the President, or, in his absence, a chairman chosen by a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary, shall act as secretary at all meetings of the stockholders. In the absence of the Secretary and the Assistant Secretaries, the chairman may appoint any person present to act as secretary of the meeting.
SECTION 9. Order of Business. The order of business at each meeting of the stockholders shall be determined by the chairman of the meeting, but such order of business may be changed by the vote of a majority in voting interest of stockholders present in person or by proxy and entitled to vote thereat.
SECTION 10. Voting. Except as otherwise provided by law or by the Certificate of Incorporation of the Corporation, each stockholder shall, at each meeting of stockholders, be entitled to one vote in person or by proxy for each share of stock of the Corporation registered in his name on the books of the Corporation:
(a) on the date fixed by the Board as the record date for the determination of stockholders entitled to notice of and to vote at such meeting, which date shall be not more than 60 nor less than 10 days before the date of such meeting; or
(b) if no such record date shall have been fixed, then (i) at the close of business on the day next preceding the day on which notice of the meeting shall be given, or (ii) if notice of the meeting shall be waived, at the close of business on the day next preceding the day on which the meeting shall be held.
Shares of its own stock belonging to the Corporation shall not be voted directly or indirectly. At all meetings of the stockholders all matters, except as otherwise provided by the Certificate of Incorporation of the Corporation, by these By-laws or by law, shall be decided by the vote of a majority in voting interest of stockholders present in person or by proxy and entitled to vote thereat, a quorum being present. Except as otherwise provided by the Certificate of Incorporation of the Corporation, by these By-laws or by law, or demanded by a stockholder present in person or by proxy at any meeting of the stockholders and entitled to vote thereat, or so directed by the chairman of the meeting, the vote thereat on any question need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy if there be such proxy, and shall state the number of shares voted.
SECTION 11. Action by Consent. Anything in these By-laws to the contrary notwithstanding, any action required by law to be, or which may be, taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed in person or by proxy by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Such writing or writings shall be filed with the minutes of stockholders' meetings and prompt notice of the taking of any such action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
Board of Directors
SECTION 1. General Powers. The property, business and affairs of the Corporation shall be managed by the Board, which may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law, by the Certificate of Incorporation of the Corporation or by these By-laws directed or required to be exercised or done by the stockholders.
SECTION 2. Number and Term of Office. The number of members constituting the Board of Directors shall be three or such other number as shall be determined from time to time by resolutions adopted by a majority of the whole Board. As used herein, the term "whole Board" shall mean the total number of positions on the Board fixed in the manner provided by these By-laws, regardless of the number of directors then holding office. Directors need not be stockholders. Each director shall hold office until his successor shall have been elected and shall qualify, or until his earlier death, or until his earlier resignation or removal in the manner hereinafter provided.
SECTION 3. Election of Directors. At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving the greatest number of votes, up to the number of directors to be elected, shall be the directors.
SECTION 4. Quorum and Manner of Acting. Except as otherwise expressly required by applicable law, by the Certificate of Incorporation of the Corporation or by these By-laws, a majority of the directors then holding office shall constitute a quorum for the transaction of business at any meeting and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board; provided, however, that, if the number of directors then holding office shall be a number less than three, one director shall constitute a quorum for the transaction of business at any meeting. In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum shall be present thereat. Notice of any adjourned meeting need not be given.
SECTION 5. Place of Meeting. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board may from time to time determine or as shall be specified or fixed in the respective notices or waivers of notice thereof.
SECTION 6. Organizational Meetings. The Board shall meet for the purpose of organization, the election of officers and the transaction of other business as soon as practicable after the annual election of directors and on the same day and at the same place at which a regular meeting of the Board is to be held, in which case notice of such meeting need not be given, or at any other time or place which shall be specified in a notice given as provided in Section 9 of this Article III or in a consent and waiver of notice thereof signed by all the directors.
SECTION 7. Regular Meetings. Regular meetings of the Board shall be held at such places and at such times as the Board shall from time to time determine.
SECTION 8. Special Meetings. Special meetings of the Board, at which any and all business may be transacted, shall be held whenever called by any director.
SECTION 9. Notice of Meetings. Notice of regular meetings of the Board need not be given. Notice of each special meeting of the Board shall be mailed to each director, addressed to him at his residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to him at such place by telegraph, cable or other form of recorded communication, or be given personally or by telephone, not later than the day before the day on which such meeting is to be held. Every such notice shall state the time and place of the meeting but need not state the purposes thereof except as otherwise by these By-laws provided. Notice of any meeting of the Board need not be given to any director who shall have waived notice thereof as provided in Article XII. The Secretary, or, in his absence, an Assistant Secretary, or, in the absence of the Secretary and Assistant Secretaries, any person appointed by the chairman, shall act as secretary of the meeting.
SECTION 10. Order of Business. At all meetings of the Board, business shall be transacted in the order determined by the chairman of the meeting, subject to the approval of the Board.
SECTION 11. Action by Consent. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or of such committee, as the case may be, consent thereto in a writing or writings and such writing or writings are filed with the minutes of the proceedings of the Board or such committee.
SECTION 12. Action by Means of Conference Telephone or Similar Communications Equipment. Any member of the Board of Directors or any committee thereof may participate in any meeting of the Board or of such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
SECTION 13. Resignations. Any director of the Corporation may resign at any time by giving written notice to the Board, the President or the Secretary. The resignation of any director shall take effect upon receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 14. Removal of Directors. Any director or the entire Board may be removed, either with or without cause, at any time, by the affirmative vote of stockholders holding of record a majority of the shares of stock of the Corporation entitled to be voted at a meeting of stockholders, given at a special meeting of stockholders called for the purpose; and the vacancy in the Board caused by any such removal may be filled by the stockholders at such meeting or as otherwise provided in Section 15 of this Article III.
SECTION 15. Vacancies. Any vacancies in the Board caused by death, resignation, removal, disability, an increase in the number of directors or any other cause may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until the next annual election and until his successor shall have been elected and shall qualify, or until his earlier death, or until his earlier resignation or removal in the manner herein provided. Any vacancy in the Board created by the resignation of a director effective at a future date may be filled by a majority of the directors then in office, including such resigning director, the vote thereon to take effect when such resignation becomes effective.
SECTION 16. Compensation. Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board may receive a fixed sum and expenses incurred in performing the functions of director and member of any committee of the Board. Nothing herein contained shall be construed so as to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
Indemnification
SECTION 1. Right to Indemnification. The Corporation shall to the fullest extent permitted by applicable law as then in effect indemnify any person (the "Indemnitee") who is or was a director or officer of the Corporation and who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigation (including without limitation, any action, suit or proceeding by or in the right of the Corporation to procure a judgment in its favor) (a "Proceeding") by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding. Such indemnification shall be a contract right and shall include the right to receive payment in advance of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of applicable law as then in effect.
SECTION 2. Insurance, Contracts and Funding. The Corporation may purchase and maintain insurance to protect itself and any person entitled to indemnification under this Article IV against any expenses, judgments, fines and amounts paid in settlement as specified in this Article IV or incurred by any such person in connection with any Proceeding referred to in this Article IV, to the fullest extent permitted by applicable law as then in effect. The Corporation may enter into contracts with any person entitled to indemnification under this Article IV and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification as provided in this Article IV.
SECTION 3. Indemnification Not Exclusive Right. The right of indemnification provided in this Article IV shall not be exclusive of any other rights to which those seeking indemnification may otherwise be entitled, and the provisions of this Article IV shall inure to the benefit of the heirs and legal representatives of any person entitled to indemnity under this Article IV and shall be applicable to Proceedings commenced or continuing after the adoption of this Article IV, whether arising from acts or omissions occurring before or after such adoption.
SECTION 4. Advancement of Expenses; Procedures; Presumptions and Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation of the foregoing provisions, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this Article IV:
(a) Advancement of Expenses. All reasonable expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding shall be advanced to the Indemnitee by the Corporation within 20 calendar days after the receipt by the Corporation of a statement or statements from the Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article IV.
(b) Procedure for Determination of Entitlement to Indemnification. (i) To obtain indemnification under this Article, an Indemnitee shall submit to the Secretary a written request, including such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification (the "Supporting Documentation"). The determination of the Indemnitee's entitlement to indemnification shall be made not later than 60 calendar days after receipt by the Corporation of the written request for indemnification together with the Supporting Documentation. The Secretary shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification
under this Article IV shall be determined in one of the following
ways: (A) by a majority vote of the Disinterested Directors (as
hereinafter defined); (B) by a written opinion of Independent
Counsel (as hereinafter defined) if a majority of such
Disinterested Directors so directs; (C) by the stockholders of
the Corporation (but only if a majority of the Disinterested
Directors presents the issue of entitlement to indemnification to
the stockholders for their determination); or (D) as provided in
Section 4(c) of this Article IV.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to
Section 4(b)(ii) of this Article IV, a majority of the
Disinterested Directors shall select the Independent Counsel, but
only an Independent Counsel to which the indemnitee does not
reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise expressly provided in this Article IV, the Indemnitee shall be presumed to be entitled to indemnification under this Article IV upon submission of a request for indemnification together with the Supporting Documentation in accordance with Section 4(b)(i) of this Article IV, and thereafter the Corporation shall have the burden of proof to overcome that presumption in reaching a contrary determination. In any event, if the person or persons empowered under Section 4(b) of this Article IV to determine entitlement to indemnification shall not have been appointed or shall not have made a determination within 60 calendar days after receipt by the Corporation of the request therefor together with the Supporting Documentation, the Indemnitee shall be deemed to be entitled to indemnification and the Indemnitee shall be entitled to such indemnification unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. The termination of any Proceeding described in Section 1 of this Article IV, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the right of the Indemnitee to indemnification or create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that his conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a determination is made pursuant to Section 4(b) of this Article IV that the Indemnitee is not entitled to indemnification under this Article IV, (A) the Indemnitee shall be entitled to seek an adjudication of his entitlement to such indemnification either, at the Indemnitee's sole option, in (x) an appropriate court of the State of Delaware or any other court of competent jurisdiction or (y) an arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association; (B) any such judicial proceeding or arbitration shall be de novo and the Indemnitee shall not be prejudiced by reason of such adverse determination; and (C) in any such judicial proceeding or arbitration the Corporation shall have the burden of proving that the Indemnitee is not entitled to indemnification under this Article IV.
(ii) If a determination shall have been made or deemed to have been made, pursuant to Section 4(b) or (c) of this Article IV, that the Indemnitee is entitled to indemnification, the Corporation shall be obligated to pay the amounts constituting such indemnification within five days after such determination has been made or deemed to have been made and shall be conclusively bound by such determination unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. In the event that (x) advancement of expenses is not timely made pursuant to Section 4(a) of this Article IV or (y) payment of indemnification is not made within five calendar days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section 4(b) or (c) of this Article IV, the Indemnitee shall be entitled to seek judicial enforcement of the Corporation's obligation to pay to the Indemnitee such advancement of expenses or indemnification. Notwithstanding the foregoing, the Corporation may bring an action, in an appropriate court in the State of Delaware or any other court of competent jurisdiction, contesting the right of the Indemnitee to receive indemnification hereunder due to the occurrence of an event described in subclause (A) or (B) of this clause (ii) (a "Disqualifying Event"); provided, however, that in any such action the Corporation shall have the burden of proving the occurrence of such Disqualifying Event.
(iii) The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4(d) that the procedures and presumptions of this Article IV are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Article IV.
(iv) In the event that the Indemnitee, pursuant to this
Section 4(d) seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages
for breach of, this Article IV, the Indemnitee shall be entitled
to recover from the Corporation, and shall be indemnified by the
Corporation against, any expenses actually and reasonably
incurred by the Indemnitee if the Indemnitee prevails in such
judicial adjudication or arbitration. If it shall be determined
in such judicial adjudication or arbitration that the Indemnitee
is entitled to receive part of but not all the indemnification or
advancement of expenses sought, the expenses incurred by the
Indemnitee in connection with such judicial adjudication or
arbitration shall be prorated accordingly.
(e) Definitions. For purposes of this Article IV:
(i) "Disinterested Director" means a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee.
(ii) "Independent Counsel" means a law firm or a member of a law firm that neither presently is, nor in the past five years has been, retained to represent: (a) the Corporation or the indemnitee in any matter material to either such party or (b) any other party to the Proceeding giving rise to a claim for indemnification under this Article IV. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing under the law of the State of Delaware, would have a conflict of interest in representing either the Corporation or the Indemnitee in an action to determine the Indemnitee's rights under this Article IV.
SECTION 5. Effect of Amendments. Neither the amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article IV (including, without limitation, this Section 5) shall adversely affect the rights of any director of officer under this Article IV with respect to any Proceeding commenced or threatened prior to such amendment, repeal or adoption of any inconsistent provision, without the written consent of such director or officer.
SECTION 6. Severability. If any provision or provisions of this Article IV shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article IV (including, without limitation, all portions of any section of this Article IV containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article IV (including, without limitation, all portions of any section of this Article IV containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
SECTION 7. Indemnification of Employees and Agents. Notwithstanding any other provision or provisions of this Article IV, the Corporation may indemnify (including, without limitation, by direct payment) any person (other than a director or officer of the Corporation) who is or was involved in any manner (including, without limitation, as a party or witness) or is threatened to be made so involved in any Proceeding by reason of the fact that such person is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against any or all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement incurred in connection with such Proceeding.
ARTICLE V
Committees
SECTION 1. Appointment and Powers. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation of the Corporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock of the Corporation adopted by the Board as provided in Section 151 of the General Corporation Law of the State of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law of the State of Delaware, recommending to the stockholders the sale, lease or exchange of all or substantially all the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-laws of the Corporation, and unless the resolution or the Certificate of Incorporation of the Corporation expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock of the Corporation or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board.
SECTION 2. Committee Minutes. Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
ARTICLE VI
Officers
SECTION 1. Number. The officers of the Corporation
shall be a President, a Treasurer and a Secretary. Other
officers may be elected in accordance with the provisions of
Section 3 of this Article VI including without limitation an
Executive Vice President, one or more Vice Presidents and one or
more Assistant Secretaries or Assistant Treasurers. One person
may hold the offices and perform the duties of any two or more of
said officers.
SECTION 2. Election, Term of Office, Qualifications and Removal. The officers shall be elected by the Board. Each officer shall hold office until his successor shall have been elected and shall qualify or until his earlier death, or until his earlier resignation or removal in the manner hereinafter provided. The President shall be elected from among the members of the Board. Any officer may be removed at any time, either with or without cause, by an affirmative vote of a majority of the Board.
SECTION 3. Additional Officers. The Board may from time to time elect such other officers as it may deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as the Board may from time to time specify. The Board or the President may from time to time appoint such agents and employees of the Corporation as may be deemed proper who shall hold office for such period, have such authority and perform such duties as are provided in these By-laws or as the Board or the President may from time to time prescribe.
SECTION 4. Resignations. Any officer may resign at any time by giving notice to the Board, the President or the secretary. Any such resignation shall take effect at the date of receipt of such notice or at any later date specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 5. Vacancies. Any vacancies in any office because of death, resignation, removal or disability shall be filled for the unexpired portion of the term in the manner prescribed in these By-laws for election to such office.
SECTION 6. President. The President, subject to the direction of the Board, shall be the chief executive officer of the Corporation, shall have the responsibility for the general management and control of the affairs and business of the Corporation, shall have the direction of all other officers, agents and employees and may delegate such duties and powers to the other officers of the Corporation as he deems appropriate. He shall preside at the meetings of the Board and of the stockholders.
SECTION 7. Executive Vice President. The Executive Vice President, in the absence of or disability of the President, shall perform the duties of the President and, when so acting, should have all the powers of, and be subject to all the restrictions upon, the President and shall also perform such other duties as may be delegated to him from time to time by the Board or by the President.
SECTION 8. Vice Presidents. Each Vice President shall have such powers and perform such duties as the President or the Board may from time to time prescribe. In case of the absence of or disability of the President and the Executive Vice President, the Vice Presidents, in the order of their respective seniorities or areas of responsibility, shall perform the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President.
SECTION 9. Treasurer. The Treasurer shall receive and have the custody of all moneys and securities belonging to the Corporation, and shall deposit all moneys in the name and to the credit of the Corporation. He shall disburse for its account the funds of the Corporation, taking proper vouchers therefor, but each person or persons as he may from time to time authorize shall have authority to draw checks against deposits of the Corporation in any bank or trust company, and drafts as required, to endorse checks, drafts, bills of exchange, orders and certificates of deposit which may need endorsement, for deposit to the credit of the Corporation in any bank or trust company, and to accept drafts or bills of exchange which may be drawn on the Corporation. He shall keep such records as may be required in the proper performance of his duties and shall render to the President and the Board, at the regular meetings of the Board and whenever they may desire it, an account of all his transactions as Treasurer and of the financial condition of the Corporation, and shall perform all acts incident to the position of Treasurer.
SECTION 10. Secretary. The Secretary shall have the custody of all stock certificate books, transfer books and stock ledgers, and all books, records and papers of the Corporation except such as the Treasurer shall have charge of. He shall affix the corporate seal to all documents and contracts requiring the corporate seal when the same shall have been signed on behalf of the Corporation by a duly authorized officer, employee or agent. He shall, to the extent practicable, attend and keep the minutes of all meetings of the Board, the stockholders and any committees of the Board in one or more books kept for that purpose. He shall attend to the giving and serving of all notices of meetings of stockholders and special meetings of directors and such other notices as he may be directed to give and serve by the Board. He shall, in general, subject to the control of the Board, perform all the duties incident to the office of Secretary and such other duties as may be from time to time assigned to him by the Board or the President.
SECTION 11. Assistant Secretaries. The Assistant Secretary or, if there be more than one Assistant Secretary, any Assistant Secretary, shall, in the absence, disability or death of the Secretary, perform the duties and exercise the powers of the Secretary. Each Assistant Secretary shall have such other powers and shall perform such other duties as may be from time to time assigned to him by the Board, by the President or by the Secretary.
ARTICLE VII
Contracts, Checks, Drafts, Bank Accounts, etc.
SECTION 1. Execution of Documents. The Board shall designate the officers, employees and agents of the Corporation who shall have power to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation and may authorize such officers, employees and agents to delegate such power (including authority to redelegate) by written instrument to other officers, employees or agents of the Corporation. Unless so authorized by the Board, no such officer, employee or agent shall have any power or authority to bind the Corporation by any contract or engagement or pledge its credit or render it liable for any purpose or amount.
SECTION 2. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or the President or any other officer of the Corporation to whom power in that respect shall have been delegated by the Board shall select.
SECTION 3. Proxies in Respect of Stock or Other Securities of Other Corporations. The Board shall designate the officers of the Corporation who shall have authority from time to time to appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities or interests in any other corporation or business entity and to vote or consent in respect of such stock, securities or interest; such designated officers may instruct the person or persons so appointed as to the manner of exercising such powers and rights; and such designated officers may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, such written proxies, powers of attorney and other instruments as they may deem necessary or proper in order that the Corporation may exercise its said powers and rights.
ARTICLE VIII
Books and Records
The books and records of the Corporation may be kept at such places within or without the State of Delaware as the Board may from time to time determine.
ARTICLE IX
Shares and Their Transfer
SECTION 1. Certificates for Shares. Every owner of stock of the Corporation shall be entitled to have a certificate certifying the number of shares owned by him in the Corporation and designating the class of stock to which such shares belong, which shall otherwise be in such form as the Board shall prescribe. Each such certificate shall be signed by or in the name of the Corporation by the President or a Vice President and by the Secretary or the Treasurer. Any of or all such signatures may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. A record shall be kept of the name of the person, firm or corporation owning the shares represented by each certificate for stock of the Corporation issued, the number of shares represented by each such certificate, the date thereof and, in the case of cancellation, the date of cancellation.
SECTION 2. Transfer of Shares. The transfer of stock and certificates which represent the stock of the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of the Delaware Code (the Uniform Commercial Code), as amended from time to time. Except as otherwise expressly required by law, the person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation.
SECTION 3. Lost, Destroyed and Mutilated Certificates.
(a) Where a certificate for stock of the Corporation has been
lost, apparently destroyed or wrongfully taken, the issuance of a
new stock certificate or the claims based on such certificate shall
be governed by Article 8 of Subtitle 1 of Title 6 of the Delaware Code
(the Uniform Commercial Code), as amended from time to time.
(b) Where the holder of any certificate for stock of the Corporation notifies the Corporation of the mutilation of such certificate within a reasonable time after he has notice of it, the Corporation will issue a new certificate for stock in exchange for such mutilated certificate theretofore issued by it.
(c) The Board may, in its discretion, require the owner of the lost, stolen, destroyed or mutilated certificate to give the Corporation a bond in such sum, limited or unlimited, in such form and with such surety or sureties sufficient to indemnify the Corporation against any claim that may be made against it on account of the loss, theft, destruction or mutilation of any such certificate or the issuance of any such new certificate.
ARTICLE X
Seal
The Board may provide a corporate seal, which shall be in the form of a circle and shall bear the full name of the Corporation, the words "Corporate Seal" and in figures the year of its incorporation, or such other words or figures as the Board may approve and adopt.
ARTICLE XI
Fiscal Year
The fiscal year of the Corporation shall end on the 31st day of December in each year or on such other date as may be determined by resolution of the Board.
ARTICLE XII
Waiver of Notice
Whenever any notice whatever is required to be given by these By-laws or by the Certificate of Incorporation of the Corporation or by any law, the person entitled thereto may, in person or by attorney thereunto authorized, in writing or by telegraph, cable or other form of recorded communication, waive such notice, whether before or after the meeting or other matter in respect of which such notice is given, and in such event such notice need not be given to such person and such waiver shall be deemed equivalent to such notice.
ARTICLE XIII
Amendments
These By-laws, or any of them, may be altered, amended or repealed, or new By-laws may be made, at any annual or special meeting, by the stockholders having voting power, or by Board action. By-laws made, altered or amended by the Board shall be subject to alteration, amendment or repeal by the stockholders.
Exhibit 4.1
SECOND SUPPLEMENTAL INDENTURE (this
"Second Supplemental Indenture") dated as of
October 10, 1996, among TIME WARNER INC., a
Delaware corporation (the "Company"), TW INC.,
a Delaware corporation (the "Guarantor"), and
THE CHASE MANHATTAN BANK (formerly known
as Chemical Bank), a New York banking corporation,
as trustee (the "Trustee").
WHEREAS the Company has executed and delivered to the Trustee an Indenture (the "Senior Indenture"), dated as of January 15, 1993, providing for the issuance and sale by the Company from time to time of its senior debt securities (the "Securities"), which term shall include any Securities issued under the Senior Indenture after the date hereof;
WHEREAS the Company proposes in and by this Second Supplemental Indenture to supplement and amend the Senior Indenture in certain respects as it applies to Securities issued thereunder;
WHEREAS pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of September 22, 1995, as amended, among the Guarantor, the Company, Turner Broadcasting System, Inc. ("TBS"), Time Warner Acquisition Corp. and TW Acquisition Corp., the Company and TBS will each merge with wholly owned subsidiaries of the Guarantor (the "Mergers");
WHEREAS Section 901(5) of the Senior Indenture permits the Company, when authorized by a resolution of the Board of Directors of the Company, and the Trustee, at any time and from time to time, to enter into one or more indentures supplemental to the Senior Indenture, in form satisfactory to the Trustee, for the purpose of adding to the rights of the Holders of the Securities;
WHEREAS the Guarantor desires to unconditionally and irrevocably guarantee the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Senior Indenture (including obligations to the Trustee) and the Securities, and the full and punctual performance within applicable grace periods of all other
obligations of the Company under the Senior Indenture and the Securities;
WHEREAS the Guarantor desires to execute and deliver this Second Supplemental Indenture in accordance with Article Twelve of the First Supplemental Indenture dated as of June 15, 1993 (the "LYONs Supplemental Indenture"), between the Company and the Trustee, pursuant to which the Company issued Liquid Yield Option Notes due 2013 ("LYONs"), to provide, among other things, that common stock of the Guarantor shall be deliverable upon conversion of the LYONs and may be deliverable upon redemption of the LYONs; and
WHEREAS the Company and the Guarantor have requested that the Trustee execute and deliver this Second Supplemental Indenture and all requirements necessary to make this Second Supplemental Indenture a valid instrument in accordance with its terms and to make the guarantee provided for herein the valid obligation of the Guarantor, and the execution and delivery of this Second Supplemental Indenture has been duly authorized in all respects.
NOW THEREFORE, the Company, the Guarantor and the Trustee hereby agree that the following Sections of this Second Supplemental Indenture supplement the Senior Indenture and the LYONs Supplemental Indenture, as applicable, with respect to Securities issued thereunder:
SECTION 1. Definitions. (a) Capitalized terms used herein and not defined herein have the meanings ascribed to such terms in the Senior Indenture and the LYONs Indenture.
(b) Article One, Section 101, of the Senior Indenture and the LYONs Supplemental Indenture is hereby supplemented, solely with respect to the LYONs, to amend the definition of "Common Stock" to read in its entirety as follows:
"Common Stock" means the common stock, par value $.01 per share, of the Guarantor.
SECTION 2. The Guarantee. (a) The Guarantor irrevocably and unconditionally guarantees (the "Guarantee"), to each Holder of Securities (including each
Holder of Securities issued under the Senior Indenture after the date of this Second Supplemental Indenture) and to the Trustee and its successors and assigns, (i) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Senior Indenture (including obligations to the Trustee) and the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Senior Indenture and the Securities.
(b) The Guarantor further agrees that the Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(c) The obligation of the Guarantor to make any payment hereunder may be satisfied by causing the Company to make such payment.
(d) The Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder of Securities in enforcing any of their respective rights under the Guarantee.
SECTION 3. Amendments to the LYONs Supplemental Indenture. (a) Paragraph (d)(vi) of Section 1110 of Article Eleven of the Senior Indenture is hereby amended, solely with respect to the LYONs Supplemental Indenture and the LYONs, to read in its entirety as follows:
"(iv) the receipt by the Trustee of an Officers' Certificate and an Opinion of Counsel each stating that the terms of the delivery of the Common Stock are in conformity with this Indenture and that the shares of Common Stock to be issued by the Guarantor in payment of the Purchase Price in respect of LYONs have been duly authorized and, when issued and delivered pursuant to the terms of this Indenture in payment of the Purchase Price in respect of the LYONs, will be validly issued, fully paid and nonassessable and shall be free of any preemptive rights and any lien or adverse claim (provided that such Opinion of Counsel may state that, insofar as it relates to the absence of such preemptive rights, liens and adverse claims, it is given upon the best knowledge of such counsel), and, in the case of such Officers' Certificate, that conditions
(i), (ii) and (iii) above have been satisfied and, in the case of such Opinion of Counsel, that the conditions set forth in clauses (ii) and (iii) above have been satisfied."
(b) Paragraph (f) of Section 1110 of Article Eleven of the Senior Indenture is hereby amended, solely with respect to the LYONs Supplemental Indenture and the LYONs, to read in its entirety as follows:
"(f) Covenants of the Guarantor. The
Guarantor hereby warrants that all shares of Common
Stock delivered in payment, in whole or in part, of the
Purchase Price upon purchase of a LYON pursuant to this
Section 1110 shall be newly issued shares or treasury
shares, shall be duly and validly issued, fully paid
and nonassessable and shall be free from preemptive
rights and free of any lien or adverse claim.
The Guarantor shall use its best efforts to list or cause to have quoted any shares of Common Stock to be issued pursuant to this Section 1110 on the principal national securities exchange or over-the-counter or other domestic market on which any other shares of the Common Stock are then listed or quoted. The Guarantor will promptly inform the Trustee in writing of any such listing."
(c) Article Twelve of the Senior Indenture is hereby amended, solely with respect to the LYONs Supplemental Indenture and the LYONs, to read in its entirety as follows:
"ARTICLE VIII
Conversion
Article Twelve of the Senior Indenture is hereby amended, solely with respect to a series of Securities that consists of LYONs, to delete Sections 1201 through 1212 and to add in their place the following Sections 1201 through 1219:
Section 1201. Conversion Privilege. A Holder of a LYON may convert such LYON into Common Stock at any time during the period stated in paragraph 7 of the LYONs. The number of shares of Common Stock
issuable upon conversion of a LYON per $1,000 of Principal Amount at Maturity thereof (the "Conversion Rate") shall be that set forth in paragraph 7 of the LYONs as the same may have been adjusted (i) for events occurring prior to the effective time of the Mergers, with respect to the common stock of the Company into which the LYONs were convertible prior to such effective time and (ii) for events occurring after the effective time of the Mergers, with respect to the Common Stock as set forth herein.
A Holder may convert a portion of the Principal Amount of a LYON if the portion is $1,000 or an integral multiple of $1,000. Provisions of this Indenture that apply to conversion of all of a LYON also apply to conversion of a portion of a LYON.
LYONs in respect of which a Purchase Notice or Change in Control Purchase Notice, as the case may be, has been given by the Holder thereof may not be converted pursuant to this Article Twelve on or after the date of the delivery of such Purchase Notice or Change in Control Purchase Notice, as the case may be, unless such Purchase Notice or Change in Control Purchase Notice, as the case may be, has first been validly withdrawn and, in any event, the right to convert a LYON pursuant to this Article Twelve lapses, upon purchase of such LYON by the Company (including pursuant to any purchase or redemption pursuant to Article Eleven).
Section 1202. Conversion Procedure. (a) To convert a LYON a Holder must satisfy the requirements in paragraph 7 of the LYONs. The date on which the Holder satisfies all those requirements is the conversion date (the "Conversion Date"). The Company shall deliver to the Holder no later than the seventh Business Day following the Conversion Date, through the Conversion Agent, a certificate for the number of shares of Common Stock issuable upon the conversion and cash in lieu of any fractional share determined pursuant to Section 1203.
Delivery of such certificate and delivery of any check for any cash in lieu of fractional interests therein may be delayed for a reasonable time at the request of the Company in order to effectuate the calculation of adjustments of the Conversion Rate
pursuant to this Article Twelve. If, between any Conversion Date and the related date of delivery of shares of Common Stock, such shares shall cease to have any or certain rights, the Holder entitled to receive such shares shall be entitled only to receive such shares as so modified and any proceeds received thereon on or after such Conversion Date, and the Company, the Trustee and the Conversion Agent shall not be otherwise liable with respect to the modification, from such Conversion Date to the date of such delivery, of such shares of Common Stock.
The Person entitled to receive Common Stock issuable upon conversion shall be treated as a stockholder of record of the Guarantor on and after the Conversion Date; provided, however, that no surrender of a LYON on any date when the stock transfer books of the Guarantor shall be closed shall be effective to constitute the Person or Persons entitled to receive the shares of Common Stock upon such conversion as the record holder or holders of such shares of Common Stock on such date, but such surrender shall be effective to constitute the Person or Persons entitled to receive such shares of Common Stock as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open; provided, further, however, that such conversion shall be at the Conversion Rate in effect on the date that such LYON shall have been surrendered for conversion, as if the stock transfer books of the Guarantor had not been closed. Upon conversion of a LYON, such Person shall no longer be a Holder of such LYON.
No payment or adjustment will be made for dividends on, or other distributions with respect to, any Common Stock except as provided in this Article Twelve. On conversion of a LYON, that portion of accrued OID attributable to the period from the Issue Date of the LYON through the Conversion Date with respect to the converted LYON shall not be cancelled, extinguished or forfeited, but rather shall be deemed to be paid in full to the Holder thereof through delivery of the Common Stock (together with the cash payment, if any, in lieu of fractional shares) in exchange for the LYON being converted pursuant to the provisions hereof.
If the Holder converts more than one LYON at the same time, the number of shares of Common Stock issuable upon the conversion shall be computed based on the total Principal Amount at Maturity of the LYONs converted.
Upon surrender of a LYON that is converted in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder, a new LYON in an authorized denomination equal in Principal Amount at Maturity to the unconverted portion of the LYON surrendered.
If the last day on which a LYON may be converted is not a Business Day in a place where the Conversion Agent is located, the LYON may be surrendered to such Conversion Agent on the next succeeding day that is a Business Day.
(b) Notwithstanding anything to the contrary
contained herein, in the event the Company shall have
rescinded a redemption of LYONs pursuant to Section
1109 hereof, any Holder of LYONs that shall have
surrendered LYONs for conversion following the day on
which notice of the subsequently rescinded redemption
shall have been given but prior to the date of the
mailing of the notice of rescission required by Section
1109 hereof (a "Converting Holder") may rescind the
conversion of such LYONs surrendered for conversion by
(i) properly completing a form prescribed by the
Company and mailed to Holders of LYONs (including
Converting Holders) with the Company's notice of
rescission, which form shall provide for the
certification by any Converting Holder rescinding a
conversion on behalf of any beneficial owner (within
the meaning of Rule 13d-3 under the Exchange Act) of
LYONs that the beneficial ownership (within the meaning
of such Rule) of such LYONs shall not have changed from
the date on which such LYONs were surrendered for
conversion to the date of such certification and (ii)
delivering such form to the Company no later than the
close of business on that date which is fifteen Trading
Days following the date of the mailing of the Company's
notice of rescission. The delivery of such form by a
Converting Holder shall be accompanied by (x) any
certificates representing shares of Common Stock issued
to such Converting Holder upon a conversion of LYONs
that shall be rescinded by the proper delivery of such
form (the "Surrendered Common Stock"), (y) any
securities, evidences of indebtedness or assets (other
than cash) distributed by the Guarantor to such
Converting Holder by reason of such Converting Holder
being a record holder of Surrendered Common Stock and
(z) payment in New York Clearing House funds or other
funds acceptable to the Company of an amount equal to
the sum of (I) any cash such Converting Holder may have
received in lieu of the issuance of fractional
Surrendered Common Stock and (II) any cash paid or
payable by the Guarantor to such Converting Holder by
reason of such Converting Holder being a record holder
of Surrendered Common Stock. Upon receipt by the
Company of any such form properly completed by a
Converting Holder and any certificates, securities,
evidences of indebtedness, assets or cash payments
required to be returned by such Converting Holder to
the Company as set forth above, the Guarantor shall
instruct the transfer agent or agents for shares of
Common Stock or other securities to cancel any
certificates representing Surrendered Common Stock
(which Surrendered Common Stock shall be deposited in
the treasury of the Guarantor) and the Company shall
instruct the Security Registrar to reissue certificates
representing LYONs to such Converting Holder (which
LYONs shall be deemed to have been Outstanding at all
times during the period following their surrender for
conversion). The Company shall, as promptly as
practicable, and in no event more than five Trading
Days following the receipt of any such properly
completed form and any such certificates, securities,
evidences of indebtedness, assets or cash payments
required to be so returned, pay to the Holder of LYONs
surrendered to the Company pursuant to a rescinded
conversion or as otherwise directed by such Holder any
interest paid or other payment made to Holders of LYONs
during the period from the time such LYONs shall have
been surrendered for conversion to the rescission of
such conversion. All questions as to the validity,
form, eligibility (including time of receipt) and
acceptance of any form submitted to the Company to
rescind the conversion of LYONs, including questions as
to the proper completion or execution of any such form
or any certification contained therein, shall be
resolved by the Company, whose determination shall be
final and binding.
Section 1203. Fractional Shares. The Guarantor will not deliver a fractional share of Common Stock upon conversion of a LYON. Instead, the Company will deliver cash for the current market value of the fractional share. The current market value of a fractional share shall be determined to the nearest 1/1,000th of a share by multiplying the Sale Price on the last Trading Day prior to the Conversion Date of a full share by the fractional amount and rounding the product to the nearest whole cent.
Section 1204. Taxes on Conversion. If a Holder converts a LYON, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon such conversion. However, the Holder shall pay any such tax which is due because the Holder requests the shares to be issued in a name other than the Holder's name. The Conversion Agent may refuse to deliver the certificates representing the Common Stock being issued in a name other than the Holder's name until the Conversion Agent receives a sum sufficient to pay any tax which will be due because the shares are to be issued in a name other than the Holder's name. Nothing herein shall preclude any tax withholding required by law or regulations.
Section 1205. Guarantor to Provide Stock. The Guarantor shall, from time to time as may be necessary, reserve out of its authorized but unissued Common Stock a sufficient number of shares of Common Stock to permit the conversion of the LYONs for shares of Common Stock.
All shares of Common Stock delivered upon conversion of the LYONs shall be newly issued shares or treasury shares, shall be duly and validly issued and fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim.
The Guarantor will endeavor promptly to comply with all Federal and state securities laws regulating the offer and delivery of shares of Common Stock upon conversion of LYONs, if any, and will list or cause to have quoted such shares of Common Stock on each national securities exchange or in the over-the-counter market or such other market on which the Common
Stock is then listed or quoted. The Guarantor will promptly inform the Trustee of any such listing.
Section 1206. Adjustment for Change in Capital Stock. If, after the Issue Date, the Guarantor:
(1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock;
(2) subdivides its outstanding shares of Common Stock into a greater number of shares;
(3) combines its outstanding shares of Common Stock into a smaller number of shares;
(4) pays a dividend or makes a distribution on its Common Stock in shares of its Capital Stock (other than Common Stock or rights, warrants or options for its Capital Stock); or
(5) issues by reclassification of its Common Stock any shares of its Capital Stock (other than rights, warrants or options for its Capital Stock),
then the conversion privilege and the Conversion Rate in effect immediately prior to such action shall be adjusted so that the Holder of a LYON thereafter converted may receive the number of shares or other units of Capital Stock of the Guarantor which such Holder would have owned immediately following such action if such Holder had converted the LYON immediately prior to such action.
The adjustment shall become effective retroactively immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification.
If after an adjustment a Holder of a LYON upon conversion of such LYON may receive shares or other units of two or more classes or series of Capital Stock of the Guarantor, the Conversion Rate shall thereafter be subject to adjustment upon the occurrence of an action taken with respect to any such class or series of Capital Stock as is contemplated by this
Article Twelve with respect to the Common Stock, on terms comparable to those applicable to Common Stock in this Article Twelve. For the purposes of this Section 1206, each Holder shall be deemed to have failed to exercise any right to elect the kind or amount of securities receivable upon the payment of any such dividend, subdivision, combination, conversion or reclassification (provided that if the kind or amount of securities receivable upon such dividend, subdivision, combination, conversion or reclassification is not the same for each nonelecting share or other unit, then the kind and amount of property receivable upon such dividend, subdivision, combination, conversion, reclassification, consolidation, merger or share exchange for each nonelecting share shall be deemed to be the kind and amount so receivable per share or other unit by a plurality of the nonelecting shares or other units).
Section 1207. Adjustment for Rights Issue.
If the Guarantor distributes any rights, warrants or
options to all holders of its Common Stock (excluding
dividends for which adjustment is made pursuant to
Section 1206) entitling them, for a period expiring
within 60 days after the record date for such
distribution, to purchase shares of Common Stock at a
price per share less than the Sale Price as of the Time
of Determination, the Conversion Rate shall be adjusted
in accordance with the formula:
(O + N)
R' = R x O + (N x P)
M
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
O = the number of shares of Common Stock outstanding on the record date for the distribution to which this Section 1207 is being applied.
N = the number of additional shares of Common Stock offered pursuant to such distribution.
P = the offering price per share of such additional shares.
M = the Average Sale Price, minus, in the case of
(i) a distribution to which Section 1206(4)
applies or (ii) a distribution to which
Section 1208 applies, for which, in each
case, (x) the record date shall occur on or
before the record date for the distribution
to which this Section 1207 applies and (y)
the Ex-Dividend Time shall occur on or after
the date of the Time of Determination for the
distribution to which this Section 1207
applies, the fair market value (on the record
date for the distribution to which this
Section 1207 applies) of:
(1) the Capital Stock of the
Guarantor distributed in respect of each
share of Common Stock in such
Section 1206(4) distribution, and
(2) the assets of the Guarantor or
debt securities or any rights, warrants
or options to purchase securities of the
Guarantor distributed in respect of each
share of Common Stock in such
Section 1208 distribution.
The Board of Directors of the Guarantor shall determine fair market values for the purposes of this Section 1207.
The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the rights, warrants or options to which this Section 1207 applies. If all the shares of Common Stock subject to such rights, warrants or options have not been issued when such rights, warrants or options expire, then the Conversion Rate shall promptly be readjusted to the Conversion Rate which would then be in effect had the adjustment upon the issuance of such rights, warrants or options been made on the basis of the actual number of shares of Common Stock issued upon the exercise of such rights, warrants or options.
No adjustment shall be made under this
Section 1207 if the application of the formula stated
above in this Section 1207 would result in a value of
R' that is equal to or less than the value of R.
Section 1208. Adjustment for Other
Distributions. If the Guarantor distributes to all
holders of its Common Stock any of its assets or debt
securities or any rights, warrants or options to
purchase securities of the Guarantor (including
securities or cash, but excluding (i) distributions of
Capital Stock referred to in Section 1206 and
distributions of rights, warrants or options referred
to in Section 1207 and (ii) cash dividends and
distributions, if any, paid from time to time by the
Guarantor that do not constitute Extraordinary Cash
Dividends), the Conversion Rate shall be adjusted,
subject to the provisions of the last paragraph of this
Section 1208, in accordance with the formula:
M
R' = R x M-F
where:
R' = the adjusted Conversion Rate.
R = the current Conversion Rate.
M = the Average Sale Price, minus, in the case of a distribution to which Section 1206(4) applies for which (i) the record date shall occur on or before the record date for the distribution to which this Section 1208 applies and (ii) the Ex-Dividend Time shall occur on or after the date of the Time of Determination for the distribution to which this Section 1208 applies, the fair market value (on the record date for the distribution to which this Section 1208 applies) of any Capital Stock of the Guarantor distributed in respect of each share of Common Stock in such Section 1206(4) distribution.
F = the fair market value (on the record date for the distribution to which this Section 1208 applies) of the assets, securities, rights,
warrants or options to be distributed in respect of each share of Common Stock in the distribution to which this Section 1208 is being applied (including, in the case of cash dividends or other cash distributions giving rise to an adjustment, all such cash distributed concurrently).
The Board of Directors of the Guarantor shall determine fair market values for the purpose of this Section 1208.
The adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive the distribution to which this Section 1208 applies.
For purposes of this Section 1208, the term "Extraordinary Cash Dividend" shall mean any cash dividend with respect to the Common Stock the amount of which, together with the aggregate amount of such cash dividends on the Common Stock to be aggregated with such cash dividend in accordance with the provisions of this paragraph, equals or exceeds the threshold percentages set forth in item (a) or (b) below:
(a) If, upon the date prior to the Ex- Dividend Time with respect to a cash dividend on the Common Stock, the aggregate amount of such cash dividend together with the amounts of all cash dividends on Common Stock with Ex-Dividend Times occurring in the 85 consecutive day period ending on the date prior to the Ex-Dividend Time with respect to the cash dividend to which this provision is being applied equals or exceeds on a per share basis 12.5% of the average of the Sale Prices during the period beginning on the date after the first such Ex-Dividend Time in such period and ending on the date prior to the Ex- Dividend Time with respect to the cash dividend to which this provision is being applied (except that if no other cash dividend has had an Ex-Dividend Time occurring in such period, the period for calculating the average of the Sale Prices shall be the period commencing 85 days prior to the date prior to the Ex-Dividend Time with respect to the cash dividend to which this provision is being applied), such cash dividend together with each
other cash dividend with an Ex-Dividend Time
occurring in such 85 day period shall be deemed to
be an Extraordinary Cash Dividend and for purposes
of applying the formula set forth above in this
Section 1208, the value of "F" shall be equal to
(w) the aggregate amount of such cash dividend
together with the amounts of the other cash
dividends with Ex-Dividend Times occurring in such
period minus (x) the aggregate amount of such
other cash dividends with Ex-Dividend Times
occurring in such period for which a prior
adjustment in the Conversion Rate was previously
made under this Section 1208.
(b) If, upon the date prior to the Ex- Dividend Time with respect to a cash dividend on the Common Stock, the aggregate amount of such cash dividend together with the amounts of all cash dividends on Common Stock with Ex-Dividend Times occurring in the 365 consecutive day period ending on the date prior to the Ex-Dividend Time with respect to the cash dividend to which this provision is being applied equals or exceeds on a per share basis 25% of the average of the Sale Prices during the period beginning on the date after the first such Ex-Dividend Time in such period and ending on the date prior to the Ex- Dividend Time with respect to the cash dividend to which this provision is being applied (except that if no other cash dividend has had an Ex-Dividend Time occurring in such period, the period for calculating the average of the Quoted Prices shall be the period commencing 365 days prior to the date prior to the Ex-Dividend Time with respect to the cash dividend to which this provision is being applied), such cash dividend together with each other cash dividend with an Ex-Dividend Time occurring in such 365-day period shall be deemed to be an Extraordinary Cash Dividend and for purposes of applying the formula set forth above in this Section 1208, the value of "F" shall be equal to (y) the aggregate amount of such cash dividend together with the amounts of the other cash dividends with Ex-Dividend Times occurring in such period minus (z) the aggregate amount of such other cash dividends with Ex-Dividend Times occurring in such period for which a prior
adjustment in the Conversion Rate was previously made under this Section 1208.
In making the determinations required by items (a) and (b) above, the amount of cash dividends paid on a per share basis and the average of the Sale Prices, in each case during the period specified in item (a) or (b) above, as applicable, shall be appropriately adjusted to reflect the occurrence during such period of any event described in Section 1206.
In the event that, with respect to any
distribution to which this Section 1208 would otherwise
apply, "M" minus "F" as defined in the above formula is
less than $1.00 or "F" is equal to or greater than "M",
then the adjustment provided by this Section 1208 shall
not be made and in lieu thereof the provisions of
Section 1214 shall apply to such distribution.
Section 1209. When Adjustment May Be Deferred. No adjustment in the Conversion Rate need be made unless the adjustment would require an increase or decrease of at least 1% (e.g., if the Conversion Rate is 4, an increase or decrease of .04 (1% of 4)) in the Conversion Rate. Any adjustments that are not made shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Article Twelve shall be made to the nearest cent or to the nearest 1/1,000th of a share, as the case may be, with one-half of a cent and 5/10,000ths of a share being rounded upwards.
Section 1210. When No Adjustment Required. No adjustment need be made for a transaction referred to in Section 1206, 1207, 1208 or 1214 if Holders are to participate in the transaction on a basis and with notice that the Board of Directors of the Guarantor determines to be fair and appropriate in light of the basis and notice on which holders of Common Stock participate in the transaction. Such participation by Holders may include participation upon conversion provided that an adjustment shall be made at such time as the Holders are no longer entitled to participate.
No adjustment need be made for rights to purchase Common Stock pursuant to a Guarantor plan for reinvestment of dividends or interest.
No adjustment need be made for a change in the par value or no par value of the Common Stock.
To the extent the LYONs become convertible into cash pursuant to the terms of Section 1208 or 1214, no adjustment need be made thereafter as to the cash. Interest will not accrue on the cash.
Notwithstanding any provision to the contrary in this Indenture, no adjustment shall be made in the Conversion Rate to the extent, but only to the extent, such adjustment results in the following quotient being less than the par value of the Common Stock: (i) the Issue Price plus accrued Original Issue Discount as of the date such adjustment would otherwise be effective divided by (ii) the Conversion Rate as so adjusted.
Section 1211. Notice of Adjustment. Whenever the Conversion Rate is adjusted, the Guarantor shall file with the Trustee and the Conversion Agent a notice of such adjustment and a certificate from the Guarantor's independent public accountants briefly stating the facts requiring the adjustment and the manner of computing it. The Conversion Agent will promptly mail such notice to Holders of LYONs at the Company's expense. The certificate shall be conclusive evidence that the adjustment is correct. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such certificate except to exhibit the same to any Holder desiring inspection thereof.
Section 1212. Voluntary Increase. The Company from time to time may increase the Conversion Rate by any amount and for any period of time (provided that such period is not less than 20 Business Days). Whenever the Conversion Rate is increased, the Company shall mail to Holders and file with the Trustee and the Conversion Agent a notice of the increase. The Company shall mail the notice at least 15 days before the date the increased Conversion Rate takes effect. The notice shall state the increased Conversion Rate and the period it will be in effect.
A voluntary increase of the Conversion Rate does not change or adjust the Conversion Rate otherwise in effect for purposes of Section 1206, 1207 or 1208.
Section 1213. Notice of Certain Transactions. If:
(1) the Company or the Guarantor takes any
action that would require an adjustment in the
Conversion Rate pursuant to Section 1206, 1207 or
1208 (unless no adjustment is to occur pursuant to
Section 1210); or
(2) the Company or the Guarantor takes any action that would require a supplemental indenture pursuant to Section 1214; or
(3) there is a liquidation or dissolution of the Company or the Guarantor;
then the Company shall mail to Holders and file with the Trustee and the Conversion Agent a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, binding share exchange, transfer, liquidation or dissolution. The Company shall file and mail the notice at least 15 days before such date. Failure to file or mail the notice or any defect in it shall not affect the validity of the transaction.
Section 1214. Reorganization of Guarantor; Special Distributions. If the Guarantor is a party to a transaction subject to Section 801 (other than a sale of all or substantially all of the assets of the Guarantor in a transaction in which the holders of Common Stock immediately prior to such transaction do not receive securities, cash or other assets of the Guarantor or of any other person) or a merger or binding share exchange which reclassifies or changes its outstanding Common Stock, the Person obligated to deliver securities, cash or other assets upon conversion of LYONs shall enter into a supplemental indenture. If the issuer of securities deliverable upon conversion of LYONs is an Affiliate of the successor Guarantor, that issuer shall join in the supplemental indenture.
The supplemental indenture referred to above
shall provide that the Holder of a LYON may convert it
into the kind and amount of securities, cash or other
assets which such Holder would have received
immediately after the consolidation, merger, binding
share exchange or transfer if such Holder had converted
the LYON immediately before the effective date of the
transaction, assuming (to the extent applicable) that
such Holder (i) was not a constituent person or an
Affiliate of a constituent person to such transaction;
(ii) made no election with respect thereto; and (iii)
was treated alike with the plurality of non-electing
Holders. The supplemental indenture referred to above
shall provide for adjustments which shall be as nearly
equivalent as may be practical to the adjustments
provided for in this Article Twelve. The successor to
the Guarantor shall mail to Holders a notice briefly
describing the supplemental indenture.
If this Section applies, neither Section 1206 nor 1207 applies.
If the Guarantor makes a distribution to all holders of its Common Stock of any of its assets, or debt securities or any rights, warrants or options to purchase securities of the Guarantor that, but for the provisions of the last paragraph of Section 1208, would otherwise result in an adjustment in the Conversion Rate pursuant to the provisions of Section 1208, then, from and after the record date for determining the holders of Common Stock entitled to receive the distribution, a Holder that converts a LYON in accordance with the provisions of this Indenture shall upon such conversion be entitled to receive in addition to the shares of Common Stock into which the LYON is convertible, the kind and amount of securities, cash or other assets comprising the distribution that such Holder would have received if such Holder had converted the LYON immediately prior to the record date for determining the holders of Common Stock entitled to receive the distribution.
Section 1215. Guarantor Determination Final. Any determination that the Guarantor or the Board of Directors of the Guarantor makes pursuant to this Article Twelve is conclusive.
Section 1216. Trustee's Adjustment Disclaimer. The Trustee has no duty to determine when an adjustment under this Article Twelve should be made, how it should be made or what it should be. The Trustee has no duty to determine whether a supplemental indenture under Section 1214 need be entered into or whether any provisions of any supplemental indenture are correct. The Trustee shall not be accountable for and makes no representation as to the validity or value of any securities or assets issued upon conversion of LYONs. The Trustee shall not be responsible for either the Company's or the Guarantor's failure to comply with this Article Twelve. Each Conversion Agent (other than the Company or the Guarantor or an Affiliate of the Company or the Guarantor) shall have the same protection under this Section 1216 as the Trustee.
Section 1217. Simultaneous Adjustments. If this Article Twelve requires adjustments to the Conversion Rate under more than one of Section 1206(4), 1207 or 1208, and the record dates for the distributions giving rise to such adjustments shall occur on the same date, then such adjustments shall be made by applying, first, the provisions of Section 1206, second, the provisions of Section 1208 and, third, the provisions of Section 1207.
Section 1218. Successive Adjustments. After an adjustment to the Conversion Rate under this Article Twelve, any subsequent event requiring an adjustment under this Article Twelve shall cause an adjustment to the Conversion Rate as so adjusted.
Section 1219. Cancellation of Security. Upon receipt by the Trustee of LYONs delivered to the Conversion Agent for conversion under this Article Twelve, the Trustee shall cancel and dispose of the same as provided in Section 309."
SECTION 4. Conversion Rate. The Guarantor and the Company hereby represent that no adjustment to the Conversion Rate is required under Article Twelve as a result of the Merger.
SECTION 5. Reports. The Guarantor shall file with the Trustee, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the
times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission.
SECTION 6. This Second Supplemental Indenture. This Second Supplemental Indenture shall be construed as supplemental to the Senior Indenture and shall form a part of it, and the Senior Indenture is hereby incorporated by reference herein and each is hereby ratified, approved and confirmed.
SECTION 7. GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Counterparts. This Second Supplemental Indenture may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument.
SECTION 9. Headings. The headings of this Second Supplemental Indenture are for reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 10. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and the Guarantor, and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee shall have no responsibility whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture.
SECTION 11. Separability. In case any one or more of the provisions contained in this Second Supplemental Indenture or in the Securities shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Second Supplemental Indenture or of the Securities, but this Second Supplemental Indenture and the Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed by their respective authorized officers as of the date first written above.
TIME WARNER INC.,
by
Name: Thomas W. McEnerney
Title: Vice President
TW INC.,
by
Name: Thomas W. McEnerney
Title: Vice President
THE CHASE MANHATTAN BANK,
as Trustee,
by
Name: Richard Lorenzen
Title: Senior Trust Officer
|
Exhibit 4.2
THIRD SUPPLEMENTAL INDENTURE (this
"Third Supplemental Indenture") dated as of
October 10, 1996, among TIME WARNER INC., a
Delaware corporation (the "Company"), TW
INC., a Delaware corporation (the
"Guarantor"), and THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank), a New York
banking corporation, as trustee (the "Trustee").
WHEREAS the Company has executed and delivered to the Trustee an Indenture (the "Senior Indenture"), dated as of October 15, 1992, providing for the issuance and sale by the Company from time to time of its senior debt securities (the "Securities"), which term shall include any Securities issued under the Senior Indenture after the date hereof;
WHEREAS pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of September 22, 1995, as amended, among the Guarantor, the Company, Turner Broadcasting System, Inc. ("TBS"), Time Warner Acquisition Corp. and TW Acquisition Corp., the Company and TBS will become wholly owned subsidiaries of the Guarantor;
WHEREAS Section 901(5) of the Senior Indenture permits the Company, when authorized by a resolution of the Board of Directors of the Company, and the Trustee, at any time and from time to time, to enter into one or more indentures supplemental to the Senior Indenture, in form satisfactory to the Trustee, for the purpose of adding to the rights of the Holders of the Securities;
WHEREAS the Company proposes in and by this Third Supplemental Indenture to supplement and amend the Senior Indenture in certain respects as it applies to Securities issued thereunder;
WHEREAS the Guarantor desires to unconditionally and irrevocably guarantee the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Senior Indenture (including obligations to the Trustee) and the Securities, and the full and punctual performance within applicable grace periods of all other obligations of the Company under the Senior Indenture and the Securities; and
WHEREAS the Company and the Guarantor have requested that the Trustee execute and deliver this Third Supplemental Indenture and all requirements necessary make this Third Supplemental Indenture a valid instrument in accordance with its terms and to make the guarantee provided for herein the valid obligation of the Guarantor, and the execution and delivery of this Third Supplemental Indenture has been duly authorized in all respects.
NOW THEREFORE, the Company, the Guarantor and the Trustee hereby agree that the following Sections of this Third Supplemental Indenture supplement the Senior Indenture with respect to Securities issued thereunder:
SECTION 1. Definitions. Capitalized terms used herein and not defined herein have the meanings ascribed to such terms in the Senior Indenture.
SECTION 2. The Guarantee. (a) The Guarantor irrevocably and unconditionally guarantees (the "Guarantee"), to each Holder of Securities (including each Holder of Securities issued under the Senior Indenture after the date of this Third Supplemental Indenture) and to the Trustee and its successors and assigns, (i) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Senior Indenture (including obligations to the Trustee) and the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Senior Indenture and the Securities.
(b) The Guarantor further agrees that the Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(c) The obligation of the Guarantor to make any payment hereunder may be satisfied by causing the Company to make such payment.
(d) The Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder of Securities in enforcing any of their respective rights under the Guarantee.
SECTION 3. Reports. The Guarantor shall file with the Trustee, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission.
SECTION 4. This Third Supplemental Indenture. This Third Supplemental Indenture shall be construed as supplemental to the Senior Indenture and shall form a part of it, and the Senior Indenture is hereby incorporated by reference herein and each is hereby ratified, approved and confirmed.
SECTION 5. GOVERNING LAW. THIS THIRD SUPPLEMENTAL INDENTURE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Third Supplemental Indenture may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument.
SECTION 7. Headings. The headings of this Third Supplemental Indenture are for reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 8. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and the Guarantor, and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Third Supplemental Indenture.
SECTION 9. Separability. In case any one or more of the provisions contained in this Third Supplemental Indenture or in the Securities shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Third Supplemental Indenture or of the Securities, but this Third Supplemental Indenture and the Securities shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.
IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed by their respective authorized officers as of the date first written above.
TIME WARNER INC.,
by
Name: Thomas W. McEnerney
Title: Vice President
TW INC.,
by
Name: Thomas W. McEnerney
Title: Vice President
THE CHASE MANHATTAN BANK, as Trustee, by Name: Richard Lorenzen Title: Senior Trust Officer |
Exhibit 4.3
SECOND SUPPLEMENTAL INDENTURE dated as of October 10, 1996, among TIME WARNER INC., a Delaware corporation (the "Company"), TW INC., a Delaware corporation (the "Guarantor"), and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank), a New York banking corporation, as trustee (the "Trustee").
WHEREAS the Company executed and delivered the Indenture (including all indentures supplemental thereto, the "Indenture"), dated as of December 5, 1995, to the Trustee to provide for the issuance of unsecured subordinated debt securities (the "Securities") of the Company from time to time in one or more series;
WHEREAS the Company and the Trustee executed and delivered the First Supplemental Indenture, dated as of December 5, 1995, which provides for the establishment of a series of Securities known as the 8-7/8% Subordinated Debentures due December 31, 2025 (the "Debentures");
WHEREAS Time Warner Capital I, a Delaware statutory business trust (the "Trust"), has issued $575,000,000 aggregate liquidation amount of its 8-7/8% Preferred Trust Securities (the "Preferred Securities"), representing undivided beneficial interests in the assets of the Trust, and has invested the proceeds from such issuance in $592,783,525 aggregate principal amount of the Debentures;
WHEREAS pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of September 22, 1995, as amended, among the Guarantor, the Company, Turner Broadcasting System, Inc. ("TBS"), Time Warner Acquisition Corp. and TW Acquisition Corp., the Company and TBS will become wholly owned subsidiaries of the Guarantor;
WHEREAS the Guarantor desires to unconditionally and irrevocably guarantee, on a subordinated basis, the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Indenture (including obligations to the Trustee) and the Securities, and the full and punctual performance within applicable grace periods of
all other obligations of the Company under the Indenture and the Securities; and
WHEREAS the Company and the Guarantor have requested that the Trustee execute and deliver this Second Supplemental Indenture and all requirements necessary to make this Second Supplemental Indenture a valid instrument in accordance with its terms and to make the guarantee provided for herein the valid obligation of the Guarantor, and the execution and delivery of this Second Supplemental Indenture has been duly authorized in all respects.
NOW THEREFORE, the Company, the Guarantor and the Trustee hereby agree that the following Sections of this Second Supplemental Indenture supplement the Indenture with respect to Securities issued thereunder:
SECTION 1. Definitions. (a) Capitalized terms used herein but not defined herein have the meanings ascribed to such terms in the Indenture.
(b) Article I, Section 1.01, of the Indenture is hereby supplemented, solely with respect to this Second Supplemental Indenture, to add the following definitions:
"Guarantor Senior Indebtedness" means all indebtedness or obligations of the Guarantor, whether outstanding at the date of execution of this Second Supplemental Indenture or thereafter incurred, assumed, guaranteed or otherwise created, unless the terms of the instrument or instruments by which the Guarantor incurred, assumed, guaranteed or otherwise created any such indebtedness or obligation expressly provide that such obligation or obligations is subordinated to all other indebtedness of the Guarantor or that such indebtedness is not superior or is subordinated in right of payment to the Securities, with respect to any of the following (including, without limitation, interest accruing on or after a bankruptcy or other similar event, whether or not an allowed claim therein): (a) any indebtedness incurred by the Guarantor or assumed or guaranteed, directly or indirectly, by the Guarantor (i) for money borrowed, (ii) in connection with the acquisition of any business, property or other assets (other than trade payables incurred in the ordinary course of business)
or (iii) for advances or progress payments in connection with the construction or acquisition of any building, motion picture, television production or other entertainment of any kind; (b) any obligation of the Guarantor (or of a Subsidiary which is guaranteed by the Guarantor) as lessee under a lease of real or personal property; (c) any obligation of the Guarantor to purchase property at a future date in connection with a financing by the Guarantor or a Subsidiary; (d) letters of credit; (e) currency swaps and interest rate hedges; and (f) a deferral, renewal, extension or refunding of any of the foregoing.
"Guarantor Senior Indebtedness Representative" means any Person whom the Guarantor has, by written notice to the Trustee, identified as the indenture trustee or other trustee, agent or representative for an issue of Guarantor Senior Indebtedness.
SECTION 2. The Guarantee. (a) The Guarantor irrevocably and unconditionally guarantees, on a subordinated basis as set forth herein (the "Guarantee"), to each Holder of Securities and to the Trustee and its successors and assigns, (i) the full and punctual payment of principal of and interest on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Indenture (including obligations to the Trustee) and the Securities and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Indenture and the Securities.
(b) The Guarantor further agrees that the Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(c) The obligations of the Guarantor to make any payment hereunder may be satisfied by causing the Company to make such payment.
(d) The Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder of Securities in enforcing any of their respective rights under the Guarantee.
SECTION 3. Subordination. The Guarantee is hereby expressly subordinated in right of payment, to the extent and in the manner provided in this Second Supplemental Indenture, to the prior payment in full in cash or cash equivalents of all Guarantor Senior Indebtedness and such subordination is for the benefit of the holders of the Guarantor Senior Indebtedness. Upon any payment or distribution of all or substantially all the assets of the Guarantor, whether voluntary or involuntary, or upon any reorganization, readjustment, arrangement or similar proceeding relating to the Guarantor or its property, whether or not the Guarantor is a party thereto and whether in bankruptcy, insolvency, receivership or similar proceedings, or upon any assignment by the Guarantor for the benefit of creditors or upon any other marshaling of the assets and liabilities of the Guarantor:
(a) all Guarantor Senior Indebtedness shall first be paid in full in cash or cash equivalents, or provisions made for such payment by deposit thereof in trust with a bank or banks (either theretofore acting as trustees under indentures pursuant to which Guarantor Senior Indebtedness shall have been issued or duly appointed paying agents for the purpose), before any payment is made in respect of the Guarantee;
(b) any payment in respect of the Guarantee to which the Holders of the Securities would be entitled except for the provisions of this Section shall be paid or delivered by the Guarantor or the liquidating trustee or agent or other Person making such payment, whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly and ratably to the holders of Guarantor Senior Indebtedness or the Guarantor Senior Indebtedness Representatives (subject to any subordination of any class of Guarantor Senior Indebtedness, by the provisions thereof, to any other class or classes of Guarantor Senior Indebtedness), according to the aggregate amounts remaining unpaid on account of the principal of, and the premium, if any, and interest on, the Guarantor Senior Indebtedness held or represented by each, to the extent necessary to make payment in full of all Guarantor Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Guarantor Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment of any kind or character in respect of the Guarantee shall be received by the Trustee or the Holders of the Securities before all Guarantor Senior Indebtedness is paid in full, or provision made as aforesaid for its payment, such payment shall be held in trust for the ratable benefit of and shall be ratably paid over or delivered to the holders of Guarantor Senior Indebtedness remaining unpaid or unprovided for or the Guarantor Senior Indebtedness Representatives, as provided in the foregoing subparagraph (b), for application to the payment of all principal of, and premium, if any, and interest on, such Guarantor Senior Indebtedness remaining unpaid until all such Guarantor Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Guarantor Senior Indebtedness.
SECTION 4. Default on Guarantor Senior Indebtedness. Subject to the provisions of Section 5, in the event and during the continuation of any default in the payment of principal of, or premium, if any, or interest on, or other monetary obligation with respect to, any Guarantor Senior Indebtedness beyond any applicable period of grace, or in the event that any event of default with respect to any Guarantor Senior Indebtedness shall have occurred and be continuing, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no payment shall be made by the Guarantor in respect of the Guarantee. Nothing contained in this Section or elsewhere in this Supplemental Indenture shall, however, prevent the application by the Trustee of any moneys deposited with it hereunder by the Guarantor in respect of the Guarantee, if, at the time of such deposit, the Trustee did not have written notice of any event prohibiting the making of such deposit by the Guarantor.
The Guarantor shall give prompt written notice to the Trustee of any facts that would prohibit the making of any payment of moneys in respect of the Guarantee, including any dissolution, winding up, liquidation or reorganization of the Guarantor. Anything in this Section or elsewhere in this Supplemental Indenture to the contrary notwithstanding, the Trustee shall not be charged with knowledge of the existence of any Guarantor Senior Indebtedness or of any default or event of default with respect to any Guarantor
Senior Indebtedness or of any other facts that would prohibit the making of any payment of moneys hereunder, unless and until the Trustee shall have received notice in writing to that effect signed by an officer of the Guarantor or by a holder of Guarantor Senior Indebtedness who shall have been certified by the Guarantor or otherwise established to the reasonable satisfaction of the Trustee to be such holder or by a Guarantor Senior Indebtedness Representative.
SECTION 5. Disputes with Holders of Certain Guarantor Senior Indebtedness. Any failure by the Guarantor to make any payment on or perform any other obligation under Guarantor Senior Indebtedness, other than any indebtedness incurred by the Guarantor or assumed or guaranteed, directly or indirectly, by the Guarantor for money borrowed (or any deferral, renewal, extension or refunding thereof) or any indebtedness or obligation in which the provisions of this Section shall have been waived by the Guarantor in the instrument or instruments by which the Guarantor incurred, assumed, guaranteed or otherwise created such indebtedness or obligation, shall not be deemed a default or event of default under Section 4 hereof for so long as (a) the Guarantor shall be disputing its obligation to make such payment or perform such obligation and (b) either (i) such dispute shall not have resulted in a judgment against the Guarantor that shall have remained undischarged or unbonded and have remained in force for more than the applicable appeal period or (ii) in the event of such a judgment, the Guarantor shall in good faith be prosecuting an appeal or other proceeding for review and which a stay of execution shall have been obtained pending such appeal or review.
SECTION 6. When Payment Must Be Paid Over. If a payment is made pursuant to the Guarantee that because of Section 4 or 5 should not have been made to the Holders of the Securities, the Holders of Securities who receive the payment shall hold it in trust for holders of Guarantor Senior Indebtedness and pay it over to them as their interests may appear.
SECTION 7. Relative Rights. This Section defines the relative rights of Holders of Securities with respect to
the Guarantee and holders of Guarantor Senior Indebtedness. Nothing in this Indenture shall:
(a) impair, as between the Guarantor and Holders of Securities, the obligation of the Guarantor, which is absolute and unconditional, to make payment under the Guarantee when, as and if due pursuant to this Supplemental Indenture;
(b) affect the relative rights of Holders of Securities and creditors of the Guarantor other than holders of Guarantor Senior Indebtedness; or
(c) prevent the Trustee or any Holder of Securities from exercising its available remedies with respect to the Guarantee, subject to the rights of holders of Guarantor Senior Indebtedness to receive distributions otherwise payable to Holders of Securities.
SECTION 8. Subordination May Not Be Impaired by Company. No right of any holder of Guarantor Senior Indebtedness to enforce the subordination of the Guarantee shall be impaired by any act or failure to act by the Guarantor or by its failure to comply with this Supplemental Indenture.
SECTION 9. Reports. The Guarantor shall file with the Trustee, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission.
SECTION 10. This Second Supplemental Indenture. This Second Supplemental Indenture shall be construed as supplemental to the Indenture and shall form a part of it, and the Indenture is hereby incorporated by reference herein and each is hereby ratified, approved and confirmed.
SECTION 11. GOVERNING LAW. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 12. Counterparts. This Second Supplemental Indenture may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument.
SECTION 13. Headings. The headings of this Second Supplemental Indenture are for reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 14. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and the Guarantor, and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture.
SECTION 15. Separability. In case any one or more of the provisions contained in this Second Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Second Supplemental Indenture, but this Second Supplemental Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed as of the day and year first above written.
TIME WARNER INC.,
by Name: Thomas W. McEnerney Title: Vice President |
TW INC.,
by Name: Thomas W. McEnerney Title: Vice President |
THE CHASE MANHATTAN BANK,
as Trustee,
by
Name: Richard Lorenzen
Title: Senior Trust Officer
|
Exhibit 4.4
FIRST SUPPLEMENTAL INDENTURE dated as of
October 10, 1996, among TIME WARNER INC., a
Delaware corporation (the "Company"), TW
INC., a Delaware corporation (the
"Guarantor"), and THE CHASE MANHATTAN BANK
(formerly known as Chemical Bank), a New York
banking corporation, as trustee (the "Trustee").
WHEREAS the Company executed and delivered the Indenture (the "Indenture"), dated as of August 15, 1995, to the Trustee to provide for the issuance of 4% Subordinated Notes due December 23, 1997 (the "Notes");
WHEREAS Time Warner Financing Trust, a Delaware statutory business trust (the "Trust"), has issued $1.24 Preferred Exchangeable Redemption Cumulative Securities (the "Preferred Securities"), representing undivided beneficial interests in the assets of the Trust, and has invested the proceeds from such issuance in the Notes;
WHEREAS pursuant to an Amended and Restated Agreement and Plan of Merger, dated as of September 22, 1995, as amended, among the Guarantor, the Company, Turner Broadcasting System, Inc. ("TBS"), Time Warner Acquisition Corp. and TW Acquisition Corp., the Company and TBS will become wholly owned subsidiaries of the Guarantor;
WHEREAS the Guarantor desires to unconditionally and irrevocably guarantee, on a subordinated basis, the full and punctual payment of principal of and interest on the Notes when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Indenture (including obligations to the Trustee) and the Notes, and the full and punctual performance within applicable grace periods of all other obligations of the Company under the Indenture and the Notes; and
WHEREAS the Company and the Guarantor have requested that the Trustee execute and deliver this First Supplemental Indenture and all requirements necessary to make this First Supplemental Indenture a valid instrument in accordance with its terms and to make the guarantee provided for herein the valid obligation of the Guarantor, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects.
NOW THEREFORE, the Company, the Guarantor and the Trustee hereby agree that the following Sections of this First Supplemental Indenture supplement the Indenture with respect to Notes issued thereunder:
SECTION 1. Definitions. (a) Capitalized terms used herein but not defined herein have the meanings ascribed to such terms in the Indenture.
(b) Article I, Section 1.01, of the Indenture is hereby supplemented, solely with respect to this First Supplemental Indenture, to add the following definitions:
"Guarantor Senior Indebtedness" means all indebtedness
or obligations of the Guarantor, whether outstanding at the
date of execution of this First Supplemental Indenture or
thereafter incurred, assumed, guaranteed or otherwise
created, unless the terms of the instrument or instruments
by which the Guarantor incurred, assumed, guaranteed or
otherwise created any such indebtedness or obligation
expressly provide that such obligation or obligations is
subordinated to all other indebtedness of the Guarantor or
that such indebtedness is not superior or is subordinated in
right of payment to the Notes, with respect to any of the
following (including, without limitation, interest accruing
on or after a bankruptcy or other similar event, whether or
not an allowed claim therein): (a) any indebtedness
incurred by the Guarantor or assumed or guaranteed, directly
or indirectly, by the Guarantor (i) for money borrowed,
(ii) in connection with the acquisition of any business,
property or other assets (other than trade payables incurred
in the ordinary course of business) or (iii) for advances or
progress payments in connection with the construction or
acquisition of any building, motion picture, television
production or other entertainment of any kind; (b) any
obligation of the Guarantor (or of a Subsidiary which is
guaranteed by the Guarantor) as lessee under a lease of real
or personal property; (c) any obligation of the Guarantor to
purchase property at a future date in connection with a
financing by the Guarantor or a Subsidiary; (d) letters of
credit; (e) currency swaps and interest rate hedges; and
(f) a deferral, renewal, extension or refunding of any of
the foregoing.
"Guarantor Senior Indebtedness Representative" means any Person whom the Guarantor has, by written notice to the Trustee, identified as the indenture trustee or other trustee, agent or representative for an issue of Guarantor Senior Indebtedness.
SECTION 2. The Guarantee. (a) The Guarantor irrevocably and unconditionally guarantees, on a subordinated basis as set forth herein (the "Guarantee"), to each Holder of Notes and to the Trustee and its successors and assigns, (i) the full and punctual payment of principal of and interest on the Notes when due, whether at maturity, by acceleration, by redemption or otherwise, and all other monetary obligations of the Company under the Indenture (including obligations to the Trustee) and the Notes and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under the Indenture and the Notes.
(b) The Guarantor further agrees that the Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(c) The obligations of the Guarantor to make any payment hereunder may be satisfied by causing the Company to make such payment.
(d) The Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder of Notes in enforcing any of their respective rights under the Guarantee.
SECTION 3. Subordination. The Guarantee is hereby expressly subordinated in right of payment, to the extent and in the manner provided in this First Supplemental Indenture, to the prior payment in full in cash or cash equivalents of all Guarantor Senior Indebtedness and such subordination is for the benefit of the holders of the Guarantor Senior Indebtedness. Upon any payment or distribution of all or substantially all the assets of the Guarantor, whether voluntary or involuntary, or upon any reorganization, readjustment, arrangement or similar proceeding relating to the Guarantor or its property, whether or not the Guarantor is a party thereto and whether in bankruptcy, insolvency, receivership or similar proceedings, or upon any assignment by the Guarantor for the
benefit of creditors or upon any other marshaling of the assets and liabilities of the Guarantor:
(a) all Guarantor Senior Indebtedness shall first be paid in full in cash or cash equivalents, or provisions made for such payment by deposit thereof in trust with a bank or banks (either theretofore acting as trustees under indentures pursuant to which Guarantor Senior Indebtedness shall have been issued or duly appointed paying agents for the purpose), before any payment is made in respect of the Guarantee;
(b) any payment in respect of the Guarantee to which the Holders of the Notes would be entitled except for the provisions of this Section shall be paid or delivered by the Guarantor or the liquidating trustee or agent or other Person making such payment, whether a trustee in bankruptcy, a receiver or liquidating trustee or other trustee or agent, directly and ratably to the holders of Guarantor Senior Indebtedness or the Guarantor Senior Indebtedness Representatives (subject to any subordination of any class of Guarantor Senior Indebtedness, by the provisions thereof, to any other class or classes of Guarantor Senior Indebtedness), according to the aggregate amounts remaining unpaid on account of the principal of, and the premium, if any, and interest on, the Guarantor Senior Indebtedness held or represented by each, to the extent necessary to make payment in full of all Guarantor Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Guarantor Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing,
any payment of any kind or character in respect of the
Guarantee shall be received by the Trustee or the Holders of
the Notes before all Guarantor Senior Indebtedness is paid
in full, or provision made as aforesaid for its payment,
such payment shall be held in trust for the ratable benefit
of and shall be ratably paid over or delivered to the
holders of Guarantor Senior Indebtedness remaining unpaid or
unprovided for or the Guarantor Senior Indebtedness
Representatives, as provided in the foregoing subparagraph
(b), for application to the payment of all principal of, and
premium, if any, and interest on, such Guarantor Senior
Indebtedness remaining unpaid until all such Guarantor Senior
Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Guarantor Senior Indebtedness.
SECTION 4. Default on Guarantor Senior Indebtedness. Subject to the provisions of Section 5, in the event and during the continuation of any default in the payment of principal of, or premium, if any, or interest on, or other monetary obligation with respect to, any Guarantor Senior Indebtedness beyond any applicable period of grace, or in the event that any event of default with respect to any Guarantor Senior Indebtedness shall have occurred and be continuing, unless and until such default or event of default shall have been cured or waived or shall have ceased to exist, no payment shall be made by the Guarantor in respect of the Guarantee. Nothing contained in this Section or elsewhere in this Supplemental Indenture shall, however, prevent the application by the Trustee of any moneys deposited with it hereunder by the Guarantor in respect of the Guarantee, if, at the time of such deposit, the Trustee did not have written notice of any event prohibiting the making of such deposit by the Guarantor.
The Guarantor shall give prompt written notice to the Trustee of any facts that would prohibit the making of any payment of moneys in respect of the Guarantee, including any dissolution, winding up, liquidation or reorganization of the Guarantor. Anything in this Section or elsewhere in this Supplemental Indenture to the contrary notwithstanding, the Trustee shall not be charged with knowledge of the existence of any Guarantor Senior Indebtedness or of any default or event of default with respect to any Guarantor Senior Indebtedness or of any other facts that would prohibit the making of any payment of moneys hereunder, unless and until the Trustee shall have received notice in writing to that effect signed by an officer of the Guarantor or by a holder of Guarantor Senior Indebtedness who shall have been certified by the Guarantor or otherwise established to the reasonable satisfaction of the Trustee to be such holder or by a Guarantor Senior Indebtedness Representative.
SECTION 5. Disputes with Holders of Certain Guarantor Senior Indebtedness. Any failure by the Guarantor to make any payment on or perform any other obligation under Guarantor Senior Indebtedness, other than any indebtedness incurred by the Guarantor or assumed or guaranteed, directly
or indirectly, by the Guarantor for money borrowed (or any
deferral, renewal, extension or refunding thereof) or any
indebtedness or obligation in which the provisions of this
Section shall have been waived by the Guarantor in the instrument
or instruments by which the Guarantor incurred, assumed,
guaranteed or otherwise created such indebtedness or obligation,
shall not be deemed a default or event of default under Section 4
hereof for so long as (a) the Guarantor shall be disputing its
obligation to make such payment or perform such obligation and
(b) either (i) such dispute shall not have resulted in a judgment
against the Guarantor that shall have remained undischarged or
unbonded and have remained in force for more than the applicable
appeal period or (ii) in the event of such a judgment, the
Guarantor shall in good faith be prosecuting an appeal or other
proceeding for review and which a stay of execution shall have
been obtained pending such appeal or review.
SECTION 6. When Payment Must Be Paid Over. If a payment is made pursuant to the Guarantee that because of Section 4 or 5 should not have been made to the Holders of the Notes, the Holders of Notes who receive the payment shall hold it in trust for holders of Guarantor Senior Indebtedness and pay it over to them as their interests may appear.
SECTION 7. Relative Rights. This Section defines the relative rights of Holders of Notes with respect to the Guarantee and holders of Guarantor Senior Indebtedness. Nothing in this Indenture shall:
(a) impair, as between the Guarantor and Holders of Notes, the obligation of the Guarantor, which is absolute and unconditional, to make payment under the Guarantee when, as and if due pursuant to this Supplemental Indenture;
(b) affect the relative rights of Holders of Notes and creditors of the Guarantor other than holders of Guarantor Senior Indebtedness; or
(c) prevent the Trustee or any Holder of Notes from exercising its available remedies with respect to the Guarantee, subject to the rights of holders of Guarantor Senior Indebtedness to receive distributions otherwise payable to Holders of Notes.
SECTION 8. Subordination May Not Be Impaired by Company. No right of any holder of Guarantor Senior Indebtedness to enforce the subordination of the Guarantee shall be impaired by any act or failure to act by the Guarantor or by its failure to comply with this Supplemental Indenture.
SECTION 9. Reports. The Guarantor shall file with the Trustee, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the SEC.
SECTION 10. This First Supplemental Indenture. This First Supplemental Indenture shall be construed as supplemental to the Indenture and shall form a part of it, and the Indenture is hereby incorporated by reference herein and each is hereby ratified, approved and confirmed.
SECTION 11. GOVERNING LAW. THIS FIRST SUPPLEMENTAL INDENTURE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 12. Counterparts. This First Supplemental Indenture may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument.
SECTION 13. Headings. The headings of this First Supplemental Indenture are for reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 14. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and the Guarantor, and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this First Supplemental Indenture.
SECTION 15. Separability. In case any one or more of the provisions contained in this First Supplemental
Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this First Supplemental Indenture, but this First Supplemental Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written.
TIME WARNER INC.,
by Name: Thomas W. McEnerney Title: Vice President |
TW INC.,
by Name: Thomas W. McEnerney Title: Vice President |
THE CHASE MANHATTAN BANK,
as Trustee,
by
Name: Richard Lorenzen
Title: Senior Trust Officer
|
Exhibit 4.5
DECLARATION GUARANTEE (this "Agreement"), dated as of October 10, 1996, among the undersigned trustees (the "Trustees"), Time Warner Inc., a Delaware corporation, as trust sponsor (the "Sponsor"), and TW Inc., a Delaware corporation (the "Guarantor").
WHEREAS the Sponsor and the Trustees entered into a Declaration of Trust dated as of June 7, 1995 in order to establish under Chapter 38 of Title 12 of the Delaware Code (12 Del. C. Section 3801 et seq.) Time Warner Financing Trust, a statutory business trust (the "Trust");
WHEREAS the Sponsor and the Trustees entered into an Amended and Restated Declaration of Trust dated as of August 15, 1995 (the "Declaration"), pursuant to which the Trust issued $1.24 Preferred Exchangeable Redemption Cumulative Securities (the "Preferred Securities") representing undivided beneficial interests in the assets of the Trust; and
WHEREAS the Guarantor desires to unconditionally and irrevocably guarantee, on a subordinated basis, the full and punctual payment and performance (within applicable grace periods) of all the obligations of the Sponsor under the Declaration and the Preferred Securities.
NOW THEREFORE, the Sponsor, the Guarantor and the Trustees hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used herein but not defined herein have the meanings ascribed to such terms in the Declaration.
SECTION 2. The Guarantee. (a) The Guarantor irrevocably and unconditionally guarantees on a subordinated basis as set forth herein (the "Guarantee"), to each Holder of Preferred Securities and to the Trustees and their successors and assigns, the full and punctual payment and performance (within applicable grace periods) of all the obligations of the Sponsor under the Declaration and the Preferred Securities.
(b) The Guarantor further agrees that the Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(c) The Guarantor's obligation to make any payment hereunder may be satisfied by causing the Sponsor to make such payment.
(d) The Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustees or any Holder of Preferred Securities in enforcing any of their respective rights under the Guarantee.
SECTION 3. Subordination. The Guarantee constitutes an unsecured obligation of the Guarantor that ranks (a) pari passu with the guarantees delivered by the Guarantor in connection with the 8-7/8% Preferred Trust Securities of Time Warner Capital I, a Delaware statutory business trust, (b) pari passu with the most senior preferred or preference stock of the Guarantor outstanding on the date of this Agreement or hereafter issued and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred or preference stock of any affiliate of the Guarantor, (c) senior in right of payment to the common stock and series common stock of the Guarantor and (d) subordinate and junior in right of payment to all other liabilities of the Guarantor.
SECTION 4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument.
SECTION 6. Headings. The headings of this Agreement are for reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 7. Trustees Not Responsible for Recitals. The recitals herein contained are made by the Sponsor and the Guarantor, and not by the Trustees, and the Trustees assume no responsibility for the correctness thereof. The Trustees make no representation as to the validity or sufficiency of this Agreement.
SECTION 8. Separability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
TIME WARNER INC., as Sponsor,
by __________________________ Name: Thomas W. McEnerney Title: Vice President
TW INC., as Guarantor,
by __________________________ Name: Thomas W. McEnerney Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee,
by __________________________
Name: Melissa G. Weisman
Title: Assistant Vice President
Exhibit 4.6
GUARANTEE AGREEMENT (this "Agreement")
dated as of October 10, 1996, among TIME
WARNER INC., a Delaware corporation (the
"Original Guarantor"), TW INC., a Delaware
corporation (the "Additional Guarantor"), and
THE FIRST NATIONAL BANK OF CHICAGO (the
"Guarantee Trustee").
WHEREAS, in connection with the issuance by Time Warner Financing Trust, a Delaware statutory business trust (the "Trust"), of $1.24 Preferred Exchangeable Redemption Cumulative Securities (the "Preferred Securities") representing undivided beneficial interests in the assets of the Trust, the Original Guarantor and the Guarantee Trustee entered into a Guarantee Agreement dated as of August 15, 1995 (the "Original Guarantee Agreement"), pursuant to which the Original Guarantor irrevocably and unconditionally agreed, to the extent set forth therein, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined in the Original Guarantee Agreement) and to make certain other payments on the terms and conditions set forth therein (collectively, the "Original Guarantee"); and
WHEREAS the Additional Guarantor proposes in and by this Agreement to unconditionally and irrevocably guarantee, on a subordinated basis, the Original Guarantor's obligation to pay to the Holders of the Preferred Securities the Guarantee Payments and the other obligations of the Original Guarantor under the Original Guarantee Agreement.
NOW THEREFORE, the Original Guarantor, the Additional Guarantor and the Guarantee Trustee hereby agree as follows:
SECTION 1. Capitalized Terms. Capitalized terms used herein and not defined herein shall have the meanings ascribed to such terms in the Original Guarantee Agreement.
SECTION 2. Powers and Duties of the Guarantee Trustee.
(a) This Agreement shall be held by the Guarantee Trustee in
trust for the benefit of the Holders. The Guarantee Trustee
shall not transfer its right, title and interest in this
Agreement to any Person except a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its appointment
to act as Guarantee Trustee or to a Holder exercising his or her
rights pursuant to Section 5.
The right, title and interest of the Guarantee Trustee to this Agreement shall vest automatically in each Person who may hereafter be appointed as Guarantee Trustee in accordance with Article IV of the Original Guarantee Agreement. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.
(b) If a default by the Additional Guarantor on any of its payments or other obligations under this Agreement (an "Event of Default") occurs and is continuing, the Guarantee Trustee shall enforce this Agreement for the benefit of the Holders.
(c) This Agreement and all moneys received by the Guarantee Trustee hereunder in respect of the Guarantee Payments will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of, the Guarantee Trustee or its agents or their creditors.
(d) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, as their names and addresses appear upon the register, notice of all Events of Default known to the Guarantee Trustee, unless such defaults shall have been cured before the giving of such notice; provided, however, that the Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Guarantee Trustee in good faith determine that the withholding of such notice is in the interests of the Holders. The Guarantee Trustee shall not be deemed to have knowledge of any default except any default as to which the Guarantee Trustee shall have received written notice or a Responsible Officer charged with the administration of this Agreement shall have obtained written notice.
(e) The Guarantee Trustee shall continue to serve as trustee with respect to this Agreement until a Successor Guarantee Trustee has been appointed in accordance with Article IV of the Original Guarantee Agreement, which Successor Guarantee Trustee, when so appointed, shall act as trustee with respect to this Agreement from the date of such appointment until the earlier of (i) the appointment of another Successor Guarantee Trustee in accordance with this paragraph (e) and Article IV of the Original Guarantee
Agreement and (ii) termination of this Agreement pursuant to the terms hereof.
SECTION 3. Certain Rights and Duties of the Guarantee Trustee. (a) The Guarantee Trustee, before the occurrence of an Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Agreement, and no implied covenants shall be read into this Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 11(a)), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
(b) No provision of this Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee under this Agreement shall be determined solely by the express provisions of this Agreement, and the Guarantee Trustee shall not be liable under this Agreement except for the performance of such duties and obligations as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under
a duty to examine the same to determine whether or not they conform to the requirements of this Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it pursuant to this Agreement in good faith in accordance with the direction of the Holders as provided herein relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Agreement; and
(iv) no provision of this Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Agreement or adequate indemnity against such risk or liability is not reasonably assured to it.
(c) Subject to the provisions of Sections 3(a) and (b):
(i) Whenever in the administration of this Agreement,
the Guarantee Trustee shall deem it desirable that a matter
be proved or established prior to taking, suffering or
omitting any action hereunder, the Guarantee Trustee (unless
other evidence is herein specifically prescribed) may, in
the absence of bad faith on its part, request and rely upon
a certificate, which shall comply with the provisions of
Section 314(e) of the Trust Indenture Act, signed by any
authorized officer of the Additional Guarantor;
(ii) the Guarantee Trustee (A) may consult with counsel (which may be counsel to the Additional Guarantor or any of its Affiliates and may include any
of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Agreement from any court of competent jurisdiction;
(iii) the Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care;
(iv) the Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any Holders, unless such Holders shall have offered to the Guarantee Trustee reasonable security and indemnity against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided, however, that nothing contained in this clause (iv) shall relieve the Guarantee Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree of care and skill in this exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and
(v) any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Guarantee Trustee so to act, or as to its compliance with any of the terms and provisions of this Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action.
SECTION 4. Additional Guarantee. (a) The Additional Guarantor irrevocably and unconditionally guarantees, on a subordinated basis as provided herein, the Original Guarantor's obligations to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust or the Original Guarantor), as and when due, regardless of any defense, right of setoff or counterclaim that the Trust may have or assert (the "Additional Guarantee"). The Additional Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Additional Guarantor to the Holders or by causing the Original Guarantor or the Trust to pay such amounts to the Holders.
(b) The Additional Guarantor hereby waives notice of acceptance of this Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Original Guarantor or the Trust or any other Person before proceeding against the Additional Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
(c) The obligations, covenants, agreements and duties of the Additional Guarantor under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
(i) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust or the Original Guarantor of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust or the Original Guarantor;
(ii) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Subordinated Debentures or any
extension of the maturity date of the Subordinated Debentures permitted by the Indenture);
(iii) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind;
(iv) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust;
(v) any invalidity of, or defect or deficiency in, the Preferred Securities;
(vi) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(vii) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or
defense of a guarantor, it being the intent of this
Section that the obligations of the Additional Guarantor
hereunder shall be absolute and unconditional under any and
all circumstances.
(d) There shall be no obligation of the Holders to give notice to, or obtain consent of, the Additional Guarantor with respect to the happening of anything set forth in Section 4(c).
SECTION 5. Enforcement of Additional Guarantee. The
Additional Guarantor and the Guarantee Trustee expressly
acknowledge that (i) this Agreement will be deposited with the
Guarantee Trustee to be held for the benefit of the Holders;
(ii) the Guarantee Trustee has the right to enforce this
Agreement on behalf of the Holders; (iii) Holders representing
not less than a Majority in aggregate liquidation amount of the
Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available
in respect of this Agreement, including the giving of directions
to the Guarantee Trustee, or exercising any trust or other power
conferred upon the Guarantee Trustee under this Agreement; provided, however, that, except for directing the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, the Guarantee Trustee shall not take any of the foregoing actions at the direction of the Holders unless the Guarantee Trustee shall have received, at the expense of the Additional Guarantor, an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures; and (iv) if the Guarantee Trustee fails to enforce this Agreement for any reason, any Holder may, at its own expense, institute a legal proceeding directly against the Additional Guarantor to enforce its rights under this Agreement, without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other Person.
SECTION 6. Guarantee of Payment. This Agreement creates a guarantee of payment and not merely of collection.
SECTION 7. Subrogation. The Additional Guarantor shall be subrogated to all (if any) rights of the Holders against the Trust and the Original Guarantor in respect of any amounts paid to the Holders by the Additional Guarantor under this Agreement; provided, however, that the Additional Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Agreement. If any amount shall be paid to the Additional Guarantor in violation of the preceding sentence, the Additional Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
SECTION 8. Independent Obligations. The Additional Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities and the Original Guarantor with respect to the Original Guarantee, and that the Additional Guarantor shall be liable as principal and as
debtor hereunder to make any payments required pursuant to the terms of this Agreement notwithstanding the occurrence of any event referred to in paragraphs (i) through (vii) of Section 4(c) hereof.
SECTION 9. Subordination. This Agreement constitutes
an unsecured obligation of the Additional Guarantor that ranks
(a) pari passu with the guarantees delivered by the Additional
Guarantor in connection with the 8-7/8% Preferred Trust
Securities of Time Warner Capital I, a Delaware statutory
business trust, (b) pari passu with the most senior preferred or
preference stock of the Additional Guarantor outstanding on the
date of this Agreement or hereafter issued and with any guarantee
now or hereafter entered into by the Additional Guarantor in
respect of any preferred or preference stock of any affiliate of
the Additional Guarantor, (c) senior in right of payment to the
common stock and the series common stock of the Additional
Guarantor and (d) subordinate and junior in right of payment to
all other liabilities of the Additional Guarantor.
SECTION 10. Events of Default; Waiver. (a) Subject to paragraph (b) of this Section, Holders may by vote of at least a Majority in aggregate liquidation amount of the Preferred Securities, (i) direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee or (ii) on behalf of all of the Holders waive any past Event of Default and its consequences. Upon such waiver, any such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
(b) The right of any Holder to receive payment of the Guarantee Payments in accordance with this Guarantee Agreement, or to institute suit for the enforcement of any such payment, shall not be impaired without the consent of each such Holder.
SECTION 11. Termination. This Agreement shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all of the Preferred Securities, (ii) the distribution of the Subordinated Debentures to all of the Holders or (iii) full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Trust. Notwithstanding the foregoing, this Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid under the Preferred Securities, the Original Guarantee or under the Additional Guarantee.
SECTION 12. Successors and Assigns. All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Additional Guarantor, including any successors permitted under Article Five of the Indenture, and shall inure to the benefit of the Holders then outstanding. Except in connection with a consolidation, merger or sale involving the Additional Guarantor that is permitted under Article Five of the Indenture, the Additional Guarantor shall not assign its obligations hereunder.
SECTION 13. Notices. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows:
(a) if given to the Additional Guarantor, to the address set forth in the Original Guarantee Agreement for notices given to the Original Guarantor or such other address as the Additional Guarantor may give notice of to the Holders;
(b) if given to the Guarantee Trustee, to the address set forth in the Original Guarantee Agreement or to such other address as the Guarantee Trustee may give notice of to the Holders; and
(c) if given to any Holder, at the address set forth on the books and records of the Trust.
All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or three Business Days after mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.
SECTION 14. Benefit. This Agreement is solely for the benefit of the Holders and, subject to Section 2, is not separately transferable from the Preferred Securities.
SECTION 15. Not Responsible for Recitals or Issuance of Guarantee. The recitals contained in this Agreement shall be taken as the statements of the Original Guarantor and the Additional Guarantor and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Agreement.
SECTION 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This Agreement is executed as of the day and year first above written.
TIME WARNER INC., as Original Guarantor,
By ___________________________ Name: Thomas W. McEnerney Title: Vice President
TW INC., as Additional Guarantor,
By ___________________________ Name: Thomas W. McEnerney Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Guarantee Trustee,
By _______________________________
Name: Melissa G. Weisman
Title: Vice President
Exhibit 4.7
DECLARATION GUARANTEE (this "Agreement"), dated as of October 10, 1996, among the undersigned trustees (the "Trustees"), Time Warner Inc., a Delaware corporation, as trust sponsor (the "Sponsor"), and TW Inc., a Delaware corporation (the "Guarantor").
WHEREAS the Sponsor and the Trustees entered into a Declaration of Trust dated as of August 2, 1995 in order to establish under Chapter 38 of Title 12 of the Delaware Code (12 Del. C. Section 3801 et seq.) Time Warner Capital I, a statutory business trust (the "Trust");
WHEREAS the Sponsor and the Trustees entered into an Amended and Restated Declaration of Trust dated as of December 5, 1995 (the "Declaration"), pursuant to which the Trust issued $575,000,000 aggregate liquidation amount of its 8-7/8% Preferred Trust Securities (the "Preferred Securities") representing undivided beneficial interests in the assets of the Trust; and
WHEREAS the Guarantor desires to unconditionally and irrevocably guarantee, on a subordinated basis, the full and punctual payment and performance (within applicable grace periods) of all the obligations of the Sponsor under the Declaration and the Preferred Securities.
NOW THEREFORE, the Sponsor, the Guarantor and the Trustees hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used herein but not defined herein have the meanings ascribed to such terms in the Declaration.
SECTION 2. The Guarantee. (a) The Guarantor irrevocably and unconditionally guarantees on a subordinated basis as set forth herein (the "Guarantee"), to each Holder of Preferred Securities and to the Trustees and their successors and assigns, the full and punctual payment and performance (within applicable grace periods) of all the obligations of the Sponsor under the Declaration and the Preferred Securities.
(b) The Guarantor further agrees that the Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(c) The Guarantor's obligation to make any payment hereunder may be satisfied by causing the Sponsor to make such payment.
(d) The Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustees or any Holder of Preferred Securities in enforcing any of their respective rights under the Guarantee.
SECTION 3. Subordination. The Guarantee constitutes
an unsecured obligation of the Guarantor that ranks (a) pari
passu with the guarantees delivered by the Guarantor in
connection with the PERCS, (b) pari passu with the most senior
preferred or preference stock of the Guarantor outstanding on the
date of this Agreement or hereafter issued and with any guarantee
now or hereafter entered into by the Guarantor in respect of any
preferred or preference stock of any affiliate of the Guarantor,
(c) senior in right of payment to the common stock and series
common stock of the Guarantor and (d) subordinate and junior in
right of payment to all other liabilities of the Guarantor.
SECTION 4. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which when taken together shall constitute but one instrument.
SECTION 6. Headings. The headings of this Agreement are for reference only and shall not limit or otherwise affect the meaning hereof.
SECTION 7. Trustees Not Responsible for Recitals. The recitals herein contained are made by the Sponsor and the Guarantor, and not by the Trustees, and the Trustees assume no responsibility for the correctness thereof. The Trustees make no representation as to the validity or sufficiency of this Agreement.
SECTION 8. Separability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written.
TIME WARNER INC., as Sponsor,
by __________________________ Name: Thomas W. McEnerney Title: Vice President
TW INC., as Guarantor,
by __________________________ Name: Thomas W. McEnerney Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee,
by __________________________
Name: Melissa G. Weisman
Title: Assistant Vice President
FIRST CHICAGO DELAWARE, INC.
as Delaware Trustee,
by __________________________
Name: Melissa G. Weisman
Title: Assistant Vice President
Exhibit 4.8
GUARANTEE AGREEMENT (this "Agreement")
dated as of October 10, 1996, among TIME
WARNER INC., a Delaware corporation (the
"Original Guarantor"), TW INC., a Delaware
corporation (the "Additional Guarantor"), and
THE FIRST NATIONAL BANK OF CHICAGO (the
"Guarantee Trustee").
WHEREAS, in connection with the issuance by Time Warner Capital I, a Delaware statutory business trust (the "Trust"), of $575,000,000 aggregate liquidation amount of its 8-7/8% Preferred Trust Securities (the "Preferred Securities") representing undivided beneficial interests in the assets of the Trust, the Original Guarantor and the Guarantee Trustee entered into a Guarantee Agreement dated as of December 5, 1995 (the "Original Guarantee Agreement"), pursuant to which the Original Guarantor irrevocably and unconditionally agreed, to the extent set forth therein, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined in the Original Guarantee Agreement) and to make certain other payments on the terms and conditions set forth therein (collectively, the "Original Guarantee"); and
WHEREAS the Additional Guarantor proposes in and by this Agreement to unconditionally and irrevocably guarantee, on a subordinated basis, the Original Guarantor's obligation to pay to the Holders of the Preferred Securities the Guarantee Payments and the other obligations of the Original Guarantor under the Original Guarantee Agreement.
NOW THEREFORE, the Original Guarantor, the Additional Guarantor and the Guarantee Trustee hereby agree as follows:
SECTION 1. Capitalized Terms. Capitalized terms used herein and not defined herein shall have the meanings ascribed to such terms in the Original Guarantee Agreement.
SECTION 2. Powers and Duties of the Guarantee Trustee. (a) This Agreement shall be held by the Guarantee Trustee in trust for the benefit of the Holders. The Guarantee Trustee shall not transfer its right, title and interest in this Agreement to any Person except a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Guarantee Trustee or to
a Holder exercising his or her rights pursuant to Section 5. The right, title and interest of the Guarantee Trustee to this Agreement shall vest automatically in each Person who may hereafter be appointed as Guarantee Trustee in accordance with Article IV of the Original Guarantee Agreement. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.
(b) If a default by the Additional Guarantor on any of its payments or other obligations under this Agreement (an "Event of Default") occurs and is continuing, the Guarantee Trustee shall enforce this Agreement for the benefit of the Holders.
(c) This Agreement and all moneys received by the Guarantee Trustee hereunder in respect of the Guarantee Payments will not be subject to any right, charge, security interest, lien or claim of any kind in favor of, or for the benefit of, the Guarantee Trustee or its agents or their creditors.
(d) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders, as their names and addresses appear upon the register, notice of all Events of Default known to the Guarantee Trustee, unless such defaults shall have been cured before the giving of such notice; provided, however, that the Guarantee Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Guarantee Trustee in good faith determine that the withholding of such notice is in the interests of the Holders. The Guarantee Trustee shall not be deemed to have knowledge of any default except any default as to which the Guarantee Trustee shall have received written notice or a Responsible Officer charged with the administration of this Agreement shall have obtained written notice.
(e) The Guarantee Trustee shall continue to serve as trustee with respect to this Agreement until a Successor Guarantee Trustee has been appointed in accordance with Article IV of the Original Guarantee Agreement, which Successor Guarantee Trustee, when so appointed, shall act as trustee with respect to this Agreement from the date of such appointment until the earlier of (i) the appointment of another Successor Guarantee Trustee in accordance with this
paragraph (e) and Article IV of the Original Guarantee Agreement and (ii) termination of this Agreement pursuant to the terms hereof.
SECTION 3. Certain Rights and Duties of the Guarantee Trustee. (a) The Guarantee Trustee, before the occurrence of an Event of Default and after the curing or waiving of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Agreement, and no implied covenants shall be read into this Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 11(a)), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs.
(b) No provision of this Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its own negligent failure to act or its own wilful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee under this Agreement shall be determined solely by the express provisions of this Agreement, and the Guarantee Trustee shall not be liable under this Agreement except for the performance of such duties and obligations as are specifically set forth in this Agreement, and no implied covenants or obligations shall be read into this Agreement against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under
a duty to examine the same to determine whether or not they conform to the requirements of this Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it pursuant to this Agreement in good faith in accordance with the direction of the Holders as provided herein relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Agreement; and
(iv) no provision of this Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Agreement or adequate indemnity against such risk or liability is not reasonably assured to it.
(c) Subject to the provisions of Sections 3(a) and (b):
(i) Whenever in the administration of this Agreement,
the Guarantee Trustee shall deem it desirable that a matter
be proved or established prior to taking, suffering or
omitting any action hereunder, the Guarantee Trustee (unless
other evidence is herein specifically prescribed) may, in
the absence of bad faith on its part, request and rely upon
a certificate, which shall comply with the provisions of
Section 314(e) of the Trust Indenture Act, signed by any
authorized officer of the Additional Guarantor;
(ii) the Guarantee Trustee (A) may consult with counsel (which may be counsel to the Additional Guarantor or any of its Affiliates and may include any
of its employees) selected by it in good faith and with due care and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice and opinion and (B) shall have the right at any time to seek instructions concerning the administration of this Agreement from any court of competent jurisdiction;
(iii) the Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it in good faith and with due care;
(iv) the Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Agreement at the request or direction of any Holders, unless such Holders shall have offered to the Guarantee Trustee reasonable security and indemnity against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction; provided, however, that nothing contained in this clause (iv) shall relieve the Guarantee Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived) to exercise such of the rights and powers vested in it by this Agreement, and to use the same degree of care and skill in this exercise as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs; and
(v) any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action; and no third party shall be required to inquire as to the authority of the Guarantee Trustee so to act, or as to its compliance with any of the terms and provisions of this Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action.
SECTION 4. Additional Guarantee. (a) The Additional Guarantor irrevocably and unconditionally guarantees, on a subordinated basis as provided herein, the Original Guarantor's obligations to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust or the Original Guarantor), as and when due, regardless of any defense, right of setoff or counterclaim that the Trust may have or assert (the "Additional Guarantee"). The Additional Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Additional Guarantor to the Holders or by causing the Original Guarantor or the Trust to pay such amounts to the Holders.
(b) The Additional Guarantor hereby waives notice of acceptance of this Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Original Guarantor or the Trust or any other Person before proceeding against the Additional Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
(c) The obligations, covenants, agreements and duties of the Additional Guarantor under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
(i) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust or the Original Guarantor of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust or the Original Guarantor;
(ii) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Subordinated Debentures or any
extension of the maturity date of the Subordinated Debentures permitted by the Indenture);
(iii) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind;
(iv) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust;
(v) any invalidity of, or defect or deficiency in, the Preferred Securities;
(vi) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(vii) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or
defense of a guarantor, it being the intent of this
Section that the obligations of the Additional Guarantor
hereunder shall be absolute and unconditional under any and
all circumstances.
(d) There shall be no obligation of the Holders to give notice to, or obtain consent of, the Additional Guarantor with respect to the happening of anything set forth in Section 4(c).
SECTION 5. Enforcement of Additional Guarantee. The
Additional Guarantor and the Guarantee Trustee expressly
acknowledge that (i) this Agreement will be deposited with the
Guarantee Trustee to be held for the benefit of the Holders;
(ii) the Guarantee Trustee has the right to enforce this
Agreement on behalf of the Holders; (iii) Holders representing
not less than a Majority in aggregate liquidation amount of the
Preferred Securities have the right to direct the time, method
and place of conducting any proceeding for any remedy available
in respect of this Agreement, including the giving of directions
to the Guarantee Trustee, or exercising any trust or other power
conferred upon the Guarantee Trustee under this Agreement; provided, however, that, except for directing the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, the Guarantee Trustee shall not take any of the foregoing actions at the direction of the Holders unless the Guarantee Trustee shall have received, at the expense of the Additional Guarantor, an opinion of nationally recognized independent tax counsel experienced in such matters to the effect that such action will not result in the Trust being treated as an association taxable as a corporation or a partnership for United States Federal income tax purposes and that, following such action, each holder of Trust Securities will be treated for United States Federal income tax purposes as owning an undivided beneficial interest in the Subordinated Debentures; and (iv) if the Guarantee Trustee fails to enforce this Agreement for any reason, any Holder may, at its own expense, institute a legal proceeding directly against the Additional Guarantor to enforce its rights under this Agreement, without first instituting a legal proceeding against the Trust, the Guarantee Trustee or any other Person.
SECTION 6. Guarantee of Payment. This Agreement creates a guarantee of payment and not merely of collection.
SECTION 7. Subrogation. The Additional Guarantor shall be subrogated to all (if any) rights of the Holders against the Trust and the Original Guarantor in respect of any amounts paid to the Holders by the Additional Guarantor under this Agreement; provided, however, that the Additional Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any rights that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Agreement. If any amount shall be paid to the Additional Guarantor in violation of the preceding sentence, the Additional Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
SECTION 8. Independent Obligations. The Additional Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities and the Original Guarantor with respect to the Original Guarantee, and that the Additional Guarantor shall be liable as principal and as
debtor hereunder to make any payments required pursuant to the terms of this Agreement notwithstanding the occurrence of any event referred to in paragraphs (i) through (vii) of Section 4(c) hereof.
SECTION 9. Subordination. This Agreement constitutes
an unsecured obligation of the Additional Guarantor that ranks
(a) pari passu with the guarantees delivered by the Additional
Guarantor in connection with the PERCS, (b) pari passu with the
most senior preferred or preference stock of the Additional
Guarantor outstanding on the date of this Agreement or hereafter
issued and with any guarantee now or hereafter entered into by
the Additional Guarantor in respect of any preferred or
preference stock of any affiliate of the Additional Guarantor,
(c) senior in right of payment to the common stock and series
common stock of the Additional Guarantor and (d) subordinate and
junior in right of payment to all other liabilities of the
Additional Guarantor.
SECTION 10. Events of Default; Waiver. (a) Subject to paragraph (b) of this Section, Holders may by vote of at least a Majority in aggregate liquidation amount of the Preferred Securities, (i) direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee or (ii) on behalf of all of the Holders waive any past Event of Default and its consequences. Upon such waiver, any such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
(b) The right of any Holder to receive payment of the Guarantee Payments in accordance with this Guarantee Agreement, or to institute suit for the enforcement of any such payment, shall not be impaired without the consent of each such Holder.
SECTION 11. Termination. This Agreement shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all of the Preferred Securities, (ii) the distribution of the Subordinated Debentures to all of the Holders or (iii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Trust. Notwithstanding
the foregoing, this Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid under the Preferred Securities, the Original Guarantee or under the Additional Guarantee.
SECTION 12. Successors and Assigns. All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Additional Guarantor, including any successors permitted under Article Five of the Indenture, and shall inure to the benefit of the Holders then outstanding. Except in connection with a consolidation, merger or sale involving the Additional Guarantor that is permitted under Article Five of the Indenture, the Additional Guarantor shall not assign its obligations hereunder.
SECTION 13. Notices. Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and delivered, telecopied or mailed by first class mail as follows:
(a) if given to the Additional Guarantor, to the address set forth in the Original Guarantee Agreement for notices given to the Original Guarantor or such other address as the Additional Guarantor may give notice of to the Holders;
(b) if given to the Guarantee Trustee, to the address set forth in the Original Guarantee Agreement or to such other address as the Guarantee Trustee may give notice of to the Holders; and
(c) if given to any Holder, at the address set forth on the books and records of the Trust.
All notices hereunder shall be deemed to have been given when received in person, telecopied with receipt confirmed, or three Business Days after mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver.
SECTION 14. Benefit. This Agreement is solely for the benefit of the Holders and, subject to Section 2, is not separately transferable from the Preferred Securities.
SECTION 15. Not Responsible for Recitals or Issuance of Guarantee. The recitals contained in this Agreement shall be taken as the statements of the Original Guarantor and the Additional Guarantor and the Guarantee Trustee does not assume any responsibility for their correctness. The Guarantee Trustee makes no representations as to the validity or sufficiency of this Agreement.
SECTION 16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This Agreement is executed as of the day and year first above written.
TIME WARNER INC., as Original Guarantor,
By ___________________________ Name: Thomas W. McEnerney Title: Vice President
TW INC., as Additional Guarantor,
By ___________________________ Name: Thomas W. McEnerney Title: Vice President
THE FIRST NATIONAL BANK OF
CHICAGO,
as Guarantee Trustee,
By _______________________________
Name: Melissa G. Weisman
Title: Assistant Vice President
| ARTICLE 5 Exhibit 27 |
| TIME WARNER COMPANIES, INC. FINANCIAL DATA SCHEDULE This schedule contains summary financial information extracted from the financial statements of Time Warner Companies, Inc. for the nine months ended September 30, 1996 and is qualified in its entirety by reference to such financial statements. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | DEC 31 1996 |
| PERIOD START | JAN 01 1996 |
| PERIOD END | SEP 30 1996 |
| CASH | 402 |
| SECURITIES | 0 |
| RECEIVABLES | 2,175 |
| ALLOWANCES | 759 |
| INVENTORY | 475 |
| CURRENT ASSETS | 3,243 |
| PP&E | 2,522 |
| DEPRECIATION | 1,017 |
| TOTAL ASSETS | 24,467 |
| CURRENT LIABILITIES | 2,772 |
| BONDS | 9,949 |
| COMMON | 385 |
| PREFERRED MANDATORY | 1,629 |
| PREFERRED | 36 |
| OTHER SE | 3,159 |
| TOTAL LIABILITY AND EQUITY | 24,467 |
| SALES | 6,364 |
| TOTAL REVENUES | 6,364 |
| CGS | 3,809 |
| TOTAL COSTS | 3,809 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 688 |
| INCOME PRETAX | (172) |
| INCOME TAX | 43 |
| INCOME CONTINUING | (215) |
| DISCONTINUED | 0 |
| EXTRAORDINARY | (35) |
| CHANGES | 0 |
| NET INCOME | (250) |
| EPS PRIMARY | (1.11) |
| EPS DILUTED | (1.11) |