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 June 30, 1998, 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 1-12259
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3527249
(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 registrant's principal executive offices)
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 542,242,060
Series LMCN-V Common Stock - $.01 par value 57,061,942
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Description of Class Shares Outstanding
as of July 31, 1998
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TIME WARNER INC. AND
TIME WARNER ENTERTAINMENT COMPANY, L.P.
INDEX TO FORM 10-Q
PAGE
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TIME
WARNER TWE
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PART I. FINANCIAL INFORMATION
Management's discussion and analysis of results of operations and financial condition..... 1 41
Consolidated balance sheets at June 30, 1998 and December 31, 1997........................ 18 51
Consolidated statements of operations for the three and six months ended
June 30, 1998 and 1997............................................................... 19 52
Consolidated statements of cash flows for the six months ended June 30, 1998
and 1997............................................................................. 20 53
Consolidated statement of shareholders' equity and partnership capital.................... 21 54
Notes to consolidated financial statements................................................ 22 55
Supplementary information................................................................. 33
PART II. OTHER INFORMATION.................................................................... 62
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TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Time Warner Inc. ("Time Warner" or the "Company") classifies its business interests into four fundamental areas: Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, television production and television broadcasting; 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. A majority of Time Warner's interests in filmed entertainment, television production, television broadcasting and cable television systems, and a portion of its interests in cable television programming, are held through Time Warner Entertainment Company, L.P. ("TWE"). Time Warner owns general and limited partnership interests in TWE consisting of 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 MediaOne Group, Inc. ("MediaOne"), formerly U S WEST, Inc. Time Warner does not consolidate TWE and certain related companies (the "Entertainment Group") for financial reporting purposes because of certain limited partnership 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.
USE OF EBITA
Time Warner evaluates operating performance based on several factors, of which the primary financial measure is operating income before noncash amortization of intangible assets ("EBITA"). Consistent with management's financial focus on controlling capital spending, EBITA measures operating performance after charges for depreciation. In addition, EBITA eliminates the uneven effect across all business segments of considerable amounts of noncash amortization of intangible assets recognized in business combinations accounted for by the purchase method, including the $14 billion acquisition of Warner Communications Inc. in 1989, the $6.2 billion acquisition of Turner Broadcasting System, Inc. in 1996 and the $2.3 billion of cable acquisitions in 1996 and 1995. The exclusion of noncash amortization charges is also consistent with management's belief that Time Warner's intangible assets, such as cable television and sports franchises, music catalogues and copyrights, film and television libraries and the goodwill associated with its brands, are generally increasing in value and importance to Time Warner's business objective of creating, extending and distributing recognizable brands and copyrights throughout the world. As such, the following comparative discussion of the results of operations of Time Warner and the Entertainment Group includes, among other factors, an analysis of changes in business segment EBITA. However, EBITA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with generally accepted accounting principles.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
RESULTS OF OPERATIONS
As more fully described herein, Time Warner's and the Entertainment Group's 1998 operating results have been affected by certain cable-related transactions, including (i) the transfer of cable television systems (or interests therein) serving approximately 650,000 subscribers that were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse Partnership ("TWE-A/N"), subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, as well as certain related transactions (collectively, the "TWE-A/N Transfers"), (ii) the transfer of TWE's and TWE-A/N's direct broadcast satellite operations and related assets to Primestar, Inc., a separate holding company (the "Primestar Roll-up Transaction") and (iii) the sale or exchange of certain cable television systems. The effects of these transactions are described elsewhere herein.
EBITA and operating income for Time Warner and the Entertainment Group for the three and six months ended June 30, 1998 and 1997 are as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
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EBITA OPERATING INCOME EBITA OPERATING INCOME
--------------- ---------------- ------------- ----------------
1998 1997 1998 1997 1998 1997 1998 1997
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(MILLIONS)
TIME WARNER:
Publishing............................... $176 $157 $168 $149 $261 $233 $244 $216
Music.................................... 96 106 25 32 189 224 50 82
Cable Networks-TBS....................... 198 165 148 115 351 279 251 184
Filmed Entertainment-TBS................. 38 29 18 10 23 35 (17) (6)
Cable.................................... 74 104 26 35 148 209 46 70
Intersegment elimination................. (1) 4 (1) 4 (20) (7) (20) (7)
---- ---- ---- ---- ---- ---- ---- ----
Total.................................... $581 $565 $384 $345 $952 $973 $554 $539
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ENTERTAINMENT GROUP:
Filmed Entertainment-Warner Bros......... $122 $110 $ 89 $ 80 $241 $215 $175 $154
Broadcasting-The WB Network.............. (23) (19) (24) (19) (61) (39) (63) (39)
Cable Networks-HBO....................... 113 98 113 98 222 189 222 189
Cable (a)................................ 374 243 278 168 681 502 491 351
---- ---- ---- ---- ---- ---- ---- ----
Total.................................... $586 $432 $456 $327 $1,083 $867 $825 $655
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THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Time Warner had revenues of $3.672 billion and net income of $101 million ($.04 income per common share after preferred dividend requirements) for the three months ended June 30, 1998, compared to revenues of $3.193 billion and net income of $30 million ($.09 loss per common share after preferred dividend requirements) for the three months ended June 30, 1997. Time Warner's equity in the pretax income of the Entertainment Group was $166 million for the three months ended June 30, 1998, compared to $108 million for the three months ended June 30, 1997.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Time Warner's net income increased to $101 million for the three months ended June 30, 1998, compared to $30 million for the three months ended June 30, 1997. As discussed more fully below, this increase principally resulted from an overall increase in business segment operating income, higher income from Time Warner's equity in the pretax income of the Entertainment Group and lower interest expense associated with Time Warner's debt reduction efforts and the TWE-A/N Transfers. Time Warner's equity in the pretax income of the Entertainment Group includes $70 million ($.05 per common share) of net pretax gains recognized by TWE in 1998 relating to the sale or exchange of certain cable television systems.
The Entertainment Group had revenues of $2.853 billion and net income of $156 million for the three months ended June 30, 1998, compared to revenues of $2.731 billion and net income of $89 million for the three months ended June 30, 1997. As discussed more fully below, the Entertainment Group's net income increased in 1998 as compared to 1997 principally due to an overall increase in operating income generated by its business segments (including the positive effect of the TWE-A/N Transfers and the $70 million of net gains noted above), offset in part by an increase in interest expense and minority interest expense related to the TWE-A/N Transfers.
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 $1.136 billion, compared to $1.053 billion in the second quarter of 1997. EBITA increased to $176 million from $157 million. Operating income increased to $168 million from $149 million. Revenues benefited from increases in magazine advertising and circulation revenues, offset in part by a decrease in direct marketing revenues. Contributing to the revenue gains were increases achieved by People, Time, Fortune and In Style. EBITA and operating income increased principally as a result of the revenue gains and, to a lesser extent, cost savings.
Music. Revenues increased to $905 million, compared to $822 million in the second quarter of 1997. EBITA decreased to $96 million from $106 million. Operating income decreased to $25 million from $32 million. Revenues benefited from an increase in domestic and international recorded music sales principally relating to higher compact disc sales of new releases from popular established artists and movie soundtracks. At the end of June 1998, the Music division had a leading domestic market share of 20%, as measured by SoundScan. Despite the revenue increase, EBITA and operating income declined principally as a result of lower results from direct marketing activities.
Cable Networks-TBS. Revenues increased to $906 million, compared to $750 million in the second quarter of 1997. EBITA increased to $198 million from $165 million. Operating income increased to $148 million from $115 million. Revenues benefited from a significant increase in subscription revenues, as well as an increase in advertising revenues. The increase in subscription revenues principally related to the conversion of TBS Superstation from an advertiser-supported broadcast superstation to a copyright-paid, cable television service, which allows TBS Superstation to charge cable operators for the right to carry its cable television programming. Subscription revenues also increased as a result of an increase in subscriptions, primarily at TNT, CNN, Cartoon Network and Turner
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Classic Movies, and higher rates. The increase in advertising revenues was due to a strong overall advertising market for most of the division's major branded networks, including TNT, Cartoon Network and CNN Headline News. EBITA and operating income increased principally as a result of the revenue gains and cost savings.
Filmed Entertainment-TBS. Revenues increased to $504 million, compared to $337 million in the second quarter of 1997. EBITA increased to $38 million from $29 million. Operating income increased to $18 million from $10 million. Revenues benefited from an increase in worldwide theatrical revenues and a significant increase in syndication sales resulting from the renewal by existing television station customers of second-cycle broadcasting rights for Seinfeld, offset in part by lower worldwide home video revenues. EBITA and operating income increased principally as a result of the revenue gains, offset in part by film write-offs relating to disappointing results for theatrical releases of Castle Rock Entertainment.
Cable. Revenues decreased to $242 million, compared to $250 million in the second quarter of 1997. EBITA decreased to $74 million from $104 million. Operating income decreased to $26 million from $35 million. The Cable division's 1998 operating results were negatively affected by the TWE-A/N Transfers. Excluding the effect of the TWE-A/N Transfers, 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 ("FCC") and an increase in advertising revenues. Similarly excluding the effect of the TWE-A/N Transfers, EBITA and operating income increased principally as a result of the revenue gains, offset in part by higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, decreased to $283 million in the second quarter of 1998, compared to $303 million in the second quarter of 1997. Interest expense decreased to $222 million, compared to $256 million in the second quarter of 1997, principally due to lower average debt levels associated with the Company's debt reduction efforts and the TWE-A/N Transfers. Other expense, net, increased to $61 million in the second quarter of 1998 from $47 million in the second quarter of 1997, principally because of lower investment-related income relating to the absence of a gain on the sale of an investment recognized in 1997.
ENTERTAINMENT GROUP
Filmed Entertainment-Warner Bros. Revenues increased to $1.330 billion, compared to $1.257 billion in the second quarter of 1997. EBITA increased to $122 million from $110 million. Operating income increased to $89 million from $80 million. Revenues benefited from increases in worldwide television production and distribution, home video and consumer products licensing operations, offset in part by lower worldwide theatrical revenues. EBITA and operating income benefited principally from the revenue gains, as well as a gain on the sale of certain assets.
Broadcasting - The WB Network. Revenues increased to $61 million, compared to $29 million in the second quarter of 1997. EBITA decreased to a loss of $23 million from a loss of $19 million. Operating losses increased to $24 million from $19 million. Revenues increased as a result of improved television ratings and the addition of a fourth night of prime-time programming in January 1998, but were offset by higher programming costs associated with the expanded programming schedule. Operating losses increased primarily as a result of a lower allocation of losses to a limited partner in the network. In October 1998, The WB Network plans to expand its prime-time
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
programming schedule to five nights a week. Due to the start-up nature of this national broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $509 million, compared to $487 million in the second quarter of 1997. EBITA and operating income increased to $113 million from $98 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains and, to a lesser extent, cost savings.
Cable. Revenues increased to $1.084 billion, compared to $1.066 billion in the second quarter of 1997. EBITA increased to $374 million from $243 million. Operating income increased to $278 million from $168 million. The Cable division's 1998 operating results were affected by the TWE-A/N Transfers and the deconsolidation of its direct broadcast satellite operations in connection with the Primestar Roll-up Transaction. Excluding the effect of the TWE-A/N Transfers and the Primestar Roll-up Transaction, 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 excluding the effect of the TWE-A/N Transfers and Primestar Roll-up Transaction, EBITA and operating income increased principally as a result of the revenue gains and higher net gains relating to the sale or exchange of certain cable television systems, offset in part by higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $183 million in the second quarter of 1998, compared to $139 million in the second quarter of 1997. Interest expense increased to $132 million, compared to $120 million in the second quarter of 1997, principally due to higher average debt levels associated with the TWE-A/N Transfers. There was other expense, net, of $51 million in the second quarter of 1998, compared to $19 million in the second quarter of 1997, principally due to higher losses from certain investments accounted for under the equity method of accounting.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Time Warner had revenues of $6.809 billion and net income of $39 million ($.21 loss per common share after preferred dividend requirements) for the six months ended June 30, 1998, compared to revenues of $6.227 billion, income of $82 million before an extraordinary loss on the retirement of debt ($.13 loss per common share) and net income of $65 million ($.16 loss per common share) for the six months ended June 30, 1997. Time Warner's equity in the pretax income of the Entertainment Group was $273 million for the six months ended June 30, 1998, compared to $426 million for the six months ended June 30, 1997.
Time Warner's net income decreased to $39 million for the six months ended June 30, 1998 compared to $65 million for the six months ended June 30, 1997. As discussed more fully below, this decrease principally resulted from lower, net pretax gains recognized by TWE in connection with the sale or exchange of certain cable television systems in each year and the 1997 sale of TWE's interest in E! Entertainment Television, Inc. ("E! Entertainment"). These pretax gains amounted to approximately $84 million in 1998 ($.06 per common share) and $274 million ($.29 per common share) in 1997. Excluding the effect of these transactions, net income increased in 1998 principally as a result of an overall increase in business segment operating income, higher income from Time Warner's equity in the pretax income of the Entertainment Group, lower interest expense associated with Time Warner's debt reduction
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
efforts and the TWE-A/N Transfers, and the absence of a $17 million extraordinary loss on the retirement of debt recognized in 1997.
The Entertainment Group had revenues of $5.765 billion and net income of $264 million for the six months ended June 30, 1998, compared to revenues of $5.333 billion and net income of $407 million for the six months ended June 30, 1997. As discussed more fully below and as previously described above, the Entertainment Group's net income decreased in 1998 as compared to 1997 principally due to lower, net pretax gains recognized in connection with the sale or exchange of certain cable television systems in each year and the 1997 sale of TWE's interest in E! Entertainment. Excluding the effect of these transactions, the Entertainment Group's net income increased in 1998 principally as a result of an overall increase in operating income generated by its business segments (including the positive effect of the TWE-A/N Transfers), offset in part by an increase in interest expense and minority interest expense related to the TWE-A/N Transfers.
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 $2.084 billion, compared to $1.977 billion in the first six months of 1997. EBITA increased to $261 million from $233 million. Operating income increased to $244 million from $216 million. Revenues benefited from increases in magazine advertising and circulation revenues, offset in part by a decrease in direct marketing revenues. Contributing to the revenue gains were increases achieved by People, Time, Fortune and In Style. EBITA and operating income increased principally as a result of the revenue gains and, to a lesser extent, cost savings.
Music. Revenues increased to $1.793 billion, compared to $1.755 billion in the first six months of 1997. EBITA decreased to $189 million from $224 million. Operating income decreased to $50 million from $82 million. Revenues benefited from an increase in domestic recorded music sales, which more than offset a marginal decrease in international recorded music sales. The increase in domestic recorded music revenues principally related to higher compact disc sales of new releases from popular established artists and movie soundtracks. At the end of June 1998, the Music division had a leading domestic market share of 20%, as measured by SoundScan. Despite the revenue increase, EBITA and operating income declined principally as a result of lower results from direct marketing activities and the absence of certain one-time gains recognized in 1997.
Cable Networks-TBS. Revenues increased to $1.634 billion, compared to $1.344 billion in the first six months of 1997. EBITA increased to $351 million from $279 million. Operating income increased to $251 million from $184 million. Revenues benefited from a significant increase in subscription revenues, as well as an increase in advertising revenues. The increase in subscription revenues principally related to the conversion of TBS Superstation from an advertiser-supported broadcast superstation to a copyright-paid, cable television service, which allows TBS Superstation to charge cable operators for the right to carry its cable television programming. Subscription revenues also increased as a result of an increase in subscriptions, primarily at TNT, CNN, Cartoon
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Network and Turner Classic Movies, and higher rates. The increase in advertising revenues was due to a strong overall advertising market for most of the division's major branded networks, including TNT, Cartoon Network, CNN and CNN Headline News. EBITA and operating income increased principally as a result of the revenue gains and cost savings.
Filmed Entertainment-TBS. Revenues increased to $876 million, compared to $734 million in the first six months of 1997. EBITA decreased to $23 million from $35 million. Operating losses increased to $17 million from $6 million. Revenues benefited from a significant increase in syndication sales resulting from the renewal by existing television station customers of second-cycle broadcasting rights for Seinfeld, offset in part by lower worldwide theatrical and home video revenues. Despite the revenue increase, EBITA and operating income decreased principally as a result of film write-offs relating to disappointing results for theatrical releases of Castle Rock Entertainment.
Cable. Revenues decreased to $490 million, compared to $492 million in the first six months of 1997. EBITA decreased to $148 million from $209 million. Operating income decreased to $46 million from $70 million. The Cable division's 1998 operating results were negatively affected by the TWE-A/N Transfers. Excluding the effect of the TWE-A/N Transfers, 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 excluding the effect of the TWE-A/N Transfers, EBITA and operating income increased principally as a result of the revenue gains, offset in part by higher depreciation related to capital spending and the absence of a gain on the sale of an investment recognized in 1997.
Interest and Other, Net. Interest and other, net, decreased to $566 million in the first six months of 1998, compared to $595 million in the first six months of 1997. Interest expense decreased to $455 million, compared to $534 million in the first six months of 1997, principally due to lower average debt levels associated with the Company's debt reduction efforts and the TWE-A/N Transfers. Other expense, net, increased to $111 million in the first six months of 1998 from $61 million in the first six months of 1997, principally because of lower gains on foreign exchange contracts, lower investment-related income relating to the absence of a gain on the sale of an investment recognized in 1997 and higher losses associated with the Company's asset securitization program.
ENTERTAINMENT GROUP
Filmed Entertainment-Warner Bros. Revenues increased to $2.642 billion, compared to $2.431 billion in the first six months of 1997. EBITA increased to $241 million from $215 million. Operating income increased to $175 million from $154 million. Revenues benefited from increases in worldwide television production and distribution and consumer products licensing operations, offset in part by lower worldwide theatrical and home video revenues. EBITA and operating income benefited principally from the revenue gains.
Broadcasting - The WB Network. Revenues increased to $106 million, compared to $53 million in the first six months of 1997. EBITA decreased to a loss of $61 million from a loss of $39 million. Operating losses increased to $63 million from $39 million. Revenues increased as a result of improved television ratings and the addition of a fourth night of prime-time programming in January 1998, but were offset by higher programming costs associated with the expanded programming schedule. Operating losses increased primarily as a result of a lower allocation of losses to a limited partner in the network. In October 1998, The WB Network plans to expand its prime-time
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
programming schedule to five nights a week. Due to the start-up nature of this national broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $1.021 billion, compared to $970 million in the first six months of 1997. EBITA and operating income increased to $222 million from $189 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains and, to a lesser extent, cost savings.
Cable. Revenues increased to $2.237 billion, compared to $2.086 billion in the first six months of 1997. EBITA increased to $681 million from $502 million. Operating income increased to $491 million from $351 million. The Cable division's 1998 operating results were affected by the TWE-A/N Transfers and the deconsolidation of its direct broadcast satellite operations in connection with the Primestar Roll-up Transaction. Excluding the effect of the TWE-A/N Transfers and Primestar Roll-up Transaction, 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 excluding the effect of the TWE-A/N Transfers and the Primestar Roll-up Transaction, EBITA and operating income increased principally as a result of the revenue gains and higher net gains relating to the sale or exchange of certain cable television systems, offset in part by higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $347 million in the first six months of 1998, compared to $11 million in the first six months of 1997. Interest expense increased to $273 million, compared to $236 million in the first six months of 1997, principally due to higher average debt levels associated with the TWE-A/N Transfers. There was other expense, net, of $74 million in the first six months of 1998, compared to other income, net, of $225 million in the first six months of 1997, principally due to the absence of an approximate $250 million pretax gain on the sale of an interest in E! Entertainment recognized in 1997 and higher losses from certain investments accounted for under the equity method of accounting.
FINANCIAL CONDITION AND LIQUIDITY
JUNE 30, 1998
TIME WARNER
FINANCIAL CONDITION
At June 30, 1998, Time Warner had $9.9 billion of debt, $344 million of cash and equivalents (net debt of $9.6 billion), $525 million of borrowings against future stock option proceeds, $575 million of mandatorily redeemable preferred securities of a subsidiary, $1.9 billion of Series M exchangeable preferred stock (see "Planned Redemption of Series M Preferred Stock" hereinafter) and $9.3 billion of shareholders' equity, compared to $11.8 billion of debt, $645 million of cash and equivalents (net debt of $11.2 billion), $533 million of borrowings against future stock option proceeds, $575 million of mandatorily redeemable preferred securities of a subsidiary, $1.9 billion of Series M exchangeable preferred stock and $9.4 billion of shareholders' equity at December 31, 1997. Net debt decreased principally as a result of the TWE-A/N Transfers.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
INVESTMENT IN TWE
Time Warner's investment in TWE at June 30, 1998 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, MediaOne) 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 $6.4 billion at June 30, 1998.
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, TWE borrowed $579 million under its bank credit agreement in July 1998 and paid a distribution to Time Warner relating to its Senior Capital interest. Time Warner used the $579 million of proceeds to reduce bank debt. Time Warner's remaining $584 million Senior Capital interest and any future undistributed partnership income allocated thereto (based on an 8% annual rate of return) is required to be distributed to Time Warner on July 1, 1999.
DEBT TRANSACTIONS
During the second quarter of 1998, Time Warner issued $600 million principal amount of 6.875% debentures due 2018 and borrowed $550 million under its bank credit agreement, which together offset the debt reduction associated with the conversion of all $1.15 billion accreted amount of zero-coupon convertible notes due 2013 (the "Zero-Coupon Convertible Notes") into 18.7 million shares of Time Warner common stock. The net proceeds therefrom have been used to repurchase comon stock, including the repurchase of 9.1 million shares of common stock in connection with the settlement of a forward purchase contract to acquire such shares (see "Common Stock Repurchase Program" hereinafter). These share repurchases partially offset the dilution resulting from the conversion of the Zero-Coupon Convertible Notes.
In April 1998, Time Warner and TWE consummated three previously announced transactions, consisting of the sale of TWE's 49% interest in Six Flags Entertainment Corporation, the Primestar Roll-up Transaction and the sale of certain cable television systems. As a result of these transactions, Time Warner and TWE reduced debt by approximately $700 million in the aggregate, of which $160 million relates to Time Warner and $540 million relates to TWE.
In February 1998, Time Warner Companies, Inc. ("TW Companies"), a wholly owned subsidiary of Time Warner, repaid all of its $500 million principal amount of 7.45% notes due February 1, 1998 at their maturity using proceeds raised from the issuance of $500 million principal amount of 6.95% debentures due January 15, 2028.
In early 1998, Time Warner transferred approximately $1 billion of debt to TWE-A/N in connection with the TWE-A/N Transfers. The debt assumed by TWE-A/N has been guaranteed by TWI Cable Inc., a wholly owned subsidiary of Time Warner, and certain of its subsidiaries.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
PLANNED REDEMPTION OF SERIES M PREFERRED STOCK
In July 1998, Time Warner announced its intention to redeem its outstanding shares of 10 1/4% Series M exchangeable preferred stock ("Series M Preferred Stock") on December 30, 1998, at a price equal to 110% of its $1.9 billion liquidation preference plus accumulated and accrued and unpaid dividends, intending, based on current borrowing rates, to replace it with lower-cost bank or public debt (the "Series M Refinancing"). Based on an anticipated 300 to 400 basis point reduction in the interest rate of the debt to be issued in comparison to the dividend rate of the Series M Preferred Stock, and including a reduction in taxes associated with the tax-deductible nature of the interest payments on the debt, Time Warner expects to realize approximately $100 to $125 million of annual cash savings as a result of the Series M Refinancing. As required pursuant to the terms of the Series M Preferred Stock, Time Warner's principal credit rating agencies have confirmed that there will be no impact on Time Warner's current credit ratings or ratings outlook as a result of this refinancing. In connection with the Series M Refinancing, Time Warner expects to record an estimated one-time reduction in earnings per common share of approximately $.39 in the fourth quarter of 1998. This reduction will not have any impact on net income and primarily results from treating the redemption premium to be paid on the Series M Preferred Stock similarly to a preferred dividend.
COMMON STOCK REPURCHASE PROGRAM
In March 1998, Toshiba Corporation and ITOCHU Corporation sold 9.1 million shares of Time Warner common stock to certain banks, after electing to convert a portion of their Time Warner convertible preferred stock into common stock. In a related transaction, Time Warner entered into a forward purchase contract with affiliates of such banks that provided it with an option to acquire an equal number of 9.1 million shares of its common stock. These transactions will result in an aggregate $26 million of preferred dividend savings for Time Warner through October 1999.
As previously described, in order to offset partially the dilutive effect relating to the conversion of the Zero-Coupon Convertible Notes, Time Warner exercised its option under the forward purchase contract in June 1998 and repurchased 9.1 million shares of its common stock at an aggregate cost of $632 million, or $69.12 per common share.
In connection with these transactions and the conversion of the Zero-Coupon Convertible Notes, Time Warner's Board of Directors authorized in 1998 an 18.7 million share increase in the Company's existing common stock repurchase program that, along with previous authorizations, allows the Company to repurchase, from time to time, up to 53.7 million shares of common stock. The common stock repurchased under the program is expected to continue to be used to satisfy a portion of the future share issuances related to the exercise of existing employee stock options and the potential conversion of certain convertible securities. Actual repurchases in any period will be subject to market conditions. As of June 30, 1998, Time Warner had acquired 23.2 million shares of its common stock in 1998 at an aggregate cost of $1.661 billion, thereby increasing the cumulative shares purchased under this program to approximately 40.8 million shares at an aggregate cost of $2.461 billion. Except for repurchases of common stock using $1.1 billion of borrowings in the second quarter of 1998 that offset a like-amount of debt reduction associated with the conversion of the Zero-Coupon Convertible Notes into common stock, these repurchases have been and are expected to continue to be funded with stock option exercise proceeds and borrowings under Time Warner's Stock Option Proceeds Credit Facility, as described more fully below.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
In early 1998, Time Warner entered into a new five-year, $1.3 billion revolving credit facility (the "Stock Option Proceeds Credit Facility"), which replaced its previously existing facility. Borrowings under the Stock Option Proceeds Credit Facility are principally used to fund stock repurchases and future preferred dividend requirements on Time Warner's Series G, H, I and J Preferred Stock. At June 30, 1998 and December 31, 1997, Time Warner had outstanding borrowings against future stock option proceeds of $525 million and $533 million, respectively.
CASH FLOWS
During the first six months of 1998, Time Warner's cash provided by operations amounted to $889 million and reflected $952 million of EBITA from its Publishing, Music, Cable Networks-TBS, Filmed Entertainment-TBS and Cable businesses, $191 million of noncash depreciation expense, $132 million of proceeds from Time Warner's asset securitization program and $298 million of distributions from TWE, less $404 million of interest payments, $79 million of income taxes, $38 million of corporate expenses and $163 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash provided by operations of $433 million for the first six months of 1997 reflected $973 million of business segment EBITA, $181 million of noncash depreciation expense and $203 million of distributions from TWE, less $488 million of interest payments, $132 million of income taxes, $43 million of corporate expenses and $261 million related to an aggregate increase in working capital requirements, balance sheet accounts and noncash items.
Cash provided by investing activities was $93 million in the first six months of 1998, compared to cash used by investing activities of $226 million in the first six months of 1997, principally as a result of lower capital expenditures and an increase in investment proceeds, partially offset by an increase in cash used for investments and acquisitions. Cash used for investments and acquisitions in 1998 was offset in part by the effect of consolidating approximately $200 million of cash of Paragon Communications ("Paragon") in connection with the TWE-A/N Transfers. Capital expenditures decreased to $228 million in the first six months of 1998, compared to $283 million in the first six months of 1997.
Cash used by financing activities was $1.283 billion in the first six months of 1998, compared to $251 million in the first six months of 1997. During the first six months of 1998, Time Warner had additional borrowings that offset the noncash reduction of $1.15 billion of debt relating to the conversion of the Zero-Coupon Convertible Notes into common stock. Time Warner principally used the proceeds from such borrowings, together with $460 million of proceeds received from the exercise of employee stock options, to repurchase approximately 23.2 million shares of Time Warner common stock at an aggregate cost of $1.661 billion. Time Warner also paid $265 million of dividends in the first six months of 1998, compared to $167 million in the first six months of 1997, reflecting its election in 1998 to pay dividends on its Series M Preferred Stock in cash rather than in-kind. Cash used by financing activities in 1997 principally resulted from the repurchase of approximately 954 thousand shares of Time Warner common stock at an aggregate cost of $36 million, the payment of $167 million of dividends and the repayment of $86 million of borrowings against future stock option proceeds.
The assets and cash flows of TWE are restricted by certain borrowing and partnership agreements and are unavailable to Time Warner except through the payment of certain fees, reimbursements, cash distributions and loans, which are subject to limitations. Under its bank credit agreement, TWE is permitted to incur additional indebtedness
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
to make loans, advances, distributions and other cash payments to Time Warner, subject to its individual compliance with the cash flow coverage and leverage ratio covenants contained therein.
Management believes that Time Warner's operating cash flow, cash and equivalents 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 $6.8 billion of debt, $72 million of cash and equivalents (net debt of $6.7 billion), $225 million of preferred stock of a subsidiary, $1.2 billion of Time Warner General Partners' Senior Capital and $6.1 billion of partners' capital at June 30, 1998, compared to $6.0 billion of debt, $322 million of cash and equivalents (net debt of $5.7 billion), $233 million of preferred stock of a subsidiary, $1.1 billion of Time Warner General Partners' Senior Capital and $6.4 billion of partners' capital at December 31, 1997. Net debt of the Entertainment Group increased principally as a result of the TWE-A/N Transfers.
CASH FLOWS
During the first six months of 1998, the Entertainment Group's cash provided by operations amounted to $586 million and reflected $1.083 billion of EBITA from its Filmed Entertainment-Warner Bros., Broadcasting-The WB Network, Cable Networks-HBO and Cable businesses, $469 million of noncash depreciation expense and $135 million of proceeds from TWE's asset securitization program, less $260 million of interest payments, $39 million of income taxes, $36 million of corporate expenses and $766 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash provided by operations of $416 million in the first six months of 1997 reflected $867 million of business segment EBITA and $449 million of noncash depreciation expense, less $243 million of interest payments, $35 million of income taxes, $36 million of corporate expenses and $586 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items.
Cash used by investing activities was $493 million in the first six months of 1998, compared to $425 million in the first six months of 1997, principally as a result of the effect of deconsolidating approximately $200 million of Paragon's cash in connection with the TWE-A/N Transfers that has been included as a reduction of cash flows from investments and acquisitions, offset in part by a $135 million increase in proceeds from the sale of investments. Capital expenditures were $734 million in the first six months of 1998 and 1997.
Cash used by financing activities was $343 million in the first six months of 1998, compared to cash provided by financing activities of $86 million in the first six months of 1997, principally as a result of the absence of $243 million of aggregate net proceeds from the issuance of preferred stock of a subsidiary in the first quarter of 1997 and a $95 million increase in distributions paid to Time Warner, offset in part by an increase in debt used to fund cash distributions to Time Warner.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
Management believes that the Entertainment Group'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
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 $776 million in the six months ended June 30, 1998, compared to $791 million in the six months ended June 30, 1997. For the full year of 1998, cable capital spending is expected to be comparable to 1997 levels, with approximately $800 million budgeted for the remainder of 1998. Capital spending by Time Warner Cable is expected to continue 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 TWE-A/N. Management expects to continue to finance such level of investment through cable operating cash flow and the development of new revenue streams from expanded programming options, high-speed Internet access and other services.
CABLE FINANCING STRATEGY
Time Warner's and TWE's cable financing strategy is to continue to use cable operating cash flow to finance the level of capital spending necessary to upgrade the technological capability of its cable television systems and develop new services, while pursuing opportunities to reduce either existing debt and/or their share of future funding requirements related to the cable television business and related ancillary businesses. Consistent with this strategy, Time Warner, TWE and TWE-A/N have completed a series of transactions in 1998, as discussed more fully below.
Business Telephony Reorganization
In July 1998, Time Warner, TWE and TWE-A/N completed a reorganization of their business telephony operations (the "Business Telephony Reorganization") by combining such operations into a single entity that is intended to be self-financing. This entity, named Time Warner Telecom LLC ("TW Telecom"), is a competitive local exchange carrier (CLEC) in selected metropolitan areas across the United States where it offers a wide range of telephony services to business customers. Time Warner, MediaOne and the Advance/Newhouse Partnership ("Advance/Newhouse"), a partner in TWE-A/N, own interests in TW Telecom of 61.95%, 18.88% and 19.17%, respectively. Time Warner's interest in TW Telecom will be accounted for under the equity method of accounting because of certain rights held by MediaOne and Advance/Newhouse.
Following the Business Telephony Reorganization, TW Telecom raised approximately $400 million of cash in July 1998 through the issuance of public notes that mature in 2008. Such notes are non-recourse to Time Warner
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
and the proceeds therefrom are expected to be used by TW Telecom to continue to expand and develop its telephony networks and services. TW Telecom plans to complete an initial public offering of a minority interest of common stock in the second half of 1998, subject to market and other conditions.
Road Runner Joint Venture
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp. ("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to operate and expand Time Warner Cable's and MediaOne's existing high-speed Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange for contributing their existing high-speed Internet access businesses, Time Warner received an 11.25% common equity interest in the Road Runner Joint Venture, TWE received a 25% interest, TWE-A/N received a 32.5% interest and MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft and Compaq each received a preferred equity interest therein that is convertible into a 10% common equity interest, which, upon conversion, will dilute each of the common equity holders' interests accordingly. Each of Time Warner's, TWE's and TWE-A/N's interest in the Road Runner Joint Venture is being accounted for under the equity method of accounting.
The aggregate $425 million of capital contributed by Microsoft and Compaq is expected to be used by the Road Runner Joint Venture to continue to expand the roll out of high-speed Internet access services. In addition, as a result of Time Warner Cable being a retailer of the Road Runner business in its franchise areas whereby Time Warner Cable's technologically advanced, high-capacity cable architecture will be used to provide these high-speed Internet access services, Time Warner Cable will initially retain 70% of the subscription revenues and 30% of the national advertising and transactional revenues generated from the delivery of these on-line services to its cable subscribers. Time Warner Cable's share of these revenues is expected to change periodically to 75% of subscription revenues and 25% of national advertising and transactional revenues by 2006.
Primestar Roll-up Transaction
In April 1998, TWE and Advance/Newhouse transferred the direct broadcast satellite operations conducted by TWE and TWE-A/N (the "DBS Operations") and the 31% partnership interest in Primestar Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the "Primestar Assets") to Primestar, Inc. ("New Primestar"), a separate holding company. New Primestar owns the DBS Operations and Primestar partnership interests formerly owned by TCI Satellite Entertainment, Inc. and other previously existing partners of Primestar. In exchange for contributing its interests in the Primestar Assets, TWE received an approximate 24% equity interest in New Primestar and realized approximately $240 million of debt reduction. TWE deconsolidated the DBS Operations effective as of April 1, 1998 and the equity interest in New Primestar received in this transaction is being accounted for under the equity method of accounting.
TWE-A/N Transfers
In early 1998, Time Warner (through a wholly owned subsidiary) contributed cable television systems (or interests therein) serving approximately 650,000 subscribers to TWE-A/N, subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, and completed certain related transactions.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
The debt assumed by TWE-A/N has been guaranteed by TWI Cable and certain of its subsidiaries. TWE-A/N is now owned 65.3% by TWE, 33.3% by Advance/Newhouse and 1.4% indirectly by Time Warner.
FILMED ENTERTAINMENT BACKLOG
Backlog represents the amount of future revenue not yet recorded from cash contracts for the licensing of theatrical and television product for pay cable, basic cable, network and syndicated television exhibition. Backlog of Warner Bros. amounted to $2.225 billion at June 30, 1998 compared to $2.126 billion at December 31, 1997 (including amounts relating to the licensing of film product to Time Warner's and TWE's cable television networks, collectively, of $790 million and $719 million, respectively).
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. Cash licensing fees are collected periodically over the term of the related licensing agreements or on an accelerated basis using a $600 million securitization facility. The portion of backlog for which cash has 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 revenues and cash through the sale of advertising spots received under such contracts.
YEAR 2000 TECHNOLOGY PREPAREDNESS
Time Warner, together with its Entertainment Group and like most large companies, depends on many different computer systems and other chip-based devices for the continuing conduct of its business. Older computer programs, computer hardware and chip-based devices may fail to recognize dates beginning on January 1, 2000 as being valid dates, and as a result may fail to operate or may operate improperly when such dates are introduced.
Time Warner's exposure to potential Year 2000 problems exists in two general areas: technological operations in the sole control of the Company, and technological operations dependent in some way on one or more third parties. The majority of Time Warner's exposure to potential Year 2000 problems is in the latter area. Failure to achieve high levels of Year 2000 compliance in either area could have a material adverse impact on Time Warner.
In the former area, technological operations in the sole control of the Company, Time Warner is engaged in a thorough process involving the identification and remediation of affected technological functions. Time Warner has generally completed the process of identifying significant potential Year 2000 difficulties and has an action plan in place to address them. At present, it is anticipated that the action plan will be successfully completed in all material respects in advance of January 1, 2000, and that its cost to the Company will not be material.
In the latter area, technological operations dependent in some way on one or more third parties, the situation is much less in Time Warner's ability to predict or control, although Time Warner has in place an extensive system to test for and attempt to resolve potential Year 2000 difficulties. The Company's business is heavily dependent on third parties, many of whom are themselves heavily dependent on technology. In some cases, the Company's third party dependence is on vendors of technology who are themselves working towards solutions to Year 2000 problems.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
For example, in a situation endemic to the cable industry, much of the Company's headend equipment that controls cable set-top boxes is presently not Year 2000 compliant. The box manufacturers are working with cable industry groups towards a solution that is presently expected to be implemented successfully before the end of 1999; however, that process is not within the Company's control. In other cases, the Company's third party dependence is on suppliers of products or services that are themselves computer-intensive. For example, if a television broadcaster or cable programmer encounters Year 2000 problems that result in the interruption of its signal, the Company will be unable to provide that signal to its cable customers. Moreover, Time Warner is dependent, like all large companies, on the continued functioning of basic, heavily computerized services such as banking and telephony. Time Warner is making considerable efforts to ensure that the third parties on which it is heavily reliant are Year 2000 compliant, but cannot predict the likelihood of such compliance occurring nor the direct or indirect costs to the Company of non-compliance by those third parties or of securing such services from compliant third parties. However, Time Warner believes that it is in no worse position, and likely a better one, than most U.S.-based companies of its size with respect to the potential for Year 2000 problems and their impact.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This filing, together with management's public commentary related thereto, contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, EBITA and cash flow and forecasting ongoing debt reduction. Words such as "anticipate", "estimate", "expects", "projects", "intends", "plans", "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward-looking statements are management's present expectations of future events. As with any projection or forecast, they are inherently susceptible to changes in circumstances, and the Company is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements despite such changes.
Time Warner operates in highly competitive, consumer driven and rapidly changing media and entertainment businesses that are dependent on government regulation and economic, political, social conditions in the countries in which they operate, consumer demand for their products and services and (particularly in view of technological changes) protection of their intellectual property rights. Time Warner's actual results could differ materially from management's expectations because of changes in such factors. Some of the other factors that also could cause actual results to differ from those contained in the forward-looking statements include those identified in Time Warner's other filings and:
For Time Warner's cable business, more aggressive than expected competition from new technologies and other types of video programming distributors, including DBS; increases in government regulation of cable or equipment rates or other terms of service (or any failure to reduce rate regulation as is presently mandated by statute) or opposition to franchise renewals; the failure of new equipment (such as digital set-top boxes) or services to function properly, to appeal to enough consumers or to be delivered in a timely fashion; and greater than expected increases in programming or other costs.
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(CONTINUED)
For Time Warner's cable programming and television businesses, greater than expected programming or production costs; public and cable operator resistance to price increases to offset higher programming costs (and the negative impact on premium programmers of increases in basic cable rates); the sensitivity of advertising to economic cyclicality; and greater than expected fragmentation of consumer viewership due to an increased number of programming services or the increased popularity of alternatives to television.
For Time Warner's film and television businesses, their ability to continue to attract and select desirable talent and scripts at manageable costs; increases in production costs generally; fragmentation of consumer leisure and entertainment time (and its possible negative effects on the broadcast and cable networks, which are significant customers of these businesses); continued popularity of merchandising; and the uncertain impact of technological developments such as DVD and the Internet.
For Time Warner's music business, its ability to continue to attract and select desirable talent at manageable costs; the timely completion of albums by major artists; the popular demand for particular artists and albums; and the overall strength of global music sales.
For Time Warner's print media and publishing businesses, increases in paper and distribution costs; the introduction and increased popularity of alternative technologies for the provision of news and information, such as the Internet; and fluctuations in advertiser and consumer spending.
In addition, Time Warner's overall financial strategy, including improved financial ratios and a strengthened balance sheet, could be adversely affected by increased interest rates, failure to meet earnings expectations, Year 2000 compliance failures and changes in Time Warner's plans, strategies and intentions.
TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
(MILLIONS, EXCEPT
PER SHARE AMOUNTS)
ASSETS
CURRENT ASSETS
Cash and equivalents....................................................................... $ 344 $ 645
Receivables, less allowances of $935 and $991 million...................................... 2,139 2,447
Inventories................................................................................ 810 830
Prepaid expenses........................................................................... 1,136 1,089
------ -------
Total current assets....................................................................... 4,429 5,011
Noncurrent inventories..................................................................... 1,807 1,766
Investments in and amounts due to and from Entertainment Group............................. 6,051 5,549
Other investments.......................................................................... 523 1,495
Property, plant and equipment.............................................................. 2,007 2,089
Music catalogues, contracts and copyrights................................................. 878 928
Cable television and sports franchises..................................................... 3,171 3,982
Goodwill................................................................................... 12,121 12,572
Other assets............................................................................... 863 771
------ -------
Total assets............................................................................... $31,850 $34,163
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable........................................................................... $ 742 $ 912
Participations, royalties and programming costs payable.................................... 1,146 1,072
Debt due within one year................................................................... 21 8
Other current liabilities.................................................................. 2,105 2,379
------ -------
Total current liabilities.................................................................. 4,014 4,371
Long-term debt ............................................................................ 9,915 11,833
Borrowings against future stock option proceeds............................................ 525 533
Deferred income taxes...................................................................... 3,688 3,960
Unearned portion of paid subscriptions..................................................... 714 672
Other liabilities.......................................................................... 1,240 1,006
Company-obligated mandatorily redeemable preferred securities of a subsidiary
holding solely subordinated debentures of a subsidiary of the Company................... 575 575
Series M exchangeable preferred stock, $.10 par value, 1.9 million
shares outstanding and $1.903 billion liquidation preference............................ 1,859 1,857
SHAREHOLDERS' EQUITY
Preferred stock, $.10 par value, 29.7 and 35.4 million shares outstanding,
$2.970 and $3.539 billion liquidation preference........................................ 3 4
Series LMCN-V Common Stock, $.01 par value, 57.1 million shares outstanding................ 1 1
Common stock, $.01 par value, 541.7 and 519.0 million shares outstanding
(excluding 16.7 and 39.4 million treasury shares)....................................... 5 5
Paid-in capital............................................................................ 12,982 12,680
Accumulated deficit........................................................................ (3,671) (3,334)
------ -------
Total shareholders' equity................................................................. 9,320 9,356
------ -------
Total liabilities and shareholders' equity................................................. $31,850 $34,163
======= =======
|
See accompanying notes.
TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- -------------------
1998 1997 1998 1997
------ ------ ------ ------
(MILLIONS, EXCEPT PER SHARE AMOUNTS)
Revenues (a)....................................................... $3,672 $3,193 $6,809 $6,227
------ ------ ------ ------
Cost of revenues (a)(b)............................................ 2,077 1,603 3,964 3,453
Selling, general and administrative (a)(b)......................... 1,211 1,245 2,291 2,235
------ ------ ------ ------
Operating expenses................................................. 3,288 2,848 6,255 5,688
------ ------ ------ ------
Business segment operating income.................................. 384 345 554 539
Equity in pretax income of Entertainment Group (a)................. 166 108 273 426
Interest and other, net (a)........................................ (283) (303) (566) (595)
Corporate expenses (a)............................................. (19) (22) (38) (43)
------ ------ ------ ------
Income before income taxes......................................... 248 128 223 327
Income tax provision............................................... (147) (98) (184) (245)
------ ------ ------ ------
Income before extraordinary item................................... 101 30 39 82
Extraordinary loss on retirement of debt, net of $11 million
income tax benefit in 1997...................................... - - - (17)
------ ------ ------ ------
Net income......................................................... 101 30 39 65
Preferred dividend requirements.................................... (78) (79) (160) (157)
------ ------ ------ ------
Net income (loss) applicable to common shares...................... $ 23 $ (49) $ (121) $ (92)
====== ====== ====== ======
Basic and diluted loss per common share:
Income (loss) before extraordinary item............................ $ .04 $ (.09) $ (.21) $ (.13)
====== ====== ====== ======
Net income (loss).................................................. $ .04 $ (.09) $ (.21) $ (.16)
====== ====== ====== ======
Average common shares.............................................. 596.3 561.0 587.3 559.9
====== ====== ====== ======
|
(b) Includes depreciation and amortization expense of:............. $ 293 $ 310 $ 589 $ 615
====== ====== ====== ======
|
See accompanying notes.
TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
--------------
1998 1997
-------- --------
(MILLIONS)
OPERATIONS
Net income.................................................................................. $ 39 $ 65
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt.................................................... - 17
Depreciation and amortization............................................................... 589 615
Noncash interest expense.................................................................... 29 51
Excess (deficiency) of distributions over equity in pretax income of
Entertainment Group...................................................................... 25 (223)
Changes in operating assets and liabilities................................................. 207 (92)
------ -----
Cash provided by operations................................................................. 889 433
------ -----
INVESTING ACTIVITIES
Investments and acquisitions................................................................ (74) (56)
Capital expenditures........................................................................ (228) (283)
Investment proceeds......................................................................... 395 113
------ -----
Cash provided (used) by investing activities................................................ 93 (226)
------ -----
FINANCING ACTIVITIES
Borrowings.................................................................................. 1,603 1,039
Debt repayments............................................................................. (1,377) (1,094)
Borrowings against future stock option proceeds............................................. 525 -
Repayments of borrowings against future stock option proceeds............................... (533) (86)
Repurchases of Time Warner common stock..................................................... (1,661) (36)
Dividends paid.............................................................................. (265) (167)
Proceeds received from stock option and dividend reinvestment plans......................... 460 -
Other, principally financing costs.......................................................... (35) 93
------ -----
Cash used by financing activities........................................................... (1,283) (251)
------ -----
DECREASE IN CASH AND EQUIVALENTS............................................................ (301) (44)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD (A)............................................. 645 514
------ -----
CASH AND EQUIVALENTS AT END OF PERIOD....................................................... $ 344 $ 470
====== ======
|
See accompanying notes.
TIME WARNER INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
--------------
1998 1997
------ ------
(MILLIONS)
BALANCE AT BEGINNING OF YEAR................................................................ $9,356 $9,502
Net income.................................................................................. 39 65
Other comprehensive income (loss)........................................................... (22) (59)
------ ------
Comprehensive income (loss)................................................................. 17 6
Common stock dividends...................................................................... (106) (101)
Preferred stock dividends................................................................... (160) (157)
Repurchases of Time Warner common stock..................................................... (1,661) (36)
Issuance of common stock in connection with the conversion of the
zero-coupon convertible notes due 2013................................................... 1,150 -
Issuance of common stock in connection with the acquisition of
Turner Broadcasting System, Inc.......................................................... - 67
Other, principally shares issued pursuant to stock option, dividend
reinvestment and benefit plans........................................................... 724 142
------ ------
BALANCE AT JUNE 30,......................................................................... $9,320 $9,423
====== ======
|
See accompanying notes.
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Time Warner Inc. ("Time Warner" or the "Company") is the world's leading media and entertainment company, whose principal business objective is to create and distribute branded information and entertainment copyrights throughout the world. Time Warner classifies its business interests into four fundamental areas: Entertainment, consisting principally of interests in recorded music and music publishing, filmed entertainment, television production and television broadcasting; 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. A majority of Time Warner's interests in filmed entertainment, television production, television broadcasting and cable television systems, and a portion of its interests in cable television programming, are held through Time Warner Entertainment Company, L.P. ("TWE"). Time Warner owns general and limited partnership interests in TWE consisting of 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 MediaOne Group, Inc. ("MediaOne"), formerly U S WEST, Inc. Time Warner does not consolidate TWE and certain related companies (the "Entertainment Group") for financial reporting purposes because of certain limited partnership rights related to TWE's interest in certain cable television systems.
The operating results of Time Warner's various business interests are presented herein as an indication of financial performance (Note 9). 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 considerably 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 $327 million and $325 million for the three months ended June 30, 1998 and 1997, respectively, and $656 million and $646 million in the six months ended June 30, 1998 and 1997, 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, 1997. Certain reclassifications have been made to the prior year's financial statements to conform to the 1998 presentation.
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), effective for years beginning after June 15, 1999, with early application encouraged. The new rules establish standards requiring that all derivative financial instruments, such as interest rate swap contracts and foreign exchange contracts, be recognized and measured at fair value regardless of the purpose or intent for holding them. Time Warner plans to adopt FAS 133 effective as of July 1, 1998, and it is not expected that the adoption will have a material effect on Time Warner's financial statements.
2. CABLE TRANSACTIONS
In addition to continuing to use cable operating cash flow to finance the level of capital spending necessary to upgrade the technological capability of their cable television systems and develop new services, Time Warner, TWE and the TWE-Advance/Newhouse Partnership ("TWE-A/N") have completed a series of transactions in 1998 related to the cable television business and related ancillary businesses that either reduced existing debt and/or Time Warner's and TWE's share of future funding requirements for such businesses. These transactions are discussed more fully below.
BUSINESS TELEPHONY REORGANIZATION
In July 1998, in an effort to combine their business telephony operations into a single entity that is intended to be self-financing, Time Warner, TWE and TWE-A/N completed a reorganization of their business telephony operations (the "Business Telephony Reorganization"), whereby (i) the operations conducted by Time Warner, TWE and TWE-A/N were each contributed to a new holding company named Time Warner Telecom LLC ("TW Telecom"), and then (ii) TWE's and TWE-A/N's interests in TW Telecom were distributed to their partners, Time Warner, MediaOne and the Advance/Newhouse Partnership ("Advance/Newhouse"). As a result of the Business Telephony Reorganization, Time Warner, MediaOne and Advance/Newhouse own interests in TW Telecom of 61.95%, 18.88% and 19.17%, respectively. Time Warner's interest in TW Telecom will be accounted for under the equity method of accounting because of certain rights held by MediaOne and Advance/Newhouse.
TW Telecom is a competitive local exchange carrier (CLEC) in selected metropolitan areas across the United States where it offers a wide range of telephony services to business customers. Following the Business Telephony Reorganization, TW Telecom raised approximately $400 million of cash in July 1998 through the issuance of public notes that mature in 2008. Such notes are non-recourse to Time Warner and the proceeds therefrom are expected to be used by TW Telecom to continue to expand and develop its telephony networks and services.
ROAD RUNNER JOINT VENTURE
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp. ("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to operate and expand Time Warner Cable's and MediaOne's existing high-speed Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange for contributing their existing high-speed Internet access businesses, Time Warner received a common equity interest in the Road Runner Joint Venture of 11.25%, TWE received a 25% interest, TWE-A/N received a 32.5% interest and MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft and Compaq each received a preferred equity interest therein that is convertible into
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
a 10% common equity interest. Accordingly, on a fully diluted basis, the Road Runner Joint Venture is owned 9% by Time Warner, 20% by TWE, 26% by TWE-A/N, 25% by MediaOne, 10% by Microsoft and 10% by Compaq. Each of Time Warner's, TWE's and TWE-A/N's interest in the Road Runner Joint Venture is being accounted for under the equity method of accounting.
PRIMESTAR
In April 1998, TWE and Advance/Newhouse, a limited partner in TWE-A/N, transferred the direct broadcast satellite operations conducted by TWE and TWE-A/N (the "DBS Operations") and the 31% partnership interest in Primestar Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the "Primestar Assets") to Primestar, Inc. ("New Primestar"), a separate holding company. New Primestar owns the DBS Operations and Primestar partnership interests formerly owned by TCI Satellite Entertainment, Inc. and other previously existing partners of Primestar. In exchange for contributing its interests in the Primestar Assets, TWE received an approximate 24% equity interest in New Primestar and realized approximately $240 million of debt reduction. In partial consideration for contributing its indirect interest in certain of the Primestar Assets, Advance/Newhouse received an approximate 6% equity interest in New Primestar. As a result of this transaction, effective as of April 1, 1998, TWE deconsolidated the DBS Operations and the 24% equity interest in New Primestar received in the transaction is being accounted for under the equity method of accounting. This transaction is referred to herein as the "Primestar Roll-up Transaction."
In a related transaction, Primestar also entered into an agreement in June 1997 with The News Corporation Limited ("News Corp."), MCI Telecommunications Corporation ("MCI") and American Sky Broadcasting LLC ("ASkyB"), pursuant to which New Primestar would acquire certain assets relating to the high-power, direct broadcast satellite business of ASkyB (the "Primestar ASkyB Transaction"). In exchange for such assets, ASkyB would receive non-voting securities of New Primestar that would be convertible into non-voting common stock of New Primestar and, accordingly, would reduce TWE's equity interest in New Primestar to approximately 16% on a fully diluted basis. In May 1998, the U.S. Department of Justice brought a civil action against Primestar, each of its cable owners, including TWE, and News Corp. and MCI, to enjoin on antitrust grounds the Primestar ASkyB Transaction. The parties have had discussions with the U.S. Department of Justice in an attempt to restructure the transaction and reach a resolution on such matters, but there can be no assurance that an agreement can be reached or that necessary governmental and regulatory approvals will be obtained.
TWE-A/N TRANSFERS
In early 1998, Time Warner (through a wholly owned subsidiary) contributed cable television systems (or interests therein) serving approximately 650,000 subscribers to TWE-A/N, subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, and completed certain related transactions (collectively, the "TWE-A/N Transfers"). The cable television systems transferred to TWE-A/N were formerly owned by TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner, and Paragon Communications ("Paragon"), a partnership formerly owning cable television systems serving approximately 1 million subscribers that was wholly owned by subsidiaries of Time Warner, with 50% beneficially owned in the aggregate by TWE and TWE-A/N. The debt assumed by TWE-A/N has been guaranteed by TWI Cable and certain of its subsidiaries, including Paragon.
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
As part of the TWE-A/N Transfers, TWE and TWE-A/N exchanged substantially all of their respective beneficial interests in Paragon for an equivalent share of Paragon's cable television systems (or interests therein) serving approximately 500,000 subscribers, resulting in wholly owned subsidiaries of Time Warner owning 100% of the restructured Paragon entity, with less than 1% beneficially held for TWE. Accordingly, effective as of January 1, 1998, Time Warner has consolidated Paragon. Because this transaction represented an exchange of TWE's and TWE-A/N's beneficial interests in Paragon for an equivalent amount of its cable television systems, it did not have a significant economic impact on Time Warner, TWE or TWE-A/N.
In connection with the TWE-A/N Transfers, Advance/Newhouse made a capital contribution to TWE-A/N in order to maintain its 33.3% common partnership interest therein. Accordingly, TWE-A/N is now owned 65.3% by TWE, 33.3% by Advance/Newhouse and 1.4% indirectly by Time Warner. The TWE-A/N Transfers were accounted for effective as of January 1, 1998. Time Warner did not recognize a gain or loss on the TWE-A/N Transfers. TWE has continued to consolidate TWE-A/N and Time Warner has accounted for its interest in TWE-A/N under the equity method of accounting.
On a pro forma basis, giving effect to the TWE-A/N Transfers as if they had occurred at the beginning of 1997, Time Warner would have reported for the three and six months ended June 30, 1997, respectively, revenues of $3.179 billion and $6.197 billion, depreciation expense of $88 million and $178 million, operating income before noncash amortization of intangible assets of $535 million and $914 million, operating income of $331 million and $512 million, equity in the pretax income of the Entertainment Group of $108 million and $424 million, income before extraordinary item of $31 million and $85 million ($.09 loss and $.13 loss per common share) and net income of $31 million and $68 million ($.09 loss and $.16 loss per common share).
3. ENTERTAINMENT GROUP
Time Warner's investment in and amounts due to and from the Entertainment Group at June 30, 1998 and December 31, 1997 consists of the following:
JUNE 30, DECEMBER 31,
1998 1997
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(MILLIONS)
Investment in TWE........................................................................... $5,265 $5,577
Stock option related distributions due from TWE............................................. 671 417
Credit agreement debt due to TWE............................................................ (400) (400)
Other net liabilities due to TWE, principally related to home video distribution............ (213) (141)
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Investment in and amounts due to and from TWE............................................... 5,323 5,453
Investment in TWE-A/N and other Entertainment Group companies............................... 728 96
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Total....................................................................................... $6,051 $5,549
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PARTNERSHIP STRUCTURE AND ALLOCATION OF INCOME
TWE is a Delaware limited partnership that was capitalized on June 30, 1992 to own and operate substantially all of the Filmed Entertainment-Warner Bros., Cable Networks-HBO and Cable businesses previously owned by subsidiaries of Time Warner. Time Warner, through its wholly owned subsidiaries, collectively owns general and limited partnership interests in TWE consisting of 74.49% of the Series A Capital and Residual Capital and 100%
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
of the Senior Capital and Series B Capital. The remaining 25.51% limited partnership interests in the Series A Capital and Residual Capital of TWE are owned by MediaOne. Certain Time Warner subsidiaries are the general partners of TWE (the "Time Warner General Partners").
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 $263 million and $402 million in the six months ended June 30, 1998 and 1997, respectively, no portion of which was allocated to the limited partnership interests.
SUMMARIZED FINANCIAL INFORMATION OF THE ENTERTAINMENT GROUP
Set forth below is summarized financial information of the Entertainment Group, which reflects the TWE-A/N Transfers effective as of January 1, 1998 and the Primestar Roll-up Transaction effective as of April 1, 1998.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1998 1997 1998 1997
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(MILLIONS)
OPERATING STATEMENT INFORMATION
Revenues........................................................... $2,853 $2,731 $5,765 $5,333
Depreciation and amortization...................................... (356) (332) (727) (661)
Business segment operating income(1)............................... 456 327 825 655
Interest and other, net(2) ........................................ (183) (139) (347) (11)
Minority interest.................................................. (82) (56) (146) (164)
Income before income taxes ........................................ 173 114 296 444
Net income......................................................... 156 89 264 407
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(2) Includes a pretax gain of approximately $250 million recognized in the first quarter of 1997 related to the sale of an interest in E! Entertainment Television, Inc.
SIX MONTHS
ENDED JUNE 30,
1998 1997
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(MILLIONS)
CASH FLOW INFORMATION
Cash provided by operations................................................................. $ 586 $ 416
Capital expenditures........................................................................ (734) (734)
Investments and acquisitions................................................................ (265) (62)
Investment proceeds......................................................................... 506 371
Borrowings.................................................................................. 503 428
Debt repayments............................................................................. (492) (323)
Issuance of preferred stock of subsidiary................................................... - 243
Capital distributions....................................................................... (298) (203)
Other financing activities, net............................................................. (56) (59)
Increase (decrease) in cash and equivalents................................................. (250) 77
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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
JUNE 30, DECEMBER 31,
1998 1997
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(MILLIONS)
BALANCE SHEET INFORMATION
Cash and equivalents........................................................................ $ 72 $ 322
Total current assets........................................................................ 3,681 3,623
Total assets................................................................................ 22,160 20,739
Total current liabilities................................................................... 3,867 3,976
Long-term debt.............................................................................. 6,771 5,990
Minority interests.......................................................................... 1,477 1,210
Preferred stock of subsidiary............................................................... 225 233
Time Warner General Partners' Senior Capital................................................ 1,163 1,118
Partners' capital .......................................................................... 6,080 6,430
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CAPITAL DISTRIBUTIONS
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 June 30, 1998 and December 31, 1997, the Time Warner General Partners had recorded $671 million and $417 million, respectively, of stock option related distributions due from TWE, based on closing prices of Time Warner common stock of $85.44 and $62.00, respectively. Time Warner is paid when the options are exercised. The Time Warner General Partners also receive tax-related distributions from TWE on a current basis. During the six months ended June 30, 1998, the Time Warner General Partners received distributions from TWE in the amount of $298 million, consisting of $138 of tax-related distributions and $160 of stock option related distributions. During the six months ended June 30, 1997, the Time Warner General Partners received distributions from TWE in the amount of $203 million, consisting of $192 million of tax-related distributions and $11 million of stock option related distributions. In July 1998, TWE borrowed $579 million under its bank credit agreement and paid a distribution to the Time Warner General Partners relating to their Senior Capital interests.
SIX FLAGS
In April 1998, TWE sold its remaining 49% interest in Six Flags Entertainment Corporation ("Six Flags") to Premier Parks Inc. ("Premier"), a regional theme park operator, for approximately $475 million of cash. TWE used the net, after-tax proceeds from this transaction to reduce debt by approximately $300 million. As part of the transaction, TWE will continue to license its animated cartoon and comic book characters to Six Flags's theme parks and will similarly license such rights to Premier's theme parks in the United States and Canada under a long-term agreement covering an aggregate of twenty-five existing and all future locations. A substantial portion of the gain on this transaction has been deferred by TWE, principally as a result of its continuing guarantees of certain significant long-term obligations of Six Flags relating to the Six Flags Over Texas and Six Flags Over Georgia theme parks.
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4. INVENTORIES
Inventories consist of:
JUNE 30, 1998 DECEMBER 31, 1997
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CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- -----------
(MILLIONS)
Film costs:
Released, less amortization..................................... $106 $ 270 $ 68 $ 228
Completed and not released...................................... 8 - 88 48
In process and other............................................ - 172 - 141
Library, less amortization...................................... - 1,035 - 1,064
Programming costs, less amortization............................... 273 330 293 285
Magazines, books and recorded music................................ 423 - 381 -
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Total ............................................................ $810 $1,807 $830 $1,766
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5. LONG-TERM DEBT
In July 1998, Time Warner reduced bank debt by $579 million using the proceeds received from a distribution by TWE relating to its Senior Capital interest.
During the second quarter of 1998, Time Warner issued $600 million principal amount of 6.875% debentures due 2018 and borrowed $550 million under its bank credit agreement, which together offset the debt reduction associated with the conversion of all $1.15 billion accreted amount of zero-coupon convertible notes due 2013 (the "Zero-Coupon Convertible Notes") into 18.7 million shares of Time Warner common stock. The net proceeds therefrom have been used to repurchase common stock, including the repurchase of 9.1 million shares of common stock in connection with the settlement of a forward purchase contract to acquire such shares (Note 8). These share repurchases partially offset the dilution resulting from the conversion of the Zero-Coupon Convertible Notes.
In February 1998, Time Warner Companies, Inc. ("TW Companies"), a wholly owned subsidiary of Time Warner, repaid all of its $500 million principal amount of 7.45% notes due February 1, 1998 at their maturity using proceeds raised from the issuance of $500 million principal amount of 6.95% debentures due January 15, 2028.
In early 1998, Time Warner reduced debt by approximately $1 billion in connection with the TWE-A/N Transfers (see Note 2). The debt assumed by TWE-A/N has been guaranteed by TWI Cable and certain of its subsidiaries, including Paragon.
An extraordinary loss of $17 million was recognized in the first quarter of 1997 in connection with certain debt refinancings.
6. BORROWINGS AGAINST FUTURE STOCK OPTION PROCEEDS
In connection with Time Warner's common stock repurchase program, Time Warner entered into a new five-year, $1.3 billion revolving credit facility (the "Stock Option Proceeds Credit Facility") in early 1998, which replaced its previously existing facility. Borrowings under the Stock Option Proceeds Credit Facility are principally used to fund stock repurchases and future preferred dividend requirements on Time Warner's Series G, H, I and J Preferred
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
Stock. At June 30, 1998 and December 31, 1997, Time Warner had outstanding borrowings against future stock option proceeds of $525 million and $533 million, respectively.
7. MANDATORILY REDEEMABLE PREFERRED SECURITIES
In December 1995, TW Companies 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 % subordinated debentures of TW Companies due December 31, 2025. Cumulative cash distributions are payable on the Preferred Trust Securities at an annual rate of 8 %. The Preferred Trust Securities are mandatorily redeemable for cash on December 31, 2025, and TW Companies 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.
Time Warner has certain obligations relating to the Preferred Trust Securities which amount to a full and unconditional guaranty (on a subordinated basis) of its subsidiary's obligations with respect thereto.
8. SHAREHOLDERS' EQUITY
In March 1998, Toshiba Corporation and ITOCHU Corporation sold 9.1 million shares of Time Warner common stock to certain banks, after electing to convert a portion of their Time Warner convertible preferred stock into common stock. In a related transaction, Time Warner entered into a forward purchase contract with affiliates of such banks that provided it with an option to acquire an equal number of 9.1 million shares of its common stock. These transactions will result in an aggregate $26 million of preferred dividend savings for Time Warner through October 1999.
In June 1998, in order to offset partially the dilutive effect relating to the conversion of the Zero-Coupon Convertible Notes (Note 5), Time Warner exercised its option under the forward purchase contract and repurchased 9.1 million shares of its common stock at an aggregate cost of $632 million, or $69.12 per common share.
In connection with these transactions and the conversion of the Zero-Coupon Convertible Notes, Time Warner's Board of Directors authorized in 1998 an 18.7 million share increase in the Company's existing common stock repurchase program that, along with previous authorizations, allows the Company to repurchase, from time to time, up to 53.7 million shares of common stock. The common stock repurchased under the program is expected to continue to be used to satisfy a portion of the future share issuances related to the exercise of existing employee stock options and the potential conversion of certain convertible securities. Actual repurchases in any period will be subject to market conditions. As of June 30, 1998, Time Warner had acquired 23.2 million shares of its common stock in 1998 at an aggregate cost of $1.661 billion, thereby increasing the cumulative shares purchased under this program to approximately 40.8 million shares at an aggregate cost of $2.461 billion. Except for repurchases of common stock using $1.1 billion of borrowings in the second quarter of 1998 that offset a like-amount of debt reduction associated with the conversion of the Zero-Coupon Convertible Notes into common stock, these repurchases have been and are expected to continue to be funded with stock option exercise proceeds and borrowings under Time Warner's Stock Option Proceeds Credit Facility, as described more fully below.
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
In May 1998, Time Warner issued approximately 2.9 million shares of its common stock as a result of the conversion of approximately 1.3 million shares of its Series J preferred stock.
9. SEGMENT INFORMATION
Time Warner classifies its businesses into four fundamental areas:
Entertainment, consisting principally of interests in recorded music and music
publishing, filmed entertainment, television production and television
broadcasting; 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. A majority of Time
Warner's interests in filmed entertainment, television production, television
broadcasting and cable television systems, and a portion of its interests in
cable television programming are held by the Entertainment Group. The
Entertainment Group 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 based on the nature of the products and services offered. Time Warner evaluates performance based on several factors, of which the primary financial measure is business segment operating income before noncash amortization of intangible assets ("EBITA"). The operating results of Time Warner's and the Entertainment Group's cable segments reflect the TWE-A/N Transfers effective as of January 1, 1998 and the Primestar Roll-up Transaction effective as of April 1, 1998.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
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1998 1997 1998 1997
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(MILLIONS)
REVENUES
Time Warner:
Publishing......................................................... $1,136 $1,053 $2,084 $1,977
Music.............................................................. 905 822 1,793 1,755
Cable Networks-TBS................................................. 906 750 1,634 1,344
Filmed Entertainment-TBS........................................... 504 337 876 734
Cable.............................................................. 242 250 490 492
Intersegment elimination........................................... (21) (19) (68) (75)
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Total.............................................................. $3,672 $3,193 $6,809 $6,227
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Entertainment Group:
Filmed Entertainment-Warner Bros................................... $1,330 $1,257 $2,642 $2,431
Broadcasting-The WB Network........................................ 61 29 106 53
Cable Networks-HBO................................................. 509 487 1,021 970
Cable.............................................................. 1,084 1,066 2,237 2,086
Intersegment elimination........................................... (131) (108) (241) (207)
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Total.............................................................. $2,853 $2,731 $5,765 $5,333
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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
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(MILLIONS)
EBITA(1)
Time Warner:
Publishing......................................................... $ 176 $157 $ 261 $233
Music.............................................................. 96 106 189 224
Cable Networks-TBS................................................. 198 165 351 279
Filmed Entertainment-TBS........................................... 38 29 23 35
Cable.............................................................. 74 104 148 209
Intersegment elimination........................................... (1) 4 (20) (7)
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Total.............................................................. $ 581 $565 $ 952 $973
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Entertainment Group:
Filmed Entertainment-Warner Bros................................... $ 122 $110 $ 241 $215
Broadcasting-The WB Network........................................ (23) (19) (61) (39)
Cable Networks-HBO................................................. 113 98 222 189
Cable(2)........................................................... 374 243 681 502
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Total.............................................................. $ 586 $432 $1,083 $867
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(2) Includes net pretax gains relating to the sale or exchange of certain cable television systems of approximately $70 million recognized in the second quarter of 1998, and approximately $84 million and $24 million for the six months ended June 30, 1998 and 1997, respectively.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
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(MILLIONS)
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Time Warner:
Publishing......................................................... $ 19 $ 17 $ 38 $ 33
Music.............................................................. 19 19 38 41
Cable Networks-TBS................................................. 25 21 47 42
Filmed Entertainment-TBS........................................... 1 2 3 3
Cable.............................................................. 32 31 65 62
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Total.............................................................. $ 96 $ 90 $191 $181
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Entertainment Group:
Filmed Entertainment-Warner Bros................................... $ 38 $ 45 $ 78 $ 90
Broadcasting-The WB Network........................................ - 1 - 1
Cable Networks-HBO................................................. 5 5 10 10
Cable.............................................................. 183 176 381 348
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Total.............................................................. $226 $227 $469 $449
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TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
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(MILLIONS)
AMORTIZATION OF INTANGIBLE ASSETS(1)
Time Warner:
Publishing......................................................... $ 8 $ 8 $ 17 $ 17
Music.............................................................. 71 74 139 142
Cable Networks-TBS................................................. 50 50 100 95
Filmed Entertainment-TBS........................................... 20 19 40 41
Cable.............................................................. 48 69 102 139
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Total.............................................................. $197 $220 $398 $434
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Entertainment Group:
Filmed Entertainment-Warner Bros................................... $ 33 $30 $ 66 $61
Broadcasting-The WB Network........................................ 1 - 2 -
Cable Networks-HBO................................................. - - - -
Cable.............................................................. 96 75 190 151
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Total.............................................................. $130 $105 $258 $212
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(1) Amortization includes amortization relating to all business combinations accounted for by the purchase method, including the $14 billion acquisition of Warner Communications Inc. in 1989, the $6.2 billion acquisition of Turner Broadcasting System, Inc. in 1996 and the $2.3 billion of cable acquisitions in 1996 and 1995.
10. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation incidental to the businesses of Time Warner and alleged damages in connection with class action lawsuits. In the opinion of management, the ultimate resolution of these matters will not have a material effect on the consolidated financial statements of Time Warner.
11. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash flows is as follows:
SIX MONTHS
ENDED JUNE 30,
----------------
1998 1997
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(MILLIONS)
Interest expense............................................................................ $455 $534
Cash payments made for interest............................................................ 404 488
Cash payments made for income taxes......................................................... 122 166
Tax-related distributions received from TWE................................................. 138 192
Income tax refunds received................................................................. 43 34
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Noncash investing activities in the first six months of 1998 included
the TWE-A/N Transfers (Note 2). Noncash financing activities included the
conversion of $1.15 billion accreted amount of Zero Coupon Convertible Notes
into 18.7 million shares of common stock in the first six months of 1998 (Note
5) and the payment of $91 million of noncash dividends on the Series M Preferred
Stock in the first six months of 1997. During the six months ended June 30,
1998, Time Warner received $132 million of proceeds under its asset
securitization program.
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
(UNAUDITED)
Time Warner Companies, Inc. ("TW Companies") and Turner Broadcasting System, Inc. ("TBS" and, together with TW Companies, the "Guarantor Subsidiaries") are wholly owned subsidiaries of Time Warner Inc. ("Time Warner"). Time Warner, TW Companies and TBS have fully and unconditionally guaranteed all of the outstanding publicly traded indebtedness of each other. Set forth below are condensed consolidating financial statements of Time Warner, including each of the Guarantor Subsidiaries, presented for the information of each company's public debtholders. Separate financial statements and other disclosures relating to the Guarantor Subsidiaries have not been presented because management has determined that this information would not be material to such debtholders. The following condensed consolidating financial statements present the results of operations, financial position and cash flows of (i) Time Warner, TW Companies and TBS (in each case, reflecting investments in its consolidated subsidiaries under the equity method of accounting), (ii) the direct and indirect non-guarantor subsidiaries of Time Warner and (iii) the eliminations necessary to arrive at the information for Time Warner on a consolidated basis. These condensed consolidating financial statements should be read in conjunction with the accompanying consolidated financial statements of Time Warner.
Consolidating Statement of Operations For The Three Months Ended June 30, 1998
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ --------- ------------
(millions)
Revenues ................................... $ - $ - $198 $3,474 $ - $3,672
----- ------ ---- ------ ------ ------
Cost of revenues (1)........................ - - 100 1,977 - 2,077
Selling, general and administrative (1)..... - - 47 1,164 - 1,211
----- ----- ---- ------ ----- ------
Operating expenses.......................... - - 147 3,141 - 3,288
----- ----- ---- ------ ----- ------
Business segment operating income........... - - 51 333 - 384
Equity in pretax income of consolidated
subsidiaries............................. 279 397 99 - (775) -
Equity in pretax income of Entertainment
Group ................................... - - - 173 (7) 166
Interest and other, net..................... (12) (202) (40) (11) (18) (283)
Corporate expenses.......................... (19) (13) (4) (15) 32 (19)
----- ----- ----- ----- ----- ------
Income before income taxes.................. 248 182 106 480 (768) 248
Income tax provision........................ (147) (117) (60) (261) 438 (147)
----- ----- ----- ----- ----- -----
Net income.................................. $101 $ 65 $ 46 $ 219 $(330) $101
==== ===== ==== ====== ===== ====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 2 $ 291 $ - $ 293
====== ====== ===== ====== ====== =====
|
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Operations
For The Three Months Ended June 30, 1997
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
Revenues ................................... $ - $ - $ 148 $3,045 $ - $3,193
----- ------ ----- ------ ------ ------
Cost of revenues (1)........................ - - 70 1,533 - 1,603
Selling, general and administrative (1)..... - - 49 1,196 - 1,245
----- ----- ----- ------ ----- ------
Operating expenses.......................... - - 119 2,729 - 2,848
----- ----- ----- ----- ----- -----
Business segment operating income........... - - 29 316 - 345
Equity in pretax income of consolidated
subsidiaries............................. 148 274 98 - (520) -
Equity in pretax income of Entertainment
Group ................................... - - - 114 (6) 108
Interest and other, net..................... 2 (195) (38) (59) (13) (303)
Corporate expenses.......................... (22) (14) (4) (16) 34 (22)
----- ------ ----- ----- ------ ------
Income (loss) before income taxes........... 128 65 85 355 (505) 128
Income tax provision........................ (98) (50) (51) (190) 291 (98)
----- ------ ----- ----- ------ -----
Net income (loss)........................... $ 30 $ 15 $ 34 $ 165 $(214) $ 30
===== ====== ===== ===== ===== =====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 6 $ 304 $ - $ 310
====== ====== ====== ===== ====== =====
|
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Operations
For The Six Months Ended June 30, 1998
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
Revenues ................................... $ - $ - $366 $6,443 $ - $6,809
----- ------ ---- ------ ------ ------
Cost of revenues (1)........................ - - 161 3,803 - 3,964
Selling, general and administrative (1)..... - - 97 2,194 - 2,291
----- ----- ---- ------ ----- ------
Operating expenses.......................... - - 258 5,997 - 6,255
----- ----- ---- ------ ----- ------
Business segment operating income........... - - 108 446 - 554
Equity in pretax income of consolidated
subsidiaries............................. 283 614 78 - (975) -
Equity in pretax income of Entertainment
Group ................................... - - - 296 (23) 273
Interest and other, net..................... (22) (387) (84) (51) (22) (566)
Corporate expenses.......................... (38) (26) (8) (31) 65 (38)
----- ------ ----- ----- ----- ------
Income before income taxes.................. 223 201 94 660 (955) 223
Income tax provision........................ (184) (135) (73) (367) 575 (184)
----- ----- ----- ----- ----- ----
Net income.................................. $ 39 $ 66 $ 21 $ 293 $(380) $ 39
====== ===== ===== ====== ===== =====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 4 $ 585 $ - $589
====== ====== ===== ====== ====== ====
|
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Operations
For The Six Months Ended June 30, 1997
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
Revenues ................................... $ - $ - $ 266 $5,961 $ - $6,227
----- ------ ----- ------ ------ ------
Cost of revenues (1)........................ - - 125 3,328 - 3,453
Selling, general and administrative (1)..... - - 91 2,144 - 2,235
----- ----- ----- ------ ----- ------
Operating expenses.......................... - - 216 5,472 - 5,688
----- ----- ----- ----- ----- ------
Business segment operating income........... - - 50 489 - 539
Equity in pretax income of consolidated
subsidiaries............................. 359 698 114 - (1,171) -
Equity in pretax income of Entertainment
Group ................................... - - - 444 (18) 426
Interest and other, net..................... 11 (377) (95) (121) (13) (595)
Corporate expenses.......................... (43) (28) (8) (32) 68 (43)
----- ------ ----- ----- ----- ------
Income (loss) before income taxes........... 327 293 61 780 (1,134) 327
Income tax provision........................ (245) (187) (63) (433) 683 (245)
----- ------ ----- ----- ------ ------
Income (loss) before extraordinary item..... 82 106 (2) 347 (451) 82
Extraordinary loss on retirement of debt,
net of tax............................... (17) (13) (4) (13) 30 (17)
------ ------ ------ ------ ------ ------
Net income (loss)........................... $ 65 $ 93 $ (6) $ 334 $ (421) $ 65
===== ===== ===== ===== ====== ====
(1) Includes depreciation and amortization
expense of:.......................... $ - $ - $ 11 $ 604 $ - $ 615
====== ====== ===== ===== ====== =====
|
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Balance Sheet
June 30, 1998
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
ASSETS
Current assets
Cash and equivalents....................................... $ - $ 62 $ 16 $ 266 $ - $ 344
Receivables, net........................................... 16 53 129 1,945 (4) 2,139
Inventories................................................ - - 90 720 - 810
Prepaid expenses........................................... 15 4 6 1,117 (6) 1,136
----- ----- ----- ------- ------ -------
Total current assets....................................... 31 119 241 4,048 (10) 4,429
Noncurrent inventories..................................... - - 142 1,665 - 1,807
Investments in and amounts due to and from
consolidated subsidiaries............................... 16,295 14,730 9,798 - (40,823) -
Investments in and amounts due to and
from Entertainment Group................................ - 960 - 5,156 (65) 6,051
Other investments.......................................... 106 1 24 1,003 (611) 523
Property, plant and equipment, net......................... 57 - 45 1,905 - 2,007
Music catalogues, contracts and copyrights................. - - - 878 - 878
Cable television and sports franchises..................... - - - 3,171 - 3,171
Goodwill................................................... - - - 12,121 - 12,121
Other assets............................................... 75 134 120 542 (8) 863
------ ------ ------ ------- ------ -------
Total assets............................................... $16,564 $15,944 $10,370 $30,489 $(41,517) $31,850
======= ======= ======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................... $ 25 $ - $ 11 $ 706 $ - $ 742
Participations, royalties and programming costs
payable................................................. - - 30 1,116 - 1,146
Debt due within one year................................... - - - 21 - 21
Other current liabilities.................................. 244 314 242 1,421 (116) 2,105
------ ------ ------ ------- ------- -------
Total current liabilities.................................. 269 314 283 3,264 (116) 4,014
Long-term debt ............................................ 593 7,336 747 1,239 - 9,915
Debt due to affiliates..................................... - - 1,647 158 (1,805) -
Borrowings against future stock option proceeds............ 525 - - - - 525
Deferred income taxes...................................... 3,688 3,525 243 3,768 (7,536) 3,688
Unearned portion of paid subscriptions..................... - - - 714 - 714
Other liabilities.......................................... 310 19 92 819 - 1,240
TW Companies-obligated mandatorily redeemable preferred
securities of a subsidiary holding solely subordinated
debentures of TW Companies.............................. - - - 575 - 575
Series M exchangeable preferred stock...................... 1,859 - - - - 1,859
Shareholders' equity
Due to (from) Time Warner and subsidiaries................. - (1,486) - (1,165) 2,651 -
Other shareholders' equity................................. 9,320 6,236 7,358 21,117 (34,711) 9,320
------- ------- ------ ------- ------- -------
Total shareholders' equity................................. 9,320 4,750 7,358 19,952 (32,060) 9,320
------- ------- ------ ------- ------- -------
Total liabilities and shareholders' equity................. $16,564 $15,944 $10,370 $30,489 $(41,517) $31,850
======= ======= ======= ======= ======== =======
|
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Balance Sheet
December 31, 1997
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
ASSETS
Current assets
Cash and equivalents....................................... $ - $ 372 $ 9 $ 264 $ - $ 645
Receivables, net........................................... 34 82 9 2,350 (28) 2,447
Inventories................................................ - - 112 718 - 830
Prepaid expenses........................................... 21 14 5 1,063 (14) 1,089
----- ----- ----- ------ ------- ------
Total current assets....................................... 55 468 135 4,395 (42) 5,011
Noncurrent inventories..................................... - - 123 1,643 - 1,766
Investments in and amounts due to and from
consolidated subsidiaries............................... 16,189 14,995 9,950 - (41,134) -
Investments in and amounts due to and
from Entertainment Group................................ - 970 - 4,620 (41) 5,549
Other investments.......................................... 106 1 24 1,957 (593) 1,495
Property, plant and equipment, net......................... 68 - 48 1,973 - 2,089
Music catalogues, contracts and copyrights................. - - - 928 - 928
Cable television and sports franchises..................... - - - 3,982 - 3,982
Goodwill................................................... - - - 12,572 - 12,572
Other assets............................................... 54 124 118 483 (8) 771
------ ------ ------- ------- ------- -------
Total assets............................................... $16,472 $16,558 $10,398 $32,553 $(41,818) $34,163
======= ======= ======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable........................................... $ 24 $ - $ 11 $ 877 $ - $ 912
Participations, royalties and programming costs
payable................................................. - - 10 1,062 - 1,072
Debt due within one year................................... - - - 8 - 8
Other current liabilities.................................. 442 284 234 1,371 48 2,379
------ ------ ----- ------ ------- -------
Total current liabilities.................................. 466 284 255 3,318 48 4,371
Long-term debt ............................................ - 8,462 747 2,624 - 11,833
Debt due to affiliates..................................... - - 1,722 158 (1,880) -
Borrowings against future stock option proceeds............ 533 - - - - 533
Deferred income taxes...................................... 3,960 3,797 243 4,040 (8,080) 3,960
Unearned portion of paid subscriptions..................... - - - 672 - 672
Other liabilities.......................................... 300 20 90 596 - 1,006
TW Companies-obligated mandatorily redeemable
preferred securities of a subsidiary holding solely
subordinated debentures of TW Companies................. - - - 575 - 575
Series M exchangeable preferred stock...................... 1,857 - - - - 1,857
Shareholders' equity
Due to (from) Time Warner and subsidiaries................. - (2,195) - (256) 2,451 -
Other shareholders' equity................................. 9,356 6,190 7,341 20,826 (34,357) 9,356
----- ----- ----- ------ ------- -----
Total shareholders' equity................................. 9,356 3,995 7,341 20,570 (31,906) 9,356
------- ------- ------ ------- -------- ------
Total liabilities and shareholders' equity................. $16,472 $16,558 $10,398 $32,553 $(41,818) $34,163
======= ======= ======= ======= ======== =======
|
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Cash Flows
For The Six Months Ended June 30, 1998
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
OPERATIONS
Net income................................................. $ 39 $ 66 $21 $293 $(380) $ 39
Adjustments for noncash and nonoperating items:
Depreciation and amortization.............................. - - 4 585 - 589
Noncash interest expense................................... - 29 - - - 29
Excess (deficiency) of distributions over equity in
pretax income of consolidated subsidiaries.............. 838 (313) 145 - (670) -
Excess of equity in pretax income of
Entertainment Group over distributions.................. - - - 2 23 25
Changes in operating assets and liabilities................ 160 91 (81) 81 (44) 207
----- ---- ---- ----- ----- ----
Cash provided by operations................................ 1,037 (127) 89 961 (1,071) 889
----- ---- ---- ---- ----- ----
INVESTING ACTIVITIES
Investments and acquisitions............................... (213) - - 139 - (74)
Advances to parents and consolidated subsidiaries.......... - (187) - (26) 213 -
Repayment of advances from consolidated subsidiaries....... 75 - - - (75) -
Capital expenditures....................................... - - (7) (221) - (228)
Investment proceeds........................................ - - - 395 - 395
----- ----- ----- ---- ----- ----
Cash provided (used) by investing activities............... (138) (187) (7) 287 138 93
----- ----- ----- ---- ----- ----
FINANCING ACTIVITIES
Borrowings................................................. 597 496 - 514 (4) 1,603
Debt repayments............................................ - (500) (75) (877) 75 (1,377)
Change in due to/from parent............................... - 21 - (883) 862 -
Borrowings against future stock option proceeds............ 525 - - - - 525
Repayments of borrowings against future stock
option proceeds......................................... (533) - - - - (533)
Repurchases of Time Warner common stock.................... (1,661) - - - - (1,661)
Dividends paid............................................. (265) - - - - (265)
Proceeds from the issuance of stock options and
dividend reinvestment................................... 460 - - - - 460
Other...................................................... (22) (13) - - - (35)
----- ------- ----- ----- ------ ------
Cash used by financing activities.......................... (899) 4 (75) (1,246) 933 (1,283)
----- ------- ------ ------- ------ -------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS............................................. - (310) 7 2 - (301)
------ ------ ----- ------ ------ -------
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD..................................... - 372 9 264 - 645
----- ----- ----- ----- ------ -----
CASH AND EQUIVALENTS AT END OF PERIOD...................... $ - $ 62 $ 16 $ 266 $ - $ 344
====== ===== ===== ===== ====== =====
|
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS--(Continued)
(unaudited)
Consolidating Statement of Cash Flows
For The Six Months Ended June 30, 1997
Non- Time
Time TW Guarantor Elimina- Warner
Warner Companies TBS Subsidiaries tions Consolidated
------ --------- --- ------------ -------- ------------
(millions)
OPERATIONS
Net income (loss).......................................... $ 65 $ 93 $ (6) $334 $(421) $ 65
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt................... 17 13 4 13 (30) 17
Depreciation and amortization.............................. - - 11 604 - 615
Noncash interest expense................................... - 49 2 - - 51
Excess of distributions over equity in pretax
income of consolidated subsidiaries..................... 668 147 194 - (1,009) -
Excess (deficiency) of equity in pretax income of
Entertainment Group over distributions.................. - - - (241) 18 (223)
Changes in operating assets and liabilities................ (49) (205) (88) 305 (55) (92)
----- ----- ----- ------ ---- ------
Cash provided (used) by operations......................... 701 97 117 1,015 (1,497) 433
---- ---- ---- ------ ------- -----
INVESTING ACTIVITIES
Investments and acquisitions............................... (14) - - (42) - (56)
Advance to parents and consolidated subsidiaries........... (571) - - - 571 -
Capital expenditures....................................... - - (2) (281) - (283)
Investment proceeds........................................ - - - 113 - 113
----- ---- ----- ----- ------ -----
Cash used by investing activities.......................... (585) - (2) (210) 571 (226)
------ ----- ------ ------ ------ -----
FINANCING ACTIVITIES
Borrowings................................................. - 699 571 340 (571) 1,039
Debt repayments............................................ - (105) (684) (305) - (1,094)
Change in due to/from parent............................... - (784) - (713) 1,497 -
Repayments of borrowings against
future stock option proceeds............................ (86) - - - - (86)
Repurchases of Time Warner common stock.................... (36) - - - - (36)
Dividends paid............................................. (167) - - - - (167)
Other...................................................... 113 (4) - (16) - 93
---- ----- ----- ------ ----- -----
Cash used by financing activities.......................... (176) (194) (113) (694) 926 (251)
------ ------ ------ ------ ---- ------
INCREASE (DECREASE) IN CASH AND
EQUIVALENTS............................................. (60) (97) 2 111 - (44)
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD..................................... 62 137 - 315 - 514
----- ----- ------ ----- ----- -----
CASH AND EQUIVALENTS AT END OF PERIOD...................... $ 2 $ 40 $ 2 $ 426 $ - $ 470
====== ===== ====== ===== ====== =====
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TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TWE classifies its business interests into three fundamental areas:
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; 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 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.
USE OF EBITA
TWE evaluates operating performance based on several factors, of which the primary financial measure is operating income before noncash amortization of intangible assets ("EBITA"). Consistent with management's financial focus on controlling capital spending, EBITA measures operating performance after charges for depreciation. In addition, EBITA eliminates the uneven effect across all business segments of considerable amounts of noncash amortization of intangible assets recognized in business combinations accounted for by the purchase method, including Time Warner's $14 billion acquisition of Warner Communications Inc. in 1989 and $1.3 billion acquisition of the minority interest in American Television and Communications Corporation in 1992. The exclusion of noncash amortization charges is also consistent with management's belief that TWE's intangible assets, such as cable television franchises, film and television libraries and the goodwill associated with its brands, are generally increasing in value and importance to TWE's business objective of creating, extending and distributing recognizable brands and copyrights throughout the world. As such, the following comparative discussion of the results of operations of TWE includes, among other factors, an analysis of changes in business segment EBITA. However, EBITA should be considered in addition to, not as a substitute for, operating income, net income and other measures of financial performance reported in accordance with generally accepted accounting principles.
RESULTS OF OPERATIONS
As more fully described herein, TWE's 1998 operating results have been affected by certain cable-related transactions, including (i) the transfer of cable television systems (or interests therein) serving approximately 650,000 subscribers that were formerly owned by subsidiaries of Time Warner to the TWE-Advance/Newhouse Partnership ("TWE-A/N"), subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, as well as certain related transactions (collectively, the "TWE-A/N Transfers"), (ii) the transfer of TWE's and TWE-A/N's direct broadcast satellite operations and related assets to Primestar, Inc., a separate holding company (the "Primestar Roll-up Transaction") and (iii) the sale or exchange of certain cable television systems. The effects of these transactions are described elsewhere herein.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
EBITA and operating income for TWE for the three and six months ended June 30, 1998 and 1997 are as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
OPERATING OPERATING
EBITA INCOME EBITA INCOME
------------- ------------ ------------ ------------
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
(MILLIONS)
Filmed Entertainment-Warner Bros..................... $121 $103 $ 88 $ 73 $ 240 $209 $174 $148
Broadcasting-The WB Network.......................... (23) (19) (24) (19) (61) (39) (63) (39)
Cable Networks-HBO................................... 113 98 113 98 222 189 222 189
Cable(a)............................................. 374 243 278 168 681 502 491 351
--- --- --- --- --- --- --- ---
Total................................................ $585 $425 $455 $320 $1,082 $861 $824 $649
==== ==== ==== ==== ====== ==== ==== ====
|
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1997
TWE had revenues of $2.850 billion and net income of $155 million for the three months ended June 30, 1998, compared to revenues of $2.728 billion and net income of $82 million for the three months ended June 30, 1997. As discussed more fully below, TWE's net income increased in 1998 as compared to 1997 principally due to an overall increase in operating income generated by its business segments (including the positive effect of the TWE-A/N Transfers and $70 million of net gains recognized by TWE in 1998 relating to the sale or exchange of certain cable television systems), offset in part by an increase in interest expense and minority interest expense related to the TWE-A/N Transfers.
As a U.S. partnership, TWE is not subject to U.S. federal and state income taxation. Income and withholding taxes of $17 million and $25 million for the three months ended June 30, 1998 and 1997, respectively, have been provided for the operations of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment-Warner Bros. Revenues increased to $1.327 billion, compared to $1.254 billion in the second quarter of 1997. EBITA increased to $121 million from $103 million. Operating income increased to $88 million from $73 million. Revenues benefited from increases in worldwide television production and distribution, home video and consumer products licensing operations, offset in part by lower worldwide theatrical revenues. EBITA and operating income benefited principally from the revenue gains, as well as a gain on the sale of certain assets.
Broadcasting - The WB Network. Revenues increased to $61 million, compared to $29 million in the second quarter of 1997. EBITA decreased to a loss of $23 million from a loss of $19 million. Operating losses increased to $24 million from $19 million. Revenues increased as a result of improved television ratings and the addition of a fourth night of prime-time programming in January 1998, but were offset by higher programming costs associated with the expanded programming schedule. Operating losses increased primarily as a result of a lower allocation of losses to a limited partner in the network. In October 1998, The WB Network plans to expand its prime-time programming schedule to five nights a week. Due to the start-up nature of this national broadcast operation, losses are expected to continue.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Cable Networks-HBO. Revenues increased to $509 million, compared to $487 million in the second quarter of 1997. EBITA and operating income increased to $113 million from $98 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains, and, to a lesser extent, cost savings.
Cable. Revenues increased to $1.084 billion, compared to $1.066 billion in the second quarter of 1997. EBITA increased to $374 million from $243 million. Operating income increased to $278 million from $168 million. The Cable division's 1998 operating results were affected by the TWE-A/N Transfers and the deconsolidation of its direct broadcast satellite operations in connection with the Primestar Roll-up Transaction. Excluding the effect of the TWE-A/N Transfers and Primestar Roll-up Transaction, 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 ("FCC") and an increase in advertising revenues. Similarly excluding the effect of the TWE-A/N Transfers and Primestar Roll-up Transaction, EBITA and operating income increased principally as a result of the revenue gains and higher net gains relating to the sale or exchange of certain cable television systems, offset in part by higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $183 million in the second quarter of 1998, compared to $139 million in the second quarter of 1997. Interest expense increased to $132 million, compared to $120 million in the second quarter of 1997, principally due to higher average debt levels associated with the TWE-A/N Transfers. There was other expense, net, of $51 million in the second quarter of 1998, compared to $19 million in the second quarter of 1997, principally due to higher losses from certain investments accounted for under the equity method of accounting.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1997
TWE had revenues of $5.760 billion and net income of $263 million for the six months ended June 30, 1998, compared to revenues of $5.328 billion and net income of $402 million for the six months ended June 30, 1997. As discussed more fully below, TWE's net income decreased in 1998 as compared to 1997 principally due to lower, net pretax gains recognized in connection with the sale or exchange of certain cable television systems in each year and the 1997 sale of TWE's interest in E! Entertainment Television, Inc. ("E! Entertainment"). Excluding the effect of these transactions, TWE's net income increased in 1998 principally as a result of an overall increase in operating income generated by its business segments (including the positive effect of the TWE-A/N Transfers), offset in part by an increase in interest expense and minority interest expense related to the TWE-A/N Transfers.
As a U.S. partnership, TWE is not subject to U.S. federal and state income taxation. Income and withholding taxes of $32 million and $37 million for the six months ended June 30, 1998 and 1997, respectively, have been provided for the operations of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment-Warner Bros. Revenues increased to $2.637 billion, compared to $2.426 billion in the first six months of 1997. EBITA increased to $240 million from $209 million. Operating income increased to $174 million from $148 million. Revenues benefited from increases in worldwide television production and
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
distribution and consumer products licensing operations, offset in part by lower worldwide theatrical and home video revenues. EBITA and operating income benefited principally from the revenue gains.
Broadcasting - The WB Network. Revenues increased to $106 million, compared to $53 million in the first six months of 1997. EBITA decreased to a loss of $61 million from a loss of $39 million. Operating losses increased to $63 million from $39 million. Revenues increased as a result of improved television ratings and the addition of a fourth night of prime-time programming in January 1998, but were offset by higher programming costs associated with the expanded programming schedule. Operating losses increased principally as a result of a lower allocation of losses to a limited partner in the network. In October 1998, The WB Network plans to expand its prime-time programming schedule to five nights a week. Due to the start-up nature of this national broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $1.021 billion, compared to $970 million in the first six months of 1997. EBITA and operating income increased to $222 million from $189 million. Revenues benefited primarily from an increase in subscriptions. EBITA and operating income increased principally as a result of the revenue gains, and, to a lesser extent, cost savings.
Cable. Revenues increased to $2.237 billion, compared to $2.086 billion in the first six months of 1997. EBITA increased to $681 million from $502 million. Operating income increased to $491 million from $351 million. The Cable division's 1998 operating results were affected by the TWE-A/N Transfers and the deconsolidation of its direct broadcast satellite operations in connection with the Primestar Roll-up Transaction. Excluding the effect of the TWE-/AN Transfers and Primestar Roll-up Transaction, 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 excluding the effect of the TWE-A/N Transfers and the Primestar Roll-up Transaction, EBITA and operating income increased principally as a result of the revenue gains and higher net gains relating to the sale or exchange of certain cable television systems, offset in part by higher depreciation related to capital spending.
Interest and Other, Net. Interest and other, net, was $347 million in the first six months of 1998, compared to $10 million in the first six months of 1997. Interest expense increased to $273 million, compared to $235 million in 1997, principally due to higher average debt levels associated with the TWE-A/N Transfers. There was other expense, net, of $74 million in the first six months of 1998, compared to other income, net, of $225 million in the first six months of 1997, principally due to the absence of an approximate $250 million pretax gain on the sale of an interest in E! Entertainment recognized in 1997 and higher losses from certain investments accounted for under the equity method of accounting.
FINANCIAL CONDITION AND LIQUIDITY
JUNE 30, 1998
FINANCIAL CONDITION
TWE had $6.8 billion of debt, $72 million of cash and equivalents (net debt of $6.7 billion), $225 million of preferred stock of a subsidiary, $1.2 billion of Time Warner General Partners' Senior Capital and $6.0
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
billion of partners' capital at June 30, 1998, compared to $6.0 billion of debt, $322 million of cash and equivalents (net debt of $5.7 billion), $233 million of preferred stock of a subsidiary, $1.1 billion of Time Warner General Partners' Senior Capital and $6.3 billion of partners' capital at December 31, 1997. Net debt increased principally as a result of the TWE-A/N Transfers.
DEBT TRANSACTIONS
In July 1998, TWE borrowed $579 million under its bank credit agreement and paid a distribution to the Time Warner General Partners relating to their Senior Capital interests.
In April 1998, TWE consummated two previously announced transactions, consisting of the sale of TWE's 49% interest in Six Flags Entertainment Corporation and the Primestar Roll-up Transaction. As a result of these transactions, TWE reduced debt by approximately $540 million.
In early 1998, TWE-A/N assumed approximately $1 billion of debt from TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner, in connection with the TWE-A/N Transfers. The debt assumed by TWE-A/N has been guaranteed by TWI Cable and certain of its subsidiaries.
CASH FLOWS
During the first six months of 1998, TWE's cash provided by operations amounted to $586 million and reflected $1.082 billion of EBITA from its Filmed Entertainment-Warner Bros., Broadcasting-The WB Network, Cable Networks-HBO and Cable businesses, $469 million of noncash depreciation expense and $135 million of proceeds from TWE's asset securitization program, less $260 million of interest payments, $39 million of income taxes, $36 million of corporate expenses, and $765 million related to an aggregate increase in working capital requirements, other balance sheet accounts and noncash items. Cash provided by operations of $416 million in the first six months of 1997 reflected $861 million of business segment EBITA and $440 million of noncash depreciation expense, less $243 million of interest payments, $35 million of income taxes, $36 million of corporate expenses and $571 million related to an aggregate reduction in working capital requirements, other balance sheet accounts and noncash items.
Cash used by investing activities was $493 million in the first six months of 1998, compared to $425 million in the first six months of 1997, principally as a result of the effect of deconsolidating approximately $200 million of cash of Paragon Communications in connection with the TWE-A/N Transfers that has been included as a reduction of cash flows from investments and acquisitions, offset in part by a $135 million increase in proceeds from the sale of investments. Capital expenditures were $734 million in the first six months of 1998 and 1997.
Cash used by financing activities was $343 million in the first six months of 1998, compared to cash provided by financing activities of $86 million in the first six months of 1997, principally as a result of the absence of $243 million of aggregate net proceeds from the issuance of preferred stock of a subsidiary in the first quarter of 1997 and a $95 million increase in distributions paid to Time Warner, offset in part by an increase in debt used to fund cash distributions to Time Warner.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
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
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 $666 million in the six months ended June 30, 1998, compared to $662 million the six months ended June 30, 1997. For the full year of 1998, cable capital spending is expected to be comparable to 1997 levels, with approximately $700 million budgeted for the remainder of 1998. Capital spending by TWE's Cable division is expected to continue 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 TWE, TWE-A/N and Time Warner. Management expects to continue to finance such level of investment through cable operating cash flow and the development of new revenue streams from expanded programming options, high-speed Internet access and other services.
CABLE FINANCING STRATEGY
Time Warner's and TWE's cable financing strategy is to continue to use cable operating cash flow to finance the level of capital spending necessary to upgrade the technological capability of its cable television systems and develop new services, while pursuing opportunities to reduce either existing debt and/or their share of future funding requirements related to the cable television business and related ancillary businesses. Consistent with this strategy, Time Warner, TWE and TWE-A/N have completed a series of transactions in 1998, as discussed more fully below.
Business Telephony Reorganization
In July 1998, Time Warner, TWE and TWE-A/N completed a reorganization of their business telephony operations (the "Business Telephony Reorganization") by combining such operations into a single entity that is intended to be self-financing. This entity, named Time Warner Telecom LLC ("TW Telecom"), is a competitive local exchange carrier (CLEC) in selected metropolitan areas across the United States where it offers a wide range of telephony services to business customers. Time Warner, MediaOne Group, Inc. ("MediaOne," formerly U S WEST, Inc.) and the Advance/Newhouse Partnership ("Advance/Newhouse"), a limited partner in TWE-A/N, own interests in TW Telecom of 61.95%, 18.88% and 19.17%, respectively. As a result of the Business Telephony Reorganization, TWE and TWE-A/N do not have continuing equity interests in these business telephony operations.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
Road Runner Joint Venture
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp. ("Microsoft") and Compaq Computer Corp. ("Compaq") formed a joint venture to operate and expand Time Warner Cable's and MediaOne's existing high-speed Internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange for contributing their existing high-speed Internet access businesses, Time Warner received an 11.25% common equity interest in the Road Runner Joint Venture, TWE received a 25% interest, TWE-A/N received a 32.5% interest and MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft and Compaq each received a preferred equity interest therein that is convertible into a 10% common equity interest which, upon conversion, will dilute each of the common equity holders' interests accordingly. Each of TWE's and TWE-A/N's interest in the Road Runner Joint Venture is being accounted for under the equity method of accounting.
The aggregate $425 million of capital contributed by Microsoft and Compaq is expected to be used by the Road Runner Joint Venture to continue to expand the roll out of high-speed Internet access services. In addition, as a result of Time Warner Cable being a retailer of the Road Runner business in its franchise areas whereby Time Warner Cable's technologically advanced, high-capacity cable architecture will be used to provide these high-speed Internet access services, Time Warner Cable will initially retain 70% of the subscription revenues and 30% of the national advertising and transactional revenues generated from the delivery of these on-line services to its cable subscribers. Time Warner Cable's share of these revenues is expected to change periodically to 75% of subscription revenues and 25% of national advertising and transactional revenues by 2006.
Primestar Roll-up Transaction
In April 1998, TWE and Advance/Newhouse transferred the direct broadcast satellite operations conducted by TWE and TWE-A/N (the "DBS Operations") and the 31% partnership interest in Primestar Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the "Primestar Assets") to Primestar, Inc. ("New Primestar"), a separate holding company. New Primestar owns the DBS Operations and Primestar partnership interests formerly owned by TCI Satellite Entertainment, Inc. and other previously existing partners of Primestar. In exchange for contributing its interests in the Primestar Assets, TWE received an approximate 24% equity interest in New Primestar and realized approximately $240 million of debt reduction. TWE deconsolidated the DBS Operations effective as of April 1, 1998 and the equity interest in New Primestar received in this transaction is being accounted for under the equity method of accounting.
TWE-A/N Transfers
In early 1998, Time Warner (through a wholly owned subsidiary) contributed cable television systems (or interests therein) serving approximately 650,000 subscribers to TWE-A/N, subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, and completed certain related transactions. The debt assumed by TWE-A/N has been guaranteed by TWI Cable and certain of its subsidiaries. TWE-A/N is now owned 65.3% by TWE, 33.3% by Advance/Newhouse and 1.4% indirectly by Time Warner.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
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, basic cable, network and syndicated television exhibition, amounted to $2.225 billion at June 30, 1998, compared to $2.126 billion at December 31, 1997 (including amounts relating to TWE's cable television networks of $222 million and $238 million, respectively, and to Time Warner's cable television networks of $568 million and $481 million, respectively).
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. Cash licensing fees are collected periodically over the term of the related licensing agreements or on an accelerated basis using a $600 million securitization facility. The portion of backlog for which cash has 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 revenues and cash through the sale of advertising spots received under such contracts.
YEAR 2000 TECHNOLOGY PREPAREDNESS
TWE, like most large companies, depends on many different computer systems and other chip-based devices for the continuing conduct of its business. Older computer programs, computer hardware and chip-based devices may fail to recognize dates beginning on January 1, 2000 as being valid dates, and as a result may fail to operate or may operate improperly when such dates are introduced.
TWE's exposure to potential Year 2000 problems exists in two general areas: technological operations in the sole control of TWE, and technological operations dependent in some way on one or more third parties. The majority of TWE's exposure to potential Year 2000 problems is in the latter area. Failure to achieve high levels of Year 2000 compliance in either area could have a material adverse impact on TWE.
In the former area, technological operations in the sole control of TWE, TWE is engaged in a thorough process involving the identification and remediation of affected technological functions. TWE has generally completed the process of identifying significant potential Year 2000 difficulties and has an action plan in place to address them. At present, it is anticipated that the action plan will be successfully completed in all material respects in advance of January 1, 2000, and that its cost to TWE will not be material.
In the latter area, technological operations dependent in some way on one or more third parties, the situation is much less in TWE's ability to predict or control, although TWE has in place an extensive system to test for and attempt to resolve potential Year 2000 difficulties. TWE's business is heavily dependent on third parties, many of whom are themselves heavily dependent on technology. In some cases, TWE's third party dependence is on vendors of technology who are themselves working towards solutions to Year 2000 problems. For example, in a situation endemic to the cable industry, much of TWE's headend equipment that controls cable set-top boxes is presently not Year 2000 compliant. The box manufacturers are working with cable industry groups towards a solution that is presently expected to be implemented successfully before the end of 1999;
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
however, that process is not within TWE's control. In other cases, TWE's third party dependence is on suppliers of products or services that are themselves computer-intensive. For example, if a television broadcaster or cable programmer encounters Year 2000 problems that result in the interruption of its signal, TWE will be unable to provide that signal to its cable customers. Moreover, TWE is dependent, like all large companies, on the continued functioning of basic, heavily computerized services such as banking and telephony. TWE is making considerable efforts to ensure that the third parties on which it is heavily reliant are Year 2000 compliant, but cannot predict the likelihood of such compliance occurring nor the direct or indirect costs to TWE of non-compliance by those third parties or of securing such services from compliant third parties. However, TWE believes that it is in no worse position, and likely a better one, than most U.S.-based companies of its size with respect to the potential for Year 2000 problems and their impact.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This filing, together with management's public commentary related thereto, contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, EBITA and cash flow and forecasting ongoing debt reduction. Words such as "anticipate", "estimate", "expects", "projects", "intends", "plans", "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify such forward-looking statements. Those forward-looking statements are management's present expectations of future events. As with any projection or forecast, they are inherently susceptible to changes in circumstances, and TWE is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements despite such changes.
TWE operates in highly competitive, consumer driven and rapidly changing media and entertainment businesses that are dependent on government regulation and economic, political, social conditions in the countries in which they operate, consumer demand for their products and services and (particularly in view of technological changes) protection of their intellectual property rights. TWE's actual results could differ materially from management's expectations because of changes in such factors. Some of the other factors that also could cause actual results to differ from those contained in the forward-looking statements include those identified in TWE's other filings and:
For TWE's cable business, more aggressive than expected competition from new technologies and other types of video programming distributors, including DBS; increases in government regulation of cable or equipment rates or other terms of service (or any failure to reduce rate regulation as is presently mandated by statute) or opposition to franchise renewals; the failure of new equipment (such as digital set-top boxes) or services to function properly, to appeal to enough consumers or to be delivered in a timely fashion; and greater than expected increases in programming or other costs.
For TWE's cable programming and television businesses, greater than expected programming or production costs; public and cable operator resistance to price increases to offset higher programming costs (and the negative impact on premium programmers of increases in basic cable rates); the sensitivity of advertising to
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
economic cyclicality; and greater than expected fragmentation of consumer viewership due to an increased number of programming services or the increased popularity of alternatives to television.
For TWE's film and television businesses, their ability to continue to attract and select desirable talent and scripts at manageable costs; increases in production costs generally; fragmentation of consumer leisure and entertainment time (and its possible negative effects on the broadcast and cable networks, which are significant customers of these businesses); continued popularity of merchandising; and the uncertain impact of technological developments such as DVD and the Internet.
In addition, TWE's overall financial strategy, including improved financial ratios and a strengthened balance sheet, could be adversely affected by increased interest rates, failure to meet earnings expectations, Year 2000 compliance failures and changes in TWE's plans, strategies and intentions.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
1998 1997
-------- -------
(MILLIONS)
ASSETS
CURRENT ASSETS
Cash and equivalents........................................................................ $ 72 $ 322
Receivables, including $556 and $385 million due from Time Warner,
less allowances of $410 and $424 million................................................ 2,199 1,914
Inventories................................................................................. 1,226 1,204
Prepaid expenses............................................................................ 183 182
--- ---
Total current assets........................................................................ 3,680 3,622
Noncurrent inventories...................................................................... 2,364 2,254
Loan receivable from Time Warner............................................................ 400 400
Investments................................................................................. 543 315
Property, plant and equipment............................................................... 6,360 6,557
Cable television franchises................................................................. 4,061 3,063
Goodwill.................................................................................... 4,114 3,859
Other assets................................................................................ 631 661
------ ----
Total assets................................................................................ $22,153 $20,731
======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable............................................................................ $ 864 $ 1,123
Participations and programming costs payable................................................ 1,340 1,176
Debt due within one year.................................................................... 7 8
Other current liabilities, including $274 and $184 million due to Time Warner............... 1,653 1,667
------- ------
Total current liabilities................................................................... 3,864 3,974
Long-term debt.............................................................................. 6,771 5,990
Other long-term liabilities, including $740 and $477 million due to Time Warner............. 2,670 1,873
Minority interests.......................................................................... 1,477 1,210
Preferred stock of subsidiary holding solely a mortgage note of its parent.................. 225 233
Time Warner General Partners' Senior Capital................................................ 1,163 1,118
PARTNERS' CAPITAL
Contributed capital......................................................................... 7,537 7,537
Undistributed partnership earnings (deficit)................................................ (1,554) (1,204)
------ -----
Total partners' capital..................................................................... 5,983 6,333
------ -----
Total liabilities and partners' capital..................................................... $22,153 $20,731
======= =======
|
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -----------------
1998 1997 1998 1997
------------------- -----------------
(MILLIONS)
Revenues (a)....................................................... $2,850 $2,728 $5,760 $5,328
------ ------ ------ ------
Cost of revenues (a)(b)............................................ 1,806 1,782 3,752 3,447
Selling, general and administrative (a)(b)......................... 589 626 1,184 1,232
------ ------ ------ ------
Operating expenses................................................. 2,395 2,408 4,936 4,679
------ ------ ------ ------
Business segment operating income.................................. 455 320 824 649
Interest and other, net (a)........................................ (183) (139) (347) (10)
Minority interest.................................................. (82) (56) (146) (164)
Corporate services (a)............................................. (18) (18) (36) (36)
------ ------ ------ ------
Income before income taxes......................................... 172 107 295 439
Income taxes....................................................... (17) (25) (32) (37)
------ ------ ------ ------
Net income......................................................... $ 155 $ 82 $ 263 $ 402
====== ====== ====== ======
|
(b) Includes depreciation and amortization expense of:............. $356 $328 $727 $652
==== ==== ==== ====
|
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
----------------
1998 1997
---- ----
(MILLIONS)
OPERATIONS
Net income.................................................................................. $263 $ 402
Adjustments for noncash and nonoperating items:
Depreciation and amortization............................................................... 727 652
Changes in operating assets and liabilities................................................. (404) (638)
---- -----
Cash provided by operations................................................................. 586 416
---- -----
INVESTING ACTIVITIES
Investments and acquisitions................................................................ (265) (62)
Capital expenditures........................................................................ (734) (734)
Investment proceeds......................................................................... 506 371
---- -----
Cash used by investing activities........................................................... (493) (425)
---- -----
FINANCING ACTIVITIES
Borrowings.................................................................................. 503 428
Debt repayments............................................................................. (492) (323)
Issuance of preferred stock of subsidiary................................................... - 243
Capital distributions....................................................................... (298) (203)
Other....................................................................................... (56) (59)
---- -----
Cash provided (used) by financing activities................................................ (343) 86
---- -----
INCREASE (DECREASE) IN CASH AND EQUIVALENTS................................................. (250) 77
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................................................. 322 216
---- -----
CASH AND EQUIVALENTS AT END OF PERIOD....................................................... $ 72 $293
==== =====
|
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30,
-----------------
1998 1997
---- -----
(MILLIONS)
BALANCE AT BEGINNING OF YEAR................................................................ $6,333 $6,574
Net income.................................................................................. 263 402
Other comprehensive income (loss)........................................................... (16) (14)
----- -----
Comprehensive income........................................................................ 247 388
Distributions............................................................................... (552) (369)
Allocation of income to Time Warner General Partners' Senior Capital........................ (45) (62)
----- -----
BALANCE AT JUNE 30,......................................................................... $5,983 $6,531
====== ======
|
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"), classifies its businesses into three fundamental areas: Entertainment, consisting principally of interests in filmed entertainment, television production and television broadcasting; Cable Networks, consisting principally of interests in cable television programming; and Cable, consisting principally of interests in cable television systems.
The operating results of TWE's various business interests are presented herein as an indication of financial performance (Note 5). 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 considerably 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 upon the capitalization of the partnership. Noncash amortization of intangible assets recorded by TWE's businesses amounted to $130 million and $105 million in the three months ended June 30, 1998 and 1997, respectively and $258 million and $212 million for the six months ended June 30, 1998 and 1997, respectively.
Time Warner and certain of its wholly owned subsidiaries collectively
own general and limited partnership interests in TWE consisting of 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 MediaOne Group, Inc. ("MediaOne"), formerly U S WEST,
Inc. Certain of Time Warner's subsidiaries are the general partners of TWE
("Time Warner General Partners").
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, 1997. Certain reclassifications have been made to the prior year's financial statements to conform to the 1998 presentation.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), effective for years beginning after June 15, 1999, with early application encouraged. The new rules establish standards requiring that all derivative financial instruments, such as foreign exchange contracts, be recognized and measured at fair value regardless of the purpose or intent for holding them. TWE plans to adopt FAS 133 effective as of July 1, 1998, and it is not expected that the adoption will have a material effect on TWE's financial statements.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
2. ACQUISITIONS AND DISPOSITIONS
CABLE TRANSACTIONS
In addition to continuing to use cable operating cash flow to finance the level of capital spending necessary to upgrade the technological capability of their cable television systems and develop new services, Time Warner, TWE and the TWE-Advance/Newhouse Partnership ("TWE-A/N") have completed a series of transactions in 1998 related to the cable television business and related ancillary businesses that either reduced existing debt and/or TWE's share of future funding requirements for such businesses. These transactions are discussed more fully below.
BUSINESS TELEPHONY REORGANIZATION
In July 1998, in an effort to combine their business telephony operations into a single entity that is intended to be self-financing, Time Warner, TWE and TWE-A/N completed a reorganization of their business telephony operations (the "Business Telephony Reorganization"), whereby (i) the operations conducted by Time Warner, TWE and TWE-A/N were each contributed to a new holding company named Time Warner Telecom LLC ("TW Telecom"), and then (ii) TWE's and TWE-A/N's interests in TW Telecom were distributed to their partners, Time Warner, MediaOne and Advance/Newhouse. TW Telecom is a competitive local exchange carrier (CLEC) in selected metropolitan areas across the United States where it offers a wide range of telephony services to business customers. As a result of the Business Telephony Reorganization, Time Warner, MediaOne and Advance/Newhouse own interests in TW Telecom of 61.95%, 18.88% and 19.17%, respectively. TWE and TWE-A/N do not have continuing equity interests in these business telephony operations. TWE and TWE-A/N recorded the distribution of their business telephony operations to their respective partners based on the approximate $235 million historical cost of the net assets.
ROAD RUNNER JOINT VENTURE
In June 1998, Time Warner, TWE, TWE-A/N, MediaOne, Microsoft Corp. ("Microsoft) and Compaq Computer Corp. ("Compaq") formed a joint venture to operate and expand Time Warner Cable's and MediaOne's existing high-speed internet access businesses (the "Road Runner'TM' Joint Venture"). In exchange for contributing their existing high-speed Internet access businesses, Time Warner received a common equity interest in the Road Runner Joint Venture of 11.25%, TWE received a 25% interest, TWE-A/N received a 32.5% interest and MediaOne received a 31.25% interest. In exchange for Microsoft and Compaq each contributing $212.5 million of cash to the Road Runner Joint Venture, Microsoft and Compaq each received a preferred equity interest therein that is convertible into a 10% common equity interest. Accordingly, on a fully diluted basis, the Road Runner Joint Venture is owned 9% by Time Warner, 20% by TWE, 26% by TWE-A/N, 25% by MediaOne, 10% by Microsoft and 10% by Compaq. Each of TWE's and TWE-A/N's interest in the Road Runner Joint Venture is being accounted for under the equity method of accounting.
Primestar
In April 1998, TWE and Advance/Newhouse, a limited partner in TWE-A/N, transferred the direct broadcast satellite operations conducted by TWE and TWE-A/N (the "DBS Operations") and the 31% partnership interest in
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Primestar Partners, L.P. held by TWE-A/N ("Primestar" and collectively, the "Primestar Assets") to Primestar, Inc. ("New Primestar"), a separate holding company. New Primestar owns the DBS Operations and Primestar partnership interests formerly owned by TCI Satellite Entertainment, Inc. and other previously existing partners of Primestar. In exchange for contributing its interests in the Primestar Assets, TWE received an approximate 24% equity interest in New Primestar and realized approximately $240 million of debt reduction. In partial consideration for contributing its indirect interest in certain of the Primestar Assets, Advance/Newhouse received an approximate 6% equity interest in New Primestar. As a result of this transaction, effective as of April 1, 1998, TWE deconsolidated the DBS Operations and the 24% equity interest in New Primestar received in the transaction is being accounted for under the equity method of accounting. This transaction is referred to herein as the "Primestar Roll-up Transaction".
In a related transaction, Primestar also entered into an agreement in June 1997 with The News Corporation Limited ("News Corp."), MCI Telecommunications Corporation ("MCI") and American Sky Broadcasting LLC ("ASkyB"), pursuant to which New Primestar would acquire certain assets relating to the high-power, direct broadcast satellite business of ASkyB (the "Primestar ASkyB Transaction"). In exchange for such assets, ASkyB would receive non-voting securities of New Primestar that would be convertible into non-voting common stock of New Primestar and, accordingly, would reduce TWE's equity interest in New Primestar to approximately 16% on a fully diluted basis. In May 1998, the U.S. Department of Justice brought a civil action against Primestar, each of its cable owners, including TWE, and News Corp. and MCI, to enjoin on antitrust grounds the Primestar ASkyB Transaction. The parties have had discussions with the U.S. Department of Justice in an attempt to restructure the transaction and reach a resolution on such matters, but there can be no assurance that an agreement can be reached or that necessary governmental and regulatory approvals will be obtained.
TWE-A/N Transfers
In early 1998, Time Warner (through a wholly owned subsidiary) contributed cable television systems (or interests therein) serving approximately 650,000 subscribers to TWE-A/N, subject to approximately $1 billion of debt, in exchange for common and preferred partnership interests therein, and completed certain related transactions (collectively, the "TWE-A/N Transfers"). The cable television systems transferred to TWE-A/N were formerly owned by TWI Cable Inc. ("TWI Cable"), a wholly owned subsidiary of Time Warner, and Paragon Communications ("Paragon"), a partnership formerly owning cable television systems serving approximately 1 million subscribers that was wholly owned by subsidiaries of Time Warner, with 50% beneficially owned in the aggregate by TWE and TWE-A/N. The debt assumed by TWE-A/N has been guaranteed by TWI Cable and certain of its subsidiaries, including Paragon.
As part of the TWE-A/N Transfers, TWE and TWE-A/N exchanged substantially all of their respective beneficial interests in Paragon for an equivalent share of Paragon's cable television systems (or interests therein) serving approximately 500,000 subscribers, resulting in wholly owned subsidiaries of Time Warner owning 100% of the restructured Paragon entity, with less than 1% beneficially held for TWE. Accordingly, effective as of January 1, 1998, Time Warner has consolidated Paragon. Because this transaction represented an exchange of TWE's and TWE-A/N's beneficial interests in Paragon for an equivalent amount of its cable television systems, it did not have a significant economic impact on Time Warner, TWE or TWE-A/N.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
In connection with the TWE-A/N Transfers, Advance/Newhouse made a capital contribution to TWE-A/N in order to maintain its 33.3% common partnership interest therein. Accordingly, TWE-A/N is now owned 65.3% by TWE, 33.3% by Advance/Newhouse and 1.4% indirectly by Time Warner. The TWE-A/N Transfers were accounted for effective as of January 1, 1998. Time Warner did not recognize a gain or loss on the TWE-A/N Transfers. TWE has continued to consolidate TWE-A/N and Time Warner has accounted for its interest in TWE-A/N under the equity method of accounting.
On a pro forma basis, giving effect to the TWE-A/N Transfers as if they had occurred at the beginning of 1997, TWE would have reported for the three and six months ended June 30, 1997, respectively, revenues of $2.742 billion and $5.358 billion, depreciation expense of $225 million and $443 million, operating income before noncash amortization of intangible assets of $455 million and $920 million, operating income of $334 million and $676 million, and net income of $82 million and $400 million.
Sale or Exchange of Cable Television Systems
In 1998 and 1997, in an effort to enhance their geographic clustering of cable television properties, TWE sold or exchanged various cable television systems. As a result of these transactions, TWE recognized net, pretax gains of approximately $70 million for the three months ended June 30, 1998, and approximately $84 million and $24 million for the six months ended June 30, 1998 and 1997, respectively. Such amounts have been included in operating income in the accompanying consolidated statement of operations.
SIX FLAGS
In April 1998, TWE sold its remaining 49% interest in Six Flags Entertainment Corporation ("Six Flags") to Premier Parks Inc. ("Premier"), a regional theme park operator, for approximately $475 million of cash. TWE used the net, after-tax proceeds from this transaction to reduce debt by approximately $300 million. As part of the transaction, TWE will continue to license its animated cartoon and comic book characters to Six Flags's theme parks and will similarly license such rights to Premier's theme parks in the United States and Canada under a long-term agreement covering an aggregate of twenty-five existing and all future locations. A substantial portion of the gain on this transaction has been deferred principally as a result of TWE's continuing guarantees of certain significant long-term obligations of Six Flags relating to the Six Flags Over Texas and Six Flags Over Georgia theme parks.
E! ENTERTAINMENT TELEVISION, INC.
In March 1997, TWE sold its 58% interest in E! Entertainment Television, Inc. A pretax gain of approximately $250 million relating to this sale has been included in the accompanying consolidated statement of operations for the six months ended June 30, 1997.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
3. INVENTORIES
TWE's inventories consist of:
JUNE 30, 1998 DECEMBER 31, 1997
---------------------- ---------------------
CURRENT NONCURRENT CURRENT NONCURRENT
------- ---------- ------- ----------
(MILLIONS)
Film costs:
Released, less amortization..................................... $ 487 $ 686 $ 545 $ 658
Completed and not released...................................... 241 67 170 50
In process and other............................................ 59 701 27 595
Library, less amortization...................................... - 586 - 612
Programming costs, less amortization............................... 366 324 382 339
Merchandise........................................................ 73 - 80 -
------ ------ ------ ------
Total.............................................................. $1,226 $2,364 $1,204 $2,254
====== ====== ====== ======
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4. PARTNERS' CAPITAL
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 stock options granted to employees of TWE based on the amount by which the market price of Time Warner Inc. 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 Inc. 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 Inc. 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 Inc. common stock declines.
During the six months ended June 30, 1998, TWE accrued $138 million of tax-related distributions and $414 million of stock option distributions, based on closing prices of Time Warner common stock of $85.44 at June 30, 1998 and $62.00 at December 31, 1997. During the six months ended June 30, 1997, TWE accrued $192 million of tax-related distributions and $177 million of stock option distributions as a result of an increase at that time in the market price of Time Warner Inc. common stock. In the six months ended June 30, 1998, TWE paid distributions to the Time Warner General Partners in the amount of $298 million, consisting of $138 million of tax-related distributions and $160 million of stock option related distributions. In the six months ended June 30, 1997, TWE paid the Time Warner General Partners distributions in the amount of $203 million, consisting of $192 million of tax-related distributions and $11 million of stock option related distributions. In July 1998, TWE borrowed $579 million under its bank credit agreement and paid a distribution to the Time Warner General Partners relating to their Senior Capital interests.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
(UNAUDITED)
5. SEGMENT INFORMATION
TWE classifies its businesses into three fundamental areas:
Entertainment, consisting principally of interests in filmed entertainment,
television production and television broadcasting; 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 based on the nature of the products and services offered. TWE evaluates performance based on several factors, of which the primary financial measure is business segment operating income before noncash amortization of intangible assets ("EBITA"). The operating results of TWE's cable segment reflects the TWE-A/N Transfers effective as of January 1, 1998 and the Primestar Roll-up Transaction effective as of April 1, 1998.
Information as to the operations of TWE in different business segments is set forth below.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ------------------
1998 1997 1998 1997
------- ------ ------ ------
(MILLIONS)
REVENUES
Filmed Entertainment-Warner Bros................................... $1,327 $1,254 $2,637 $2,426
Broadcasting-The WB Network........................................ 61 29 106 53
Cable Networks-HBO................................................. 509 487 1,021 970
Cable.............................................................. 1,084 1,066 2,237 2,086
Intersegment elimination........................................... (131) (108) (241) (207)
------ ------ ------ ------
Total.............................................................. $2,850 $2,728 $5,760 $5,328
====== ====== ====== ======
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THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- ------------------
1998 1997 1998 1997
------- ------ ------ ------
(MILLIONS)
EBITA(1)
Filmed Entertainment-Warner Bros................................... $121 $103 $ 240 $209
Broadcasting-The WB Network........................................ (23) (19) (61) (39)
Cable Networks-HBO................................................. 113 98 222 189
Cable(2)........................................................... 374 243 681 502
---- ---- ------ ----
Total.............................................................. $585 $425 $1,082 $861
==== ==== ====== ====
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(2) Includes net pretax gains relating to the sale or exchange of certain cable television systems of approximately $70 million recognized in the second quarter of 1998, and approximately $84 million and $24 million for the six months ended June 30, 1998 and 1997, respectively.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(MILLIONS)
DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Filmed Entertainment-Warner Bros................................... $ 38 $ 41 $ 78 $ 81
Broadcasting-The WB Network........................................ - 1 - 1
Cable Networks-HBO................................................. 5 5 10 10
Cable.............................................................. 183 176 381 348
---- ---- ---- ----
Total.............................................................. $226 $223 $469 $440
==== ==== ==== ====
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THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
(MILLIONS)
AMORTIZATION OF INTANGIBLE ASSETS (1)
Filmed Entertainment-Warner Bros................................... $ 33 $ 30 $ 66 $ 61
Broadcasting-The WB Network........................................ 1 - 2 -
Cable Networks-HBO................................................. - - - -
Cable.............................................................. 96 75 190 151
---- ---- ---- ----
Total.............................................................. $130 $105 $258 $212
==== ==== ==== ====
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6. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation incidental to the businesses of TWE. In the opinion of management, the ultimate resolution of these matters will not have a material effect on the consolidated financial statements of TWE.
7. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash flows is as follows:
SIX MONTHS
ENDED JUNE 30,
-----------------
1998 1997
---- ----
(MILLIONS)
Interest expense................................. $273 $235
Cash payments made for interest.................. 260 243
Cash payments made for income taxes, net......... 39 35
Noncash capital distributions.................... 414 177
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Noncash investing activities in the first six months of 1998 included the TWE-A/N Transfers, the Primestar Roll-up Transaction and the exchange of certain cable television systems (Note 2). During the six months ended June 30, 1998, TWE received $135 million of proceeds under its asset securitization program.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 12, 1998, the U.S. Department of Justice brought a civil action in the United States District Court for the District of Columbia against Primestar, Inc. ("Primestar"), each of its cable company owners, including TWE, and The News Corporation Limited and MCI Telecommunications Corporation, to enjoin on antitrust grounds Primestar's proposed acquisition of certain assets relating to the high-power, direct broadcast satellite business of American Sky Broadcasting LLC. For further information with respect to such proposed acquisition, see Footnote 2 "Cable Transactions," to Time Warner's consolidated financial statements included herein.
Reference is made to the fifteen TBS shareholder actions filed in Georgia in connection with the TBS Transaction described on pages I-37 and I-38 of Time Warner's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K"). On June 10, 1998, the Georgia Court of Appeal affirmed the lower court's grant of defendants' motion for summary judgment on plaintiffs' fourth amended complaint and defendants' motion for final judgment on plaintiffs' third amended complaint. Plaintiffs have not sought reargument or further appeal within the time allotted; this matter is therefore concluded.
On September 13, 1995, Francis Ford Coppola, Fred Fuchs and FFC, Inc. ("Coppola") filed a lawsuit in the Superior Court of California, County of Los Angeles, against Warner Bros. entitled Coppola v. Warner Bros., alleging that Warner Bros. unlawfully interfered with Coppola's efforts to develop with another film studio a previously unproduced film project based on "Pinocchio." Among other things, Coppola asked that the Court declare that any prior agreement between Coppola and Warner Bros. to produce the film was void or that it be rescinded. In 1997, the Court granted the plaintiffs' motion to declare that any alleged agreement between Warner Bros. and Coppola was void under the Copyright Act's statute of frauds provision. On June 1, 1998 the case went to trial and on July 2, 1998, the jury found in Coppola's favor with respect to the interference claims and awarded $20 million compensatory damages; on July 9, 1998, the jury awarded $60 million in punitive damages for these claims. Warner Bros. intends to move for judgment notwithstanding the verdict and for a new trial, which motions will be decided no later than 60 days after judgment is entered. If the motions are denied, Warner Bros. intends to appeal the jury verdict.
Reference is made to the litigation entitled Samuel D. Moore, et al. v. American Federation of Television and Radio Artists, et al., described on pages I-36 and I-37 of the 1997 Form 10-K. By Order dated June 22, 1998, the Court granted plaintiffs' motion to certify its Order denying class certification for appeal to the 11th Circuit Court of Appeals, and granted plaintiffs' motion for entry of judgment pursuant to Rule 54(b) on the ERISA claims against the Record Company Defendants. Based on the Court's Order, plaintiffs have filed a motion with the 11th Circuit Court of Appeals seeking interlocutory review of the Court's Order denying class certification, which motion was opposed by the Record Company Defendants.
Reference is made to the purported class action entitled Ottinger & Silvey, et. al., 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 I-39 of the 1997 Form 10-K. On May 11, 1998, Warner Elektra Atlantic Corporation and other defendants filed a motion to dismiss the complaint for failure to state a cause of action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
(a) The Annual Meeting of Stockholders of Time Warner was held on May 14, 1998 (the "1998 Annual Meeting").
(b) The following were elected directors of Time Warner at the 1998 Annual Meeting:
Merv Adelson
J. Carter Bacot
Stephen F. Bollenbach
John C. Danforth
Beverly Sills Greenough
Gerald Greenwald
Carla A. Hills
Gerald M. Levin
Reuben Mark
Michael A. Miles
Richard D. Parsons
R. E. Turner
Francis T. Vincent, Jr.
(c) The following matters were voted upon at the 1998 Annual Meeting:
(i) Election of directors for terms expiring in 1998:
Broker
For Withheld Non-Votes
--- -------- ---------
Merv Adelson 485,869,848 3,251,849 0
J. Carter Bacot 486,212,414 2,909,283 0
Stephen F. Bollenbach 486,209,353 2,912,344 0
John C. Danforth 486,116,915 3,004,782 0
Beverly Sills Greenough 485,838,218 3,283,479 0
Gerald Greenwald 486,256,067 2,865,630 0
Carla A. Hills 486,110,015 3,011,682 0
Gerald M. Levin 485,892,172 3,229,525 0
Reuben Mark 486,219,783 2,901,914 0
Michael A. Miles 486,004,035 3,117,662 0
Richard D. Parsons 486,152,557 2,969,140 0
R. E. Turner 486,166,621 2,955,076 0
Francis T. Vincent, Jr. 485,994,809 3,126,888 0
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(ii) Approval of the appointment of Ernst & Young LLP as independent auditors of Time Warner for 1998:
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ----------- ---------
487,219,458 521,459 810,159 0
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(d) Not applicable.
ITEM 5. OTHER INFORMATION.
Time Warner's By-laws establish an advance notice procedure with regard to stockholder proposals to be brought before an annual meeting of stockholders that are not included in Time Warner's proxy statement. To be presented at Time Warner's 1999 annual meeting, notice of such a proposal must be received by the Secretary of the Company after January 14, 1999 but no later than March 4, 1999 and must contain specified information concerning the matters to be brought before such meeting and concerning the stockholder proposing such matters. If the date of the annual meeting is more than 30 days earlier or more than 60 days later than May 14, 1999, notice must be received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 70th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made.
Stockholder proposals that the proponent wishes to have included in Time Warner's proxy statement for consideration at the 1999 annual meeting are covered by separate procedures as described in Time Warner's proxy statement for its 1998 annual meeting and must generally be submitted to the Secretary of the Company no later than November 23, 1998.
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.
No Current Report on Form 8-K was filed by Time Warner during the quarter ended June 30, 1998.
TIME WARNER 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 INC.
(Registrant)
By: /s/ Richard J. Bressler
------------------------------------
Name: Richard J. Bressler
Title: Executive Vice President and
Chief Financial Officer
Dated: August 10, 1998
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EXHIBIT INDEX
Pursuant to Item 601 of Regulations S-K
Exhibit No. Description of Exhibit
----------- ----------------------
4 Indenture dated as of June 1, 1998 among the Registrant, Time
Warner Companies, Inc., Turner Broadcasting System, Inc. and
The Chase Manhattan Bank, as Trustee.
27 Financial Data Schedule.
|
TIME WARNER INC.,
TIME WARNER COMPANIES, INC.,
as Guarantor
TURNER BROADCASTING SYSTEM, INC.,
as Guarantor
and
THE CHASE MANHATTAN BANK,
Trustee
INDENTURE
Dated as of June 1, 1998
Providing for Issuance of Senior Securities in Series
Table Showing Reflection in Indenture of Certain Provisions of Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990
Reflected in Indenture
TIA Section
'SS'310(a)(1)............................................................... 6.09
(a)(2)............................................................... 6.09
(a)(3)............................................................... Not Applicable
(a)(4)............................................................... Not Applicable
(a)(5)............................................................... 6.09
(b).................................................................. 6.08
'SS'311(a).................................................................. 6.13(a)
(b).................................................................. 6.13(b)
(b)(2)............................................................... 7.03(a)
..................................................................... 7.03(b)
'SS'312(a).................................................................. 7.01
..................................................................... 7.02(a)
(b).................................................................. 7.03(b)
(c).................................................................. 7.02(c)
'SS'313(a).................................................................. 7.03(a)
(b).................................................................. 7.03(b)
(c).................................................................. 7.03(a)
..................................................................... 7.03(b)
(d).................................................................. 7.03(c)
'SS'314(a)(1)............................................................... 7.04
(a)(2)............................................................... 7.04
(a)(3)............................................................... 7.04
(a)(4)............................................................... 10.04
(b).................................................................. Not Applicable
(c)(1)............................................................... 1.02
(c)(2)............................................................... 1.02
(c)(3)............................................................... Not Applicable
(d).................................................................. Not Applicable
(e).................................................................. 1.02
'SS'315(a).................................................................. 6.01(a)
..................................................................... 6.01(c)
(b).................................................................. 6.02
..................................................................... 7.03(a)
(c).................................................................. 6.01(b)
|
(d).................................................................. 6.01
(d)(1)............................................................... 6.01(a)
(d)(2)............................................................... 6.01(c)(2)
(d)(3)............................................................... 6.01(c)(3)
(e).................................................................. 5.14
'SS'316(a).................................................................. 1.01
(a)(1)(A)............................................................ 5.02
..................................................................... 5.12
(a)(1)(B)............................................................ 5.13
(a)(2)............................................................... Not Applicable
(b).................................................................. 5.08
(c).................................................................. 1.04(d)
'SS'317(a)(1)............................................................... 5.03
(a)(2)............................................................... 5.04
(b).................................................................. 10.03
'SS' 318(a)................................................................. 1.07
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TABLE OF CONTENTS
Page
----
Recitals of the Company................................................... 1
Agreements of the Parties................................................. 1
ARTICLE I
Definitions and Other Provisions of General Application
SECTION 1.01. Definitions........................................... 1
SECTION 1.02. Compliance Certificates and
Opinions........................................... 15
SECTION 1.03. Form of Documents Delivered to
Trustee............................................ 15
SECTION 1.04. Acts of Securityholders............................... 16
SECTION 1.05. Notices, etc., to Trustee and
Company............................................ 18
SECTION 1.06. Notices to Securityholders; Waiver.................... 19
SECTION 1.07. Conflict with Trust Indenture Act..................... 19
SECTION 1.08. Effect of Headings and Table of
Contents........................................... 19
SECTION 1.09. Successors and Assigns................................ 19
SECTION 1.10. Separability Clause................................... 20
SECTION 1.11. Benefits of Indenture................................. 20
SECTION 1.12. Governing Law......................................... 20
SECTION 1.13. Counterparts.......................................... 20
SECTION 1.14. Judgment Currency..................................... 20
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally....................................... 21
SECTION 2.02. Forms of Securities................................... 21
SECTION 2.03. Form of Trustee's Certificate of
Authentication..................................... 22
SECTION 2.04. Securities Issuable in the Form of a
Global Security.................................... 22
ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations;
Issuable in Series; Terms of
Particular Series.................................. 24
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Page
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SECTION 3.02. Denominations.......................................... 28
SECTION 3.03. Execution, Authentication and
Delivery and Dating................................. 28
SECTION 3.04. Temporary Securities................................... 30
SECTION 3.05. Registration, Transfer and
Exchange............................................ 31
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen
Securities.......................................... 33
SECTION 3.07. Payment of Interest; Interest Rights
Preserved........................................... 33
SECTION 3.08. Persons Deemed Owners.................................. 35
SECTION 3.09. Cancelation............................................ 35
SECTION 3.10. Computation of Interest................................ 36
SECTION 3.11. Delayed Issuance of Securities......................... 36
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of
Indenture........................................... 37
SECTION 4.02. Application of Trust Money............................. 38
SECTION 4.03. Defeasance Upon Deposit of Funds or
Government Obligations.............................. 39
SECTION 4.04. Reinstatement.......................................... 41
ARTICLE V
Remedies
SECTION 5.01. Events of Default...................................... 42
SECTION 5.02. Acceleration of Maturity; Rescission
and Annulment....................................... 45
SECTION 5.03. Collection of Indebtedness and Suits
for Enforcement by Trustee.......................... 47
SECTION 5.04. Trustee May File Proofs of Claim....................... 48
SECTION 5.05. Trustee May Enforce Claims Without
Possession of Securities............................ 49
SECTION 5.06. Application of Money Collected......................... 49
SECTION 5.07. Limitation on Suits.................................... 49
SECTION 5.08. Unconditional Right of Securityholders
To Receive Principal, Premium and
Interest............................................. 50
SECTION 5.09. Restoration of Rights and Remedies..................... 51
SECTION 5.10. Rights and Remedies Cumulative......................... 51
SECTION 5.11. Delay or Omission Not Waiver........................... 51
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Page
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SECTION 5.12. Control by Securityholders............................. 51
SECTION 5.13. Waiver of Past Defaults................................ 52
SECTION 5.14. Undertaking for Costs.................................. 52
SECTION 5.15. Waiver of Stay or Extension Laws....................... 53
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities.................... 53
SECTION 6.02. Notice of Defaults..................................... 54
SECTION 6.03. Certain Rights of Trustee.............................. 55
SECTION 6.04. Not Responsible for Recitals or
Issuance of Securities.............................. 56
SECTION 6.05. May Hold Securities.................................... 57
SECTION 6.06. Money Held in Trust.................................... 57
SECTION 6.07. Compensation and Reimbursement......................... 57
SECTION 6.08. Disqualification; Conflicting
Interests........................................... 58
SECTION 6.09. Corporate Trustee Required;
Eligibility......................................... 58
SECTION 6.10. Resignation and Removal................................ 59
SECTION 6.11. Acceptance of Appointment by
Successor.............................................. 61
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business.............................. 62
SECTION 6.13. Preferential Collection of Claims
Against Company..................................... 62
SECTION 6.14. Appointment of Authenticating Agent.................... 67
ARTICLE VII
Securityholders' Lists and Reports by Trustee and Company
SECTION 7.01. Company To Furnish Trustee Names and
Addresses of Securityholders........................ 69
SECTION 7.02. Preservation of Information;
Communications to Securityholders................... 70
SECTION 7.03. Reports by Trustee..................................... 71
SECTION 7.04. Reports by Company..................................... 71
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
|
Page
-----
SECTION 8.01. Consolidation, Merger, Conveyance or
Transfer on Certain Terms............................ 72
SECTION 8.02. Successor Person Substituted............................ 73
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without
Consent of Securityholders........................... 73
SECTION 9.02. Supplemental Indentures with Consent
of Securityholders................................... 75
SECTION 9.03. Execution of Supplemental Indentures.................... 77
SECTION 9.04. Effect of Supplemental Indentures....................... 77
SECTION 9.05. Conformity with Trust Indenture Act..................... 77
SECTION 9.06. Reference in Securities to
Supplemental Indentures.............................. 77
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and
Interest............................................. 77
SECTION 10.02. Maintenance of Office or Agency......................... 78
SECTION 10.03. Money for Security Payments To Be Held
in Trust............................................. 78
SECTION 10.04. Statement as to Compliance.............................. 80
SECTION 10.05. Legal Existence......................................... 80
SECTION 10.06. Limitation on Liens..................................... 80
SECTION 10.07. Waiver of Certain Covenants............................. 84
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article................................ 84
SECTION 11.02. Election To Redeem; Notice to
Trustee................................................. 85
SECTION 11.03. Selection by Trustee of Securities To
Be Redeemed.......................................... 85
SECTION 11.04. Notice of Redemption.................................... 86
SECTION 11.05. Deposit of Redemption Price............................. 87
SECTION 11.06. Securities Payable on Redemption Date...................
SECTION 11.07. Securities Redeemed in Part............................. 88
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SECTION 11.08. Provisions with Respect to Any Sinking
Funds................................................ 88
SECTION 11.09. Rescission of Redemption................................ 90
ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege.................................... 91
SECTION 12.02. Conversion Procedure; Rescission of
Conversion; Conversion Price;
Fractional Shares.................................... 92
SECTION 12.03. Adjustment of Conversion Price for
Common Stock or Marketable
Securities........................................... 95
SECTION 12.04. Consolidation or Merger of the
Company............................................. 99
SECTION 12.05. Notice of Adjustment.................................... 100
SECTION 12.06. Notice in Certain Events................................ 100
SECTION 12.07. Company To Reserve Stock or other
Marketable Securities; Registration;
Listing.............................................. 101
SECTION 12.08. Taxes on Conversion..................................... 102
SECTION 12.09. Conversion After Record Date............................ 102
SECTION 12.10. Corporate Action Regarding Par Value
of Common Stock...................................... 103
SECTION 12.11. Company Determination Final............................. 103
SECTION 12.12. Trustee's Disclaimer.................................... 103
ARTICLE XIII
Guarantees
SECTION 13.01. Guarantees.............................................. 104
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THIS INDENTURE between TIME WARNER INC., a Delaware corporation (hereinafter called the "Company") having its principal office at 75 Rockefeller Plaza, New York, New York 10019, TIME WARNER COMPANIES, INC., a Delaware corporation ("TWC"), TURNER BROADCASTING SYSTEM, INC., a Georgia corporation ("TBS" and together with TWC, the "Guarantors"), and THE CHASE MANHATTAN BANK, a New York banking corporation, trustee (hereinafter called the "Trustee"), is made and entered into as of the 1st day of June, 1998.
Recitals of the Company
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its debentures, notes, bonds or other evidences of indebtedness, to be issued in one or more fully registered series.
All things necessary to make this Indenture a valid agreement of the Company, TWC and TBS in accordance with its terms, have been done.
Agreements of the Parties
To set forth or to provide for the establishment of the terms and conditions upon which the Securities are and are to be authenticated, issued and delivered, and in consideration of the premises and the purchase of Securities by the Holders thereof, it is mutually covenanted and agreed as follows, for the equal and proportionate benefit of all Holders of the Securities or of a series thereof, as the case may be:
ARTICLE I
Definitions and Other Provisions
of General Application
SECTION 1.01. Definitions. For all purposes of this Indenture and of any indenture supplemental hereto,
except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture Act or by Commission rule under the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them herein;
(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles and any accounting rules or interpretations promulgated by the Commission as are generally accepted in the United States of America at the date of this Indenture; and
(4) all references in this instrument to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and other subdivisions of this instrument as originally executed. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
Certain terms, used principally in Article VI, are defined in that Article.
"Act", when used with respect to any Securityholder, has the meaning specified in Section 1.04.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Authenticating Agent" means any Person authorized by the Trustee to authenticate Securities under Section 6.14.
"Board of Directors" means (i) the board of directors of the Company, (ii) any duly authorized committee of such board, (iii) any committee of officers of the Company or (iv) any officer of the Company acting, in the case of (iii) or (iv), pursuant to authority granted by the board of directors of the Company or any committee of such board.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"Business Day" means, with respect to any series of Securities, unless otherwise specified in a Board Resolution and an Officer's Certificate with respect to a particular series of Securities, each day which is not a Saturday, Sunday or other day on which banking institutions in the pertinent Place or Places of Payment or the city in which the Corporate Trust Office is located are authorized or required by law or executive order to be closed.
"Closing Price" of the Common Stock or other Marketable Security, as the case may be, shall mean the last reported sale price of such stock or other Marketable Security (regular way) as shown on the Composite Tape of the NYSE (or, if such stock or other Marketable Security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such stock or other Marketable Security is listed or admitted to trading), or, in case no such sale takes place on such day, the average of the closing bid and asked prices on the NYSE (or, if such stock or other Marketable Security is not listed or admitted to trading on the NYSE, on the principal national securities exchange on which such stock or other Marketable Security is listed or admitted to trading), or, if it is not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ), or if such stock or other Marketable Security is not so reported, the average of the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc., selected from time to time by the Company for that purpose.
"Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
"Common Stock" shall mean the class of Common Stock, par value $.01 per share, of the Company authorized at the date of this Indenture as originally signed, or any other class of stock resulting from successive changes or reclassifications of such Common Stock, and in any such case including any shares thereof authorized after the date of this Indenture.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor.
"Company Request", "Company Order" and "Company Consent" mean a written request, order or consent, respectively, signed in the name of the Company by its Chairman of the Board, President or a Vice President, and by its Treasurer, an Assistant Treasurer, Controller, an Assistant Controller, Secretary or an Assistant Secretary, and delivered to the Trustee.
"Consolidated Net Worth" means, with respect to any Person, at the date of any determination, the consolidated stockholders' or owners' equity of the holders of capital stock or partnership interests of such Person and its subsidiaries, determined on a consolidated basis in accordance with GAAP consistently applied.
"Conversion Agent" means any Person authorized by the Company to receive Securities to be converted into Common Stock or other Marketable Securities on behalf of the Company. The Company initially authorizes the Trustee to act as Conversion Agent for the Securities on its behalf. The Company may at any time and from time to time authorize one or more Persons to act as Conversion Agent in addition to or in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Conversion Price" means, with respect to any series of Securities which are convertible into Common Stock or other Marketable Securities, the price per share of
Common Stock or the price per designated unit of other Marketable Security at which the Securities of such series are so convertible as set forth in the Board Resolution with respect to such series (or in any supplemental indenture entered into pursuant to Section 9.01(9) with respect to such series), as the same may be adjusted from time to time in accordance with Section 12.03 (or such supplemental indenture).
"Converting Holder" shall have the meaning specified in
Section 12.02(c) of this Indenture.
"Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 450 West 33rd Street, 15th Floor, New York, New York 10001.
"Current Market Price" on any date shall mean the average of the daily Closing Prices per share of Common Stock or of such other Marketable Securities for any thirty (30) consecutive Trading Days selected by the Company prior to the day in question, which thirty (30) consecutive Trading Day period shall not commence more than forty-five (45) Trading Days prior to the day in question; provided that with respect to Section 12.03(3), the "Current Market Price" of the Common Stock or of such other Marketable Securities shall mean the average of the daily Closing Prices per share of common Stock or of such other Marketable Securities for the five (5) consecutive Trading Days ending on the date of the distribution referred to in Section 12.03(3) (or if such date shall not be a Trading Day, on the Trading Day immediately preceding such date).
"Defaulted Interest" has the meaning specified in Section 3.07.
"Depository" means, unless otherwise specified by the Company pursuant to either Section 2.04 or 3.01, with respect to Securities of any series issuable or issued as a Global Security, The Depository Trust Company, New York, New York, or any successor thereto registered as a clearing agency under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation.
"Discharged" has the meaning specified in Section 4.03.
"Event of Default" has the meaning specified in Article V.
"Federal Bankruptcy Act" has the meaning specified in Section 5.01(6).
"GAAP" means generally accepted accounting principles as such principles are in effect as of the date of this Indenture.
"Global Security", when used with respect to any series of Securities issued hereunder, means a Security which is executed by the Company and authenticated and delivered by the Trustee to the Depository or pursuant to the Depository's instruction, all in accordance with this Indenture and an indenture supplemental hereto, if any, or Board Resolution and pursuant to a Company Request, which shall be registered in the name of the Depository or its nominee and which shall represent, and shall be denominated in an amount equal to the aggregate principal amount of, all of the Outstanding Securities of such series or any portion thereof, in either case having the same terms, including, without limitation, the same original issue date, date or dates on which principal is due, and interest rate or method of determining interest.
"Guarantee" has the meaning specified in Section 13.01(a).
"Guarantors" means TBS and TWC.
"Holder", when used with respect to any Security, means a Securityholder.
"Indenture" or "this Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01.
"Interest", when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
"Interest Payment Date", when used with respect to any series of Securities, means the Stated Maturity of any installment of interest on those Securities.
"Marketable Security" means any common stock, debt security or other security of a Person which is (or will,
upon distribution thereof, be) listed on the NYSE, the American Stock Exchange or any national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended, or approved for quotation in the National Market System of the National Association of Securities Dealers, Inc. Automated Quotations System or any similar system of automated dissemination of quotations of securities prices in the United States or for which there is a recognized market maker or trading market.
"Material Subsidiary" means any Person that is a Subsidiary if at the end of the most recent fiscal quarter of the Company, the aggregate amount, determined in accordance with GAAP consistently applied, of securities of, loans and advances to, and other investments in, such Person held by the Company and its other Subsidiaries exceeded 10% of the Company's Consolidated Net Worth.
"Material U.S. Subsidiary" means any Material Subsidiary that is organized under the laws of the United States of America or any political subdivision thereof (including any State thereof or the District of Columbia).
"Maturity", when used with respect to any Securities, means the date on which the principal of any such Security becomes due and payable as therein or herein provided, whether on a Repayment Date, at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Controller, an Assistant Controller, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. Wherever this Indenture requires that an Officers' Certificate be signed also by an engineer or an accountant or other expert, such engineer, accountant or other expert (except as otherwise expressly provided in this Indenture) may be in the employ of the Company, and shall be acceptable to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be an employee of or of counsel to the Company, which is delivered to the Trustee. Such counsel
shall be acceptable to the Trustee, whose acceptance shall not be unreasonably withheld.
"Original Issue Discount Security" means (i) any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof, and (ii) any other security which is issued with "original issue discount" within the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder.
"Outstanding", when used with respect to Securities or Securities of any series, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except:
(i) such Securities theretofore canceled by the Trustee or delivered to the Trustee for cancelation;
(ii) such Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent in trust for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and
(iii) such Securities in exchange for or in lieu of which
other Securities have been authenticated and delivered pursuant to this
Indenture, or which shall have been paid pursuant to the terms of
Section 3.06 (except with respect to any such Security as to which
proof satisfactory to the Trustee is presented that such Security is
held by a Person in whose hands such Security is a legal, valid and
binding obligation of the Company).
In determining whether the Holders of the requisite principal amount of such Securities Outstanding have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of any Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of the taking of such action upon a declaration of acceleration of the Maturity thereof, and (ii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded
and deemed not to be Outstanding. In determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer assigned to the Corporate Trust Department of the Trustee knows to be owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to act as owner with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. The Company initially authorizes the Trustee to act as Paying Agent for the Securities on its behalf. The Company may at any time and from time to time authorize one or more Persons to act as Paying Agent in addition to or in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Person" means any individual, corporation, , limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Place of Payment" means with respect to any series of Securities issued hereunder the city or political subdivision so designated with respect to the series of Securities in question in accordance with the provisions of Section 3.01.
"Predecessor Securities" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security.
"Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed, means the price specified in the Security at which it is to be redeemed pursuant to this Indenture.
"Redemption Rescission Event" shall mean the occurrence of (a)
any general suspension of trading in, or limitation on prices for, securities on
the principal national securities exchange on which shares of Common Stock or
Marketable Securities are registered and listed for trading (or, if shares of
Common Stock or Marketable Securities are not registered and listed for trading
on any such exchange, in the over-the-counter market) for more than
six-and-one-half (6-1/2) consecutive trading hours, (b) any decline in either
the Dow Jones Industrial Average or the S&P's Index of 400 Industrial Companies
(or any successor index published by Dow Jones & Company, Inc. or S&P) by either
(i) an amount in excess of 10%, measured from the close of business on any
Trading Day to the close of business on the next succeeding Trading Day during
the period commencing on the Trading Day preceding the day notice of any
redemption of Securities is given (or, if such notice is given after the close
of business on a Trading Day, commencing on such Trading Day) and ending at the
time and date fixed for redemption in such notice or (ii) an amount in excess of
15% (or if the time and date fixed for redemption is more than 15 days following
the date on which such notice of redemption is given, 20%), measured from the
close of business on the Trading Day preceding the day notice of such redemption
is given (or, if such notice is given after the close of business on a Trading
Day, from such Trading Day) to the close of business on any Trading Day at or
prior-to the time and date fixed for redemption, (c) a declaration of a banking
moratorium or any suspension of payments in respect of banks by Federal or state
authorities in the United States or (d) the commencement of a war or armed
hostilities or other national or international calamity directly or indirectly
involving the United States which in the reasonable judgment of the Company
could have a material adverse effect on the market for the Common Stock or
Marketable Securities.
"Regular Record Date" for the interest payable on any Security on any Interest Payment Date means the date specified in such Security as the Regular Record Date.
"Repayment Date", when used with respect to any Security to be repaid, means the date fixed for such repayment pursuant to such Security.
"Repayment Price", when used with respect to any Security to be repaid, means the price at which it is to be repaid pursuant to such Security.
"Required Currency", when used with respect to any Security, has the meaning set forth in Section 1.14.
"Responsible Officer", when used with respect to the Trustee, means any officer of the Trustee with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.
"S&P" means Standard & Poor's Ratings Service or any successor to the rating agency business thereof.
"Security" or "Securities" means any note or notes, bond or bonds, debenture or debentures, or any other evidences of indebtedness, as the case nay be, of any series authenticated and delivered from time to time under this Indenture.
"Security Register" shall have the meaning specified in
Section 3.05.
"Security Registrar" means the Person who keeps the Security Register specified in Section 3.05. The Company initially appoints the Trustee to act as Security Registrar for the Securities on its behalf. The Company may at any time and from time to time authorize any Person to act as Security Registrar in place of the Trustee with respect to any series of Securities issued under this Indenture.
"Securityholder" means a Person in whose name a security is registered in the Security Register.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity" when used with respect to any Security or any installment of principal thereof or interest thereon means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
"Subsidiary" means, with respect to any Person, any corporation more than 50% of the voting stock of which is owned directly or indirectly by such Person, and any partnership, association, joint venture or other entity in which such Person owns more than 50% of the equity interests or has the power to elect a majority of the board of directors or other governing body.
"TBS" means Turner Broadcasting System, Inc., a Georgia corporation and wholly owned subsidiary of the Company, until a successor shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "TBS" shall mean such successor.
"Trading Day" shall mean, with respect to the Common Stock or a Marketable Security, so long as the common stock or such Marketable Security, as the case may be, is listed or admitted to trading on the NYSE, a day on which the NYSE is open for the transaction of business, or, if the Common Stock or such Marketable Security, as the case may be, is not listed or admitted to trading on the NYSE, a day on which the principal national securities exchange on which the Common Stock or such Marketable Security, as the case may be, is listed is open for the transaction of business, or, if the Common Stock or such Marketable Security, as the case may be, is not so listed or admitted for trading on any national securities exchange, a day on which NASDAQ is open for the transaction of business.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that, in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" or "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the Trustee in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean and include each Person who is then a Trustee hereunder. If at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.
"TWC" means Time Warner Companies, Inc., a Delaware corporation and wholly owned subsidiary of the Company, until a successor shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "TWC" shall mean such successor.
"TWE" means Time Warner Entertainment Company, L.P., a Delaware limited partnership and subsidiary of TWC.
"Vice President" when used with respect to the Company or the Trustee means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president", including, without limitation, an assistant vice president.
"Voting Stock", as applied to the stock of any corporation, means stock of any class or classes (however designated) having by the terms thereof ordinary voting power to elect a majority of the members of the board of directors (or other governing body) of such corporation other than stock having such power only by reason of the happening of a contingency.
"Works" means motion pictures, video, television, interactive or multi-media programming, audio-visual works, sound recordings, books and other literary or written material, any software, copyright or other intellectual property related thereto, acquired directly or indirectly after the date of this Indenture by purchase, business combination, production, creation or otherwise, any component of the foregoing or rights with respect thereto, and all improvements thereon, products and proceeds thereof and revenues derived therefrom.
"Yield to Maturity" means the yield to maturity on a series of Securities, calculated by the Company at the time of issuance of such series of Securities, or, if applicable, at the most recent redetermination of interest on such series, in accordance with accepted financial practice.
SECTION 1.02. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any (including any covenants compliance with which constitutes a condition precedent), have been complied with, except that
in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than annual statements of compliance provided pursuant to Section 10.04) shall include:
(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons may certify or give an opinion as to the other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such Counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 1.04. Acts of Securityholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Securityholders or Securityholders of any series may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing or may be embodied in or evidenced by an electronic transmission which identifies the documents containing the proposal on which such consent is requested and certifies such Securityholders' consent thereto and agreement to be bound thereby; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee, and, where it is hereby expressly required, to the Company. If any Securities are denominated in coin or currency other than that of the United States, then for the purposes of determining whether the Holders of the requisite principal amount of Securities have taken any action as herein described, the principal amount of such Securities shall be deemed to be that amount of United States dollars that could be obtained for such principal amount on the basis of the spot rate of exchange into United States dollars for the currency in which such Securities are denominated (as evidenced to the Trustee by an Officers' Certificate) as of the date the taking of such action by the Holders of such requisite principal amount is evidenced to the Trustee as provided in the immediately preceding sentence. If any Securities are Original Issue Discount Securities, then for the purposes of determining whether the Holders of the requisite principal amount of Securities have taken any action as herein described, the principal amount of such Original Issue Discount Securities shall be deemed to be the amount of the principal thereof that would be due and payable upon a declaration of acceleration of the Maturity
thereof as of the date the taking of such action by the Holders of such requisite principal amount is evidenced to the Trustee as provided in the first sentence of this Section 1.04(a). Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness to such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by an officer of a corporation or a member of a partnership, on behalf of such corporation or partnership, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security Register.
(d) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, by Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. Such record date shall be the later of 10 days prior to the first solicitation of such action or the date of the most recent list of Holders furnished to the Trustee pursuant to Section 7.01. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Holders of record at the close of business on the record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Securities outstanding have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other
action, and for that purpose the Securities outstanding shall be computed as of the record date; provided that no such authorization, agreement or consent by the Holders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date, and that no such authorization, agreement or consent may be amended, withdrawn or revoked once given by a Holder, unless the Company shall provide for such amendment, withdrawal or revocation in conjunction with such solicitation of authorizations, agreements or consents or unless and to the extent required by applicable law.
(e) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Security shall bind the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Company in reliance thereon whether or not notation of such action is made upon such Security.
SECTION 1.05. Notices, etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Securityholders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with:
(1) the Trustee by any Securityholder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Department; or
(2) the Company by the Trustee or by any Securityholder shall
be sufficient for every purpose hereunder (except as provided in
Section 5.01(4) and (5) or, in the case of a request for repayment, as
specified in the Security carrying the right to repayment) if in
writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this instrument, Attention: Treasurer, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 1.06. Notices to Securityholders; Waiver. Where this Indenture or any Security provides for notice to Securityholders of any event, such notice shall be sufficiently given (unless otherwise herein or in such
Security expressly provided) if in writing and mailed, first-class postage prepaid, to each Securityholder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Securityholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Securityholder shall affect the sufficiency of such notice with respect to other Securityholders. Where this Indenture or any Security provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Securityholders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service as a result of a strike, work stoppage or otherwise, it shall be impractical to mail notice of any event to any Securityholder when such notice is required to be given pursuant to any provision of this Indenture, then any method of notification as shall be satisfactory to the Trustee and the Company shall be deemed to be a sufficient giving of such notice.
SECTION 1.07. Conflict with Trust Indenture Act. If and to the extent that any provision hereof limits, qualifies or conflicts with the duties imposed by, or with another provision (an "incorporated provision") included in this Indenture by operation of, any of Sections 310 to 318, inclusive, of the Trust Indenture Act, such imposed duties or incorporated provision shall control.
SECTION 1.08. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
SECTION 1.09. Successors and Assigns. All covenants and agreements in this Indenture by the Company and the Guarantors shall bind their respective successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture. Nothing in this Indenture or in any Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Authenticating Agent or Paying Agent, the Security Registrar and the Holders of Securities (or such of them as may be affected thereby), any benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 1.12. Governing Law. This Indenture shall be construed in accordance with and governed by the laws of the State of New York.
SECTION 1.13. Counterparts. This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
SECTION 1.14. Judgment Currency. The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in the City of New York the Required Currency with the Judgment Currency on the New York Banking Day preceding that on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing,
"New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in the City of New York or a day on which banking institutions in the City of New York are authorized or required by law or executive order to close.
ARTICLE II
Security Forms
SECTION 2.01. Forms Generally. The Securities shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon, as may be required to comply with the rules of any securities exchange, or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. Any portion of the text of any Security may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities, subject, with respect to the Securities of any series, to the rules of any securities exchange on which such Securities are listed.
SECTION 2.02. Forms of Securities. Each Security shall be in one of the forms approved from time to time by or pursuant to a Board Resolution, or established in one or more indentures supplemental hereto. Prior to the delivery of a Security to the Trustee for authentication in any form approved by or pursuant to a Board Resolution, the Company shall deliver to the Trustee the Board Resolution by or pursuant to which such form of Security has been approved, which Board Resolution shall have attached thereto a true and correct copy of the form of Security which has been approved thereby or, if a Board Resolution authorizes a specific officer or officers to approve a form of Security, a certificate of such officer or officers approving the form of Security attached thereto. Any form of Security approved by or pursuant to a Board Resolution must be acceptable as to form to the Trustee, such acceptance to be evidenced by the Trustee's authentication of Securities in that form or a
certificate signed by a Responsible Officer of the Trustee and delivered to the
Company.
SECTION 2.03. Form of Trustee's Certificate of
Authentication. The form of Trustee's Certificate of Authentication for any
Security issued pursuant to this Indenture shall be substantially as follows:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK, as
Trustee
SECTION 2.04. Securities Issuable in the Form of a Global
Security. (a) If the Company shall establish pursuant to Sections 2.02 and 3.01
that the Securities of a particular series are to be issued in whole or in part
in the form of one or more Global Securities, then the Company shall execute and
the Trustee or its agent shall, in accordance with Section 3.03 and the Company
Order delivered to the Trustee or its agent thereunder, authenticate and
deliver, such Global Security or Securities, which (i) shall represent, and
shall be denominated in an amount equal to the aggregate principal amount of,
the Outstanding Securities of such series to be represented by such Global
Security or Securities, or such portion thereof as the Company shall specify in
a Company Order, (ii) shall be registered in the name of the Depository for such
Global Security or Securities or its nominee, (iii) shall be delivered by the
Trustee or its agent to the Depository or pursuant to the Depository's
instruction and (iv) shall bear a legend substantially to the following effect:
"Unless this certificate is presented by an authorized representative of the
Depository to Issuer or its agent for registration of transfer, exchange, or
payment, and any certificate issued is registered in the name of the nominee of
the Depository or in such other name as is requested by an authorized
representative of the Depository (and any payment is made to the nominee of the
Depository or to such other entity as is requested by an authorized
representative of the Depository), ANY TRANSFER, PLEDGE, OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, the nominee of the Depository, has an interest herein."
(b) Notwithstanding any other provision of this Section 2.04 or of Section 3.05, and subject to the provisions of paragraph (c) below, unless the terms of a Global Security expressly permit such Global Security to be exchanged in whole or in part for individual Securities, a Global Security may be transferred, in whole but not in part and in the manner provided in Section 3.05, only to a nominee of the Depository for such Global Security, or to the Depository, or a successor Depository for such Global Security selected or approved by the Company, or to a nominee of such successor Depository.
(c) (i) If at any time the Depository for a Global Security notifies the Company that it is unwilling or unable to continue as Depository for such Global Security or if at any time the Depository for the Securities for such series shall no longer be eligible or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, the Company shall appoint a successor Depository with respect to such Global Security. If a successor Depository for such Global Security is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such ineligibility, the Company will execute, and the Trustee or its agent, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange for such Global Security, will authenticate and deliver, individual Securities of such series of like tenor and terms in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security.
(ii) The Company may at any time and in its sole discretion determine that the Securities of any series or portion thereof issued or issuable in the form of one or more Global Securities shall no longer be represented by such Global Security or Securities. In such event the Company will execute, and the Trustee, upon receipt of a Company Request for the authentication and delivery of individual Securities of such series in exchange in whole or in part for such Global Security, will authenticate and deliver individual Securities of such series of like tenor and terms in definitive form in an aggregate principal amount equal to the principal amount of such Global Security or Securities representing such series or portion thereof in exchange for such Global Security or Securities.
(iii) If specified by the Company pursuant to Sections 2.02 and 3.02 with respect to Securities issued or issuable in the form of a Global Security, the Depository for such Global Security may surrender such Global Security in exchange in whole or in part for individual Securities of such series of like tenor and terms in definitive form on such terms as are acceptable to the Company and such Depository. Thereupon the Company shall execute, and the Trustee or its agent shall authenticate and deliver, without service charge, (1) to each Person specified by such Depository a new Security or Securities of the same series of like tenor and terms and of any authorized denomination as requested by such Person in aggregate principal amount equal to and in exchange for such Person's beneficial interest as specified by such Depository in the Global Security; and (2) to such Depository a new Global Security of like tenor and terms and in an authorized denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Securities delivered to Holders thereof.
(iv) In any exchange provided for in any of the preceding
three paragraphs, the Company will execute and the Trustee or its agent will
authenticate and deliver individual Securities in definitive registered form in
authorized denominations. Upon the exchange of the entire principal amount of a
Global Security for individual Securities, such Global Security shall be
canceled by the Trustee or its agent. Except as provided in the preceding
paragraph, Securities issued in exchange for a Global Security pursuant to this
Section shall be registered in such names and in such authorized denominations
as the Depository for such Global Security, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee or the
Security Registrar. The Trustee or the Security Registrar shall deliver at its
Corporate Trust Office such Securities to the Persons in whose names such
Securities are so registered.
ARTICLE III
The Securities
SECTION 3.01. General Title; General Limitations; Issuable in Series; Terms of Particular Series. The aggregate principal amount of Securities which may be authenticated and delivered and Outstanding under this Indenture is not limited.
The Securities may be issued in one or more series as from time to time may be authorized by the Board of Directors. There shall be established in or pursuant to a Board Resolution or in a supplemental indenture, subject to Section 3.11, prior to the issuance of Securities of any such series:
(1) the title of the Securities of such series (which shall distinguish the Securities of such series from Securities of any other series);
(2) the Person to whom any interest on a Security of such series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest;
(3) the date or dates on which the principal of the Securities of such series is payable;
(4) the rate or rates at which the Securities of such series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which any such interest shall be payable and the Regular Record Date for any interest payable on any Interest Payment Date;
(5) the place or places where the principal of and any premium and interest on Securities of such series shall be payable;
(6) the period or periods within which, the Redemption Price or Prices or the Repayment Price or Prices, as the case may be, at which and the terms and conditions upon which Securities of such series may be redeemed or repaid (including the applicability of Section 11.09), as the case may be, in whole or in part, at the option of the Company or the Holder;
(7) the obligation, if any, of the Company to purchase Securities of such series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of such series shall be purchased, in whole or in part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of such series shall be issuable;
(9) provisions, if any, with regard to the conversion or exchange of the Securities of such series, at the option of the Holders thereof or the Company, as the case may be, for or into new Securities of a different series, Common Stock or other securities and, if the Securities of such series are convertible into common stock or other Marketable Securities, the Conversion Price therefor;
(10) if other than U.S. dollars, the currency or currencies or units based on or related to currencies in which the Securities of such series shall be denominated and in which payments of principal of, and any premium and interest on, such Securities shall or may be payable;
(11) if the principal of (and premium, if any) or interest, if any, on the Securities of such series are to be payable, at the election of the Company or a Holder thereof, in a coin or currency (including a composite currency) other than that in which the Securities are stated to be payable, the period or periods within which, and the terms and conditions upon which, such election may be made;
(12) if the amount of payments of principal of (and premium, if any) or interest, if any, on the Securities of such series may be determined with reference to an index based on a coin or currency (including a composite currency) other than that in which the Securities are stated to be payable, the manner in which such amounts shall be determined;
(13) any limit upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of,
other Securities of such series pursuant to Section 3.04, 3.05, 3.06,
9.06, 11.07 and 12.02 and except for any Securities which, pursuant to
Section 3.03, are deemed never to have been authenticated and delivered
hereunder);
(14) provisions, if any, with regard to the exchange of Securities of such series, at the option of
the Holders thereof, for other Securities of the same series of the same aggregate principal amount or of a different authorized series or different authorized denomination or denominations, or both;
(15) provisions, if any, with regard to the appointment by the Trustee of an Authenticating Agent in one or more places other than the location of the office of the Trustee with power to act on behalf of the Trustee and subject to its direction in the authentication and delivery of the Securities of any one or more series in connection with such transactions as shall be specified in the provisions of this Indenture or in or pursuant to such Board Resolution or supplemental indenture;
(16) the portion of the principal amount of Securities of the series, if other than the principal amount thereof, which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02 or provable in bankruptcy pursuant to Section 5.04;
(17) any Event of Default with respect to the Securities of such series, if not set forth herein, and any additions, deletions or other changes to the Events of Default set forth herein that shall be applicable to the Securities of such series;
(18) any covenant solely for the benefit of the Securities of such series and any additions, deletions or other changes to the provisions of Article X or Section 1.01 or any definitions relating to such Article that would otherwise be applicable to the Securities of such series;
(19) if Section 4.03 of this Indenture shall not be applicable to the Securities of such series and if Section 4.03 shall be applicable to any covenant or Event of Default established in or pursuant to a Board Resolution or in a supplemental indenture as described above that has not already been established herein;
(20) if the Securities of such series shall be issued in whole or in part in the form of a Global Security or Securities, the terms and conditions, if any, upon which such Global Security or Securities may be exchanged in whole or in part for other individual Securities; and the Depository for such Global Security or Securities; and
(21) any other terms of such series.
all upon such terms as may be determined in or pursuant to such Board Resolution or supplemental indenture with respect to such series.
The form of the Securities of each series shall be established pursuant to the provisions of this Indenture in or pursuant to the Board Resolution or in the supplemental indenture creating such series. The Securities of each series shall be distinguished from the Securities of each other series in such manner, reasonably satisfactory to the Trustee, as the Board of Directors may determine.
Unless otherwise provided with respect to Securities of a particular series, the Securities of any series may only be issuable in registered form, without coupons.
Any terms or provisions in respect of the Securities of any series issued under this Indenture may be determined pursuant to this Section by providing for the method by which such terms or provisions shall be determined.
SECTION 3.02. Denominations. The Securities of each series shall be issuable in such denominations and currency as shall be provided in the provisions of this Indenture or in or pursuant to the Board Resolution or the supplemental indenture creating such series. In the absence of any such provisions with respect to the Securities of any series, the Securities of that series shall be issuable only in fully registered form in denominations of $1,000 and any integral multiple thereof.
SECTION 3.03. Execution, Authentication and Delivery and Dating. The Securities shall be executed on behalf of the Company by its Chairman of the Board, its President, one of its Vice Presidents or its Treasurer under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and
delivery of such Securities or did not hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication; and the Trustee shall, upon Company Order, authenticate and deliver such Securities as in this Indenture provided and not otherwise.
Prior to any such authentication and delivery, the Trustee shall be entitled to receive, in addition to any Officers' Certificate and Opinion of Counsel required to be furnished to the Trustee pursuant to Section 1.02, and the Board Resolution and any certificate relating to the issuance of the series of Securities required to be furnished pursuant to Section 2.02, an Opinion of Counsel stating that:
(1) all instruments furnished to the Trustee conform to the requirements of the Indenture and constitute sufficient authority hereunder for the Trustee to authenticate and deliver such Securities;
(2) the form and terms of such Securities have been established in conformity with the provisions of this Indenture;
(3) all laws and requirements with respect to the execution and delivery by the Company of such Securities have been complied with, the Company has the corporate power to issue such Securities and such Securities have been duly authorized and delivered by the Company and, assuming due authentication and delivery by the Trustee, constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity) and entitled to the benefits of this Indenture, equally and ratably with all other Securities, if any, of such series Outstanding;
(4) the Indenture is qualified under the Trust Indenture Act;
and
(5) such other matters as the Trustee may reasonably request;
and, if the authentication and delivery relates to a new series of Securities created by an indenture supplemental hereto, also stating that all laws and requirements with respect to the form and execution by the Company of the supplemental indenture with respect to that series of Securities have been complied with, the Company has corporate power to execute and deliver any such supplemental indenture and has taken all necessary corporate action for those purposes and any such supplemental indenture has been executed and delivered and constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms (subject, as to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency, moratorium or other laws and legal principles affecting creditors' rights generally from time to time in effect and to general equitable principles, whether applied in an action at law or in equity).
The Trustee shall not be required to authenticate such Securities if the issue thereof will adversely affect the Trustee's own rights, duties or immunities under the Securities and this Indenture.
Unless otherwise provided in the form of Security for any series, all Securities shall be dated the date of their authentication.
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancelation as provided in Section 3.09, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
SECTION 3.04. Temporary Securities. Pending the preparation of definitive Securities of any series, the Company may execute, and, upon receipt of the documents required by Section 3.03, together with a Company Order, the
Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment, without charge to the Holder; and upon surrender for cancelation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of such series of authorized denominations and of like tenor and terms. Until so exchanged the temporary Securities of such series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
SECTION 3.05. Registration, Transfer and Exchange. The Company
shall keep or cause to be kept a register or registers (herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities, or of Securities of a particular series, and of transfers of
Securities or of Securities of such series. Any such register shall be in
written form or in any other form capable of being converted into written form
within a reasonable time. At all reasonable times the information contained in
such register or registers shall be available for inspection by the Trustee at
the office or agency to be maintained by the Company as provided in Section
10.02. There shall be only one Security Register per series of Securities.
Subject to Section 2.04, upon surrender for registration of transfer of any Security of any series at the office or agency of the Company maintained for such purpose in a Place of Payment, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of such series of any authorized denominations,
of a like aggregate principal amount and Stated Maturity and of like tenor and terms.
Subject to Section 2.04, at the option of the Holder, Securities of any series may be exchanged for other Securities of such series of any authorized denominations, of a like aggregate principal amount and Stated Maturity and of like tenor and terms, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Securityholder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed, by the Holder thereof or his attorney duly authorized in writing.
Unless otherwise provided in the Security to be registered for transfer or exchanged, no service charge shall be made on any Securityholder for any registration of transfer or exchange of Securities, but the Company may (unless otherwise provided in such Security) require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of or exchange any Security of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of such series selected for redemption under Section 11.03 and ending at the close of business on the date of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part.
None of the Company, the Trustee, any agent of the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities. If (i) any mutilated Security is surrendered to the Trustee, or the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Security, and (ii) there is delivered to the Company and the Trustee such Security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security, a new Security of like tenor, series, Stated Maturity and principal amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of the same series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. Payment of Interest; Interest Rights Preserved. Unless otherwise provided with respect to such Security pursuant to Section 3.01, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Regular Record Date by virtue of his having
been such Holder; and, except as hereinafter provided, such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in Clause
(1) or Clause (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names any such Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each such Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 nor less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to the Holder of each such Security at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons in whose names such Securities (or their respective Predecessor Securities) are registered on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
If any installment of interest the Stated Maturity of which is on or prior to the Redemption Date for any Security called for redemption pursuant to Article XI is not paid or duly provided for on or prior to the Redemption Date in accordance with the foregoing provisions of this Section, such interest shall be payable as part of the Redemption Price of such Securities.
Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
SECTION 3.08. Persons Deemed Owners. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any), and (subject to Section 3.07) interest on, such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
SECTION 3.09. Cancelation. All Securities surrendered for payment, conversion, redemption, registration of transfer, exchange or credit against a sinking fund shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and, if not already canceled, shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancelation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Security shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. The Trustee shall dispose of all canceled Securities in accordance with its standard procedures and deliver a certificate of such disposition to the Company.
SECTION 3.10. Computation of Interest. Unless otherwise provided as contemplated in Section 3.01, interest on the Securities shall be calculated on the basis of a 360-day year of twelve 30-day months.
SECTION 3.11. Delayed Issuance of Securities. Notwithstanding any contrary provision herein, if all Securities of a series are not to be originally issued at one time, it shall not be necessary for the Company to deliver to the Trustee an Officers' Certificate, Board Resolution, supplemental indenture, opinion of counsel or Company Order otherwise required pursuant to Sections 1.02, 2.02, 3.01 and 3.03 at or prior to the time of authentication of each Security of such series if such documents are delivered to the Trustee or its agent at or prior to the authentication upon original issuance of the first Security of such series to be issued; provided that any subsequent request by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that as of the date of such request, the statements made in the Officers' Certificate or other certificates delivered pursuant to Sections 1.02 and 2.02 shall be true and correct as if made on such date.
A Company Order, Officers' Certificate or Board Resolution or supplemental indenture delivered by the Company to the Trustee in the circumstances set forth in the preceding paragraph may provide that Securities which are the subject thereof will be authenticated and delivered by the Trustee or its agent on original issue from time to time in the aggregate principal amount, if any, established for
such series pursuant to such procedures acceptable to the Trustee as may be specified from time to time by Company Order upon the telephonic, electronic or written order of Persons designated in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution (any such telephonic or electronic instructions to be promptly confirmed in writing by such Persons) and that such Persons are authorized to determine, consistent with such Company Order, Officers' Certificate, supplemental indenture or Board Resolution, such terms and conditions of said Securities as are specified in such Company Order, Officers' Certificate, supplemental indenture or Board Resolution.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall cease to be of further effect with respect to any series of Securities (except as to any surviving rights of conversion or transfer or exchange of Securities of such series expressly provided for herein or in the form of Security for such series), and the Trustee, on receipt of a Company Request and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when:
(1) either
(A) all Securities of that series theretofore
authenticated and delivered (other than (i) Securities of such
series which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 3.06, and
(ii) Securities of such series for whose payment money in the
Required Currency has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 10.03) have been delivered to the Trustee
canceled or for cancelation; or
(B) all such Securities of that series not theretofore delivered to the Trustee canceled or for cancelation:
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one year, or
(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount in the Required Currency sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee canceled or for cancelation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable), or to the Stated Maturity or Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Securities of such series; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee with respect to that series under Section 6.07 shall survive and the obligations of the Company and the Trustee under Sections 3.05, 3.06, 4.02, 10.02 and 10.03 shall survive.
SECTION 4.02. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 or Section 4.03 shall be held in trust and applied by it, in accordance with the provisions of the series of Securities in respect of which it was deposited and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been
deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or securities deposited with and held by it as provided in Section 4.03 and this Section 4.02 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent satisfaction and discharge, Discharge or covenant defeasance, provided that the Trustee shall not be required to liquidate any securities in order to comply with the provisions of this paragraph.
SECTION 4.03. Defeasance Upon Deposit of Funds or Government
Obligations. Unless pursuant to Section 3.01 provision is made that this Section
shall not be applicable to the Securities of any series, at the Company's
option, either (a) the Company shall be deemed to have been Discharged (as
defined below) from its obligations with respect to any series of Securities
after the applicable conditions set forth below have been satisfied or (b) the
Company shall cease to be under any obligation to comply with any term,
provision or condition set forth in Sections 10.05, and 10.06 and Article VIII
(and any other Sections or covenants applicable to such Securities that are
determined pursuant to Section 3.01 to be subject to this provision), and clause
(5) of Section 5.01 of this Indenture (and any other Events of Default
applicable to such Securities that are determined pursuant to Section 3.01 to be
subject to this provision) shall be deemed not to be an Event of Default, with
respect to any series of Securities at any time after the applicable conditions
set forth below have been satisfied:
(1) the Company shall have deposited or caused to be deposited
irrevocably with the Trustee as trust funds in trust, specifically
pledged as security for, and dedicated solely to, the benefit of the
Holders of the Securities of such series (i) money in an amount, or
(ii) the equivalent in securities of the government which issued the
currency in which the Securities are denominated or government agencies
backed by the full faith and credit of such government which through
the payment of interest and principal in respect thereof in accordance
with their terms will provide, not later
than one day before the due date of any payment, money in an amount, or
(iii) a combination of (i) and (ii), sufficient, in the opinion (with
respect to (ii) and (iii)) of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge each installment
of principal (including mandatory sinking fund payments) and any
premium of, interest on and any repurchase or redemption obligations
with respect to the outstanding Securities of such series on the dates
such installments of interest or principal or repurchase or redemption
obligations are due (before such a deposit, if the Securities of such
series are then redeemable or may be redeemed in the future pursuant to
the terms thereof, in either case at the option of the Company, the
Company may give to the Trustee, in accordance with Section 11.02, a
notice of its election to redeem all of the Securities of such series
at a future date in accordance with Article XI);
(2) no Event of Default or event (including such deposit) which with notice or lapse of time would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit;
(3) the Company shall have delivered to the Trustee (A) an
Opinion of Counsel to the effect that Holders of the Securities of such
series will not recognize income, gain or loss for Federal income tax
purposes as a result of the Company's exercise of its option under this
Section 4.03 and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been
the case if such option had not been exercised, and, in the case of
Securities being Discharged, accompanied by a ruling to that effect
from the Internal Revenue Service, unless, as set forth in such Opinion
of Counsel, there has been a change in the applicable federal income
tax law since the date of this Indenture such that a ruling from the
Internal Revenue Service is no longer required and (B) an Opinion of
Counsel, subject to such qualifications, exceptions, assumptions and
limitations as are reasonably deemed necessary by such counsel and are
reasonably satisfactory to counsel for the Trustee, to the effect that
the trust resulting from the deposit referred to in paragraph (1) above
does not violate the Investment Company Act of 1940;
(4) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit referred to in paragraph
(1) above was not made by the Company with the intent of preferring the
Holders over other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company
or others; and
(5) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with.
If the Company, at its option, with respect to a series of
Securities, satisfies the applicable conditions pursuant to either clause (a) or
(b) of the first sentence of this Section, then (x), in the event the Company
satisfies the conditions to clause (a) and elects clause (a) to be applicable,
each of TBS and TWC shall be deemed to have paid and discharged the entire
indebtedness represented by, and obligations under, its respective guarantee of
the Securities of such series and to have satisfied all the obligations under
this Indenture relating to the Securities of such series and (y) in either case,
each of TBS and TWC shall cease to be under any obligation to comply with any
term, provision or condition set forth in Article Eight (and any other covenants
applicable to such Securities that are determined pursuant to Section 3.01 to be
subject to this provision), and clause (5) of Section 5.01 (and any other Events
of Default applicable to such series of Securities that are determined pursuant
to Section 3.01 to be subject to this provision) shall be deemed not to be an
Event of Default with respect to such series of Securities at any time
thereafter.
"Discharged" means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities of such series and to have satisfied all the obligations under this Indenture relating to the Securities of such series (and the Trustee, on receipt of a Company Request and at the expense of the Company, shall execute proper instruments acknowledging the same), except (A) the rights of Holders of Securities to receive, from the trust fund described in clause (1) above, payment of the principal and any premium of and any interest on such Securities when such payments
are due; (B) the Company's obligations with respect to such Securities under Sections 3.05, 3.06, 4.02, 6.07, 10.02 and 10.03; (C) the Company's right of redemption, if any, with respect to any Securities of such series pursuant to Article XI, in which case the Company may redeem the Securities of such series in accordance with Article XI by complying with such Article and depositing with the Trustee, in accordance with Section 11.05, an amount of money sufficient, together with all amounts held in trust pursuant to Section 4.02 with respect to Securities of such series, to pay the Redemption Price of all the Securities of such series to be redeemed; and (D) the rights, powers, trusts, duties and immunities of the Trustee hereunder.
SECTION 4.04. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or securities in accordance with Section 4.02 of this Indenture, by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and, if applicable, the Guarantors' obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 4.01 or 4.03 of this Indenture, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money or securities in accordance with Section 4.02 of this Indenture; provided that, if the Company has made any payment of principal of or interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or securities held by the Trustee or Paying Agent.
ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default", wherever used herein, means with respect to any series of Securities any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is either inapplicable to a particular series or it is specifically deleted or modified in or pursuant to the supplemental indenture or Board Resolution creating such
series of Securities or in the form of Security for such series:
(1) default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of (or premium, if any, on) any Security of that series at its Maturity; or
(3) default in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of such series; or
(4) default under any bond, debenture, note, guarantee or
other evidence of indebtedness for money borrowed by the Company, TWC
or TBS (including a default with respect to Securities of any series
other than such series and any indebtedness for borrowed money
guaranteed by the Company) or under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the
Company, TWC or TBS (including this Indenture), whether such
indebtedness now exists or shall hereafter be created, which default
(i) shall constitute a failure to pay the principal of such
indebtedness having an outstanding principal amount in excess of $50
million in the aggregate when due and payable at the final (but not any
interim) maturity thereof after the expiration of any applicable grace
period with respect thereto and the holders of such indebtedness shall
not have waived such default or (ii) shall have resulted in such
indebtedness having an outstanding principal amount in excess of $50
million in the aggregate becoming or being declared due and payable
prior to the date on which it would otherwise have become due and
payable, in either case without such indebtedness having been
discharged, or such acceleration having been rescinded or annulled,
within a period of 60 days after there shall have been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities of such series, a written notice
specifying such default and requiring the Company, TWC or TBS to cause
such indebtedness to be discharged or cause such acceleration to be
rescinded or annulled and stating that such notice is a "Notice of Default" hereunder; or
(5) default in the performance, or breach, of any covenant or warranty of the Company, TWC or TBS in this Indenture in respect of the Securities of such series (other than a covenant or warranty in respect of the Securities of such series a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), all of such covenants and warranties in the Indenture which are not expressly stated to be for the benefit of a particular series of Securities being deemed in respect of the Securities of all series for this purpose, and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company (or, if applicable, TWC or TBS) by the Trustee or to the Company (or, if applicable, TWC or TBS) and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or
(6) the entry of an order for relief against the Company or any Material U.S. Subsidiary thereof under Title 11, United States Code (the "Federal Bankruptcy Act") by a court having jurisdiction in the premises or a decree or order by a court having jurisdiction in the premises adjudging the Company or any Material U.S. Subsidiary thereof a bankrupt or insolvent under any other applicable Federal or State law, or the entry of a decree or order approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Material U.S. Subsidiary thereof under the Federal Bankruptcy Act or any other applicable Federal or State law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Material U.S. Subsidiary thereof or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or
(7) the consent by the Company or any Material U.S. Subsidiary thereof to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under the Federal Bankruptcy Act or any other applicable Federal or State law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Material U.S. Subsidiary thereof or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Material U.S. Subsidiary thereof in furtherance of any such action;
(8) any Guarantee shall for any reason cease to be, or be asserted in writing by any Guarantor or the Company not to be, in full force and effect, enforceable in accordance with its terms, except to the extent contemplated by this Indenture and any such Guarantee; or
(9) any other Event of Default provided in the supplemental indenture or Board Resolution under which such series of Securities is issued or in the form of Security for such series.
SECTION 5.02. Acceleration of Maturity; Rescission and
Annulment. If an Event of Default described in paragraph (1), (2), (3), (4),
(5), (8) or (9) (if the Event of Default under paragraph (5) or (9) is with
respect to less than all series of Securities then Outstanding) of Section 5.01
occurs and is continuing with respect to any series, then and in each and every
such case, unless the principal of all the Securities of such series shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of the Securities of such series then
Outstanding hereunder (each such series acting as a separate class), by notice
in writing to the Company (and to the Trustee if given by Holders), may declare
the principal amount (or, if the Securities of such series are original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of that series) of all the Securities of such series and all accrued
interest thereon to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due and payable,
anything in this Indenture or in the Securities of such series contained to the
contrary notwithstanding. If an Event of Default described in paragraph (5) or
(9) (if the Event of Default under paragraph (5) or (9) is with respect to all
series of Securities then Outstanding), of
Section 5.01 occurs and is continuing, then and in each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the Holders of not less than 25% in aggregate principal amount of all the Securities then Outstanding hereunder (treated as one class), by notice in writing to the Company (and to the Trustee if given by Holders), may declare the principal amount (or, if any Securities are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms thereof) of all the Securities then Outstanding and all accrued interest thereon to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Indenture or in the Securities contained to the contrary notwithstanding. If an Event of Default of the type set forth in subparagraph 6 or subparagraph 7 of Section 5.01 occurs and is continuing, the principal of and any interest on the Securities then outstanding shall become immediately due and payable.
At any time after such a declaration of acceleration has been made with respect to the Securities of any or all series, as the case may be, and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the outstanding Securities of such series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay:
(A) all overdue installments of interest on the Securities of such series;
(B) the principal of (and premium, if any, on) any Securities of such series which have become due otherwise than by such declaration of acceleration, and interest thereon at the rate or rates prescribed therefor by the terms of the Securities of such series, to the extent that payment of such interest is lawful;
(C) interest upon overdue installments of interest at the rate or rates prescribed therefor by the terms of the Securities of such series to the extent that payment of such interest is lawful; and
(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07; and
(2) all Events of Default with respect to such series of Securities, other than the nonpayment of the principal of the Securities of such series which have become due solely by such acceleration, have been cured or waived as provided in Section 5.13.
No such rescission shall affect any subsequent default or impair any right consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if:
(1) default is made in the payment of any installment of interest on any Security of any series when such interest becomes due and payable; or
(2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof; or
(3) default is made in the payment of any sinking or purchase fund or analogous obligation when the same becomes due by the terms of the Securities of any series;
and any such default continues for any period of grace provided with respect to the Securities of such series, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holder of any such Security (or the Holders of any such series in the case of Clause (3) above), the whole amount then due and payable on any such Security (or on the Securities of any such series in the case of Clause (3) above) for principal (and premium, if any) and interest, with interest, to the extent that payment of such interest shall be legally enforceable, upon the overdue principal (and premium, if any) and upon overdue installments of interest, at such rate or rates as may be prescribed therefor by the terms of any such Security (or of Securities of any such series in the case of Clause (3) above); and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and
counsel and all other amounts due the Trustee under Section 6.07.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities of such series and collect the money adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to any series of Securities occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 5.04. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceedings or otherwise:
(i) to file and prove a claim for the whole amount of principal (or portion thereof determined pursuant to Section 3.01(16) to be provable in bankruptcy) (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary and advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.07) and of the Securityholders allowed in such judicial proceeding;
and
(ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;
and any receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Securityholder to make such payment to the Trustee and in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder, any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any, Securityholder in any such proceeding.
SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities of any series may be prosecuted and enforced by the Trustee without the possession of any of the Securities of such series or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel and any other amounts due the Trustee under Section 6.07, be for the ratable benefit of the Holders of the Securities of the series in respect of which such judgment has been recovered.
SECTION 5.06. Application of Money Collected. Any money collected by the Trustee with respect to a series of Securities pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities of such series and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 6.07.
SECOND: To the payment of the amounts then due and unpaid upon the Securities of that series for principal (and premium, if any) and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively.
SECTION 5.07. Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of, a continuing Event of Default with respect to Securities of such series;
(2) the Holders of not less than 25% in principal amount of the outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series;
it being understood and intended that no one or more Holders of Securities of such series shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities of such series, or to obtain or to seek to obtain priority or preference over any other such Holders or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and proportionate benefit of all the Holders of all Securities of such series.
SECTION 5.08. Unconditional Right of Securityholders To Receive Principal, Premium and Interest. Notwithstanding any other provisions in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on the Redemption Date or Repayment Date, as the case may be) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any Securityholder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, then and in every such case the Company, the Trustee and the Securityholders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and the Securityholders shall continue as though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Securityholders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Securityholders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Securityholders, as the case may be.
SECTION 5.12. Control by Securityholders. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series, provided that:
(1) the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or would conflict with this Indenture or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed would involve it in personal liability or be unjustly prejudicial to the Holders not taking part in such direction, and
(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default not theretofore cured:
(1) in the payment of the principal of (or premium, if any) or interest on any Security of such series, or in the payment of any sinking or purchase fund or analogous obligation with respect to the Securities of such series, or
(2) in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series.
Upon any such waiver, 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 Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than lot in principal amount of the Outstanding Securities of any series to which the suit relates, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on an Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date, as the case may be).
SECTION 5.15. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE VI
The Trustee
SECTION 6.01. Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default with respect to any series of Securities:
(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture with respect to the Securities of such series, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may, with respect to Securities of such series, conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.
(b) In case an Event of Default with respect to any series of Securities has occurred and is continuing, the Trustee shall exercise with respect to the Securities of such series such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and
(4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall
have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.02. Notice of Defaults. Within 90 days after the
occurrence of any default hereunder with respect to Securities of any series,
the Trustee shall transmit by mail to all Securityholders of such series, as
their names and addresses appear in the Security Register, notice of such
default hereunder known to the Trustee, unless such default shall have been
cured or waived; provided, however, that, except in the case of a default in the
payment of the principal of (or premium, if any) or interest on any Security of
such series or in the payment of any sinking or purchase fund installment or
analogous obligation with respect to Securities of such series, the 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 and/or
Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interests of the Securityholders of such series; and
provided, further, that in the case of any default of the character specified in
Section 5.01(5) with respect to Securities of such series no such notice to
Securityholders of such series shall be given until at least 90 days after the
occurrence thereof. For the purpose of this Section, the term "default", with
respect to Securities of any series, means any event which is, or after notice
or lapse of time or both would become, an Event of Default with respect to
Securities of such series.
SECTION 6.03. Certain Rights of Trustee. Except as otherwise provided in Section 6.01:
(a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of
the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the written advice of such counsel or and Opinion of Counsel 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;
(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Securityholders pursuant to this Indenture, unless such Securityholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
(g) the 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 Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
(h) the Trustee shall not be charged with knowledge of any default (as defined in Section 6.02) or Event of Default with respect to the Securities of any series for which it is acting as Trustee unless
either (1) a Responsible Officer of the Trustee assigned to the Corporate Trust Department of the Trustee (or any successor division or department of the Trustee) shall have actual knowledge of such default or Event of Default or (2) written notice of such default or Event of Default shall have been given to the Trustee by the Company or any other obligor on such Securities or by any Holder of such Securities; and
(i) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
SECTION 6.05. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, the Security Registrar, any Conversion Agent or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company or any Guarantor with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar, Conversion Agent or such other agent.
SECTION 6.06. Money Held in Trust. Subject to the provisions of Section 10.03 hereof, all moneys in any currency or currency received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company.
SECTION 6.07. Compensation and Reimbursement. The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.
As security for the performance of the obligations of the Company under this Section the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 5.01(6) or (7), the expenses and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law.
The Company's obligations under this Section 6.07 and any lien arising hereunder shall survive the resignation or removal of any Trustee, the discharge of the Company's obligations pursuant to Article IV of this Indenture and/or the termination of this Indenture.
SECTION 6.08. Disqualification; Conflicting Interests. The Trustee for the Securities of any series issued hereunder shall be subject to the provisions of
Section 310(b) of the Trust Indenture Act during the period of time provided for therein. In determining whether the Trustee has a conflicting interest as defined in Section 310(b) of the Trust Indenture Act with respect to the Securities of any series, there shall be excluded this Indenture with respect to Securities of any particular series of Securities other than that series. Nothing herein shall prevent the Trustee from filing with the Commission the application referred to in the second to last paragraph of Section 310(b) of the Trust Indenture Act.
SECTION 6.09. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder with respect to each series of Securities, which shall be either:
(i) a corporation organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers and subject to supervision or examination by Federal or State authority, or
(ii) a corporation or other Person organized and doing business under the laws of a foreign government that is permitted to act as Trustee pursuant to a rule, regulation or order of the Commission, authorized under such laws to exercise corporate trust powers, and subject to supervision or examination by authority of such foreign government or a political subdivision thereof substantially equivalent to supervision or examination applicable to United States institutional trustees;
in either case having a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. Neither the Company nor any Person directly or indirectly controlling, controlled by, or under common control with the Company shall serve as trustee for the Securities of any series issued hereunder. If at any time the Trustee with respect to any series of Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in Section 6.10.
SECTION 6.10. Resignation and Removal. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign with respect to any series of Securities at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed with respect to any series of Securities at any time by Act of the Holders of a majority in principal amount of the outstanding Securities of that series, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act pursuant to Section 6.08 with respect to any series of Securities after written request therefor by the Company or by any Securityholder who has been a bona fide Holder of a Security of that series for at least six months, unless the Trustee's duty to resign is stayed in accordance with the provisions of Section 310(b) of the Trust Indenture Act, or
(2) the Trustee shall cease to be eligible under Section 6.09 with respect to any series of Securities and shall fail to resign after written request therefor by the Company or by any such Securityholder, or
(3) the Trustee shall become incapable of acting with respect to any series of Securities, or
(4) the Trustee shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, with respect to the
series, or in the case of Clause (4), with respect to all series, or (ii) subject to Section 5.14, any Securityholder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee with respect to the series, or, in the case of Clause (4), with respect to all series.
(e) If the Trustee shall resign, be removed or become incapable of acting with respect to any series of Securities, or if a vacancy shall occur in the office of the Trustee with respect to any series of Securities for any cause, the Company, by Board Resolution, shall promptly appoint a successor Trustee for that series of Securities. If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to such series of Securities shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee with respect to such series and supersede the successor Trustee appointed by the Company with respect to such series. If no successor Trustee with respect to such series shall have been so appointed by the Company or the Securityholders of such series and accepted appointment in the manner hereinafter provided, subject to Section 5.14, any Securityholder who has been a bona fide Holder of a Security of that series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series.
(f) The Company shall give notice of each resignation and each removal of the Trustee with respect to any series and each appointment of a successor Trustee with respect to any series by mailing written notice of such event by first-class mail, postage prepaid, to the Holders of Securities of that series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee and the address of its principal Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to
the predecessor Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the predecessor Trustee shall become effective with respect to any series as to which it is resigning or being removed as Trustee, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the predecessor Trustee with respect to any such series; but, on request of the Company or the successor Trustee, such predecessor Trustee shall, upon payment of its reasonable charges, if any, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the predecessor Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such predecessor trustee hereunder with respect to all or any such series, subject nevertheless to its lien, if any, provided for in Section 6.07. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts.
In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the predecessor Trustee and each successor Trustee with respect to the Securities of any applicable series shall execute and deliver an indenture supplemental hereto which shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the predecessor Trustee with respect to the Securities of any series as to which the predecessor Trustee is not being succeeded shall continue to be vested in the predecessor Trustee, and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be Trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee.
No successor Trustee with respect to any series of Securities shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible with respect to that series under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
SECTION 6.13. Preferential Collection of Claims Against Company. (a) Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within three months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities (as defined in Subsection (c) of this Section):
(1) an amount equal to any and all reduction in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such three-month period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a petition in bankruptcy had been filed by or against the Company upon the date of such default; and
(2) all property received by the Trustee in respect of any claim as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three-month period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.
Nothing herein contained, however, shall affect the right of the Trustee:
(A) to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third Person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law;
(B) to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three-month period;
(C) to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three-month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default as defined in Subsection (c) of this Section would occur within three months; or
(D) to receive payment on any claim referred to in paragraph (B) or (C) or against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property.
For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such three-month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim.
If the Trustee shall be required to account, the funds and property held in such special account and the
proceeds thereof shall be apportioned between the Trustee, the Securityholders and the holders of other indenture securities in such manner that the Trustee, the Securityholders and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Securityholders and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account. As used in this paragraph, with respect to any claim, the term "dividends" shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the Federal Bankruptcy Act or applicable State law, whether such distribution is made in cash, securities, or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim. The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion between the Trustee and the Securityholders and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Securityholders and the holders of other indenture securities with respect to their respective claims, in which extent it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula.
Any Trustee which has resigned or been removed after the beginning of such three-month period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred. If any Trustee has resigned or been removed prior to the beginning of such three-month period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist:
(i) the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such three-month period; and
(ii) such receipt of property or reduction of claim occurred within three months after such resignation or removal.
(b) There shall be excluded from the operation of Subsection
(a) of this Section a creditor relationship arising from:
(1) the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee;
(2) advances authorized by a receivership or bankruptcy court of competent jurisdiction, or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Securityholders at the time and in the manner provided in this Indenture;
(3) disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depository, or other similar capacity;
(4) an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction as defined in Subsection (c) of this Section;
(5) the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or
(6) the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper as defined in Subsection (c) of this Section.
(c) For the purposes of this Section only:
(1) The term "default" means any failure to make payment in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable.
(2) The term "other indenture securities" means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contains provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account.
(3) The term "cash transaction" means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand.
(4) The term "self-liquidating paper" means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making,
drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.
(5) The term "Company" means any obligor upon the Securities.
SECTION 6.14. Appointment of Authenticating Agent. At any time
when any of the Securities remain Outstanding the Trustee, with the approval of
the Company, may appoint an Authenticating Agent or Agents with respect to one
or more series of Securities which shall be authorized to act on behalf of the
Trustee to authenticate Securities of such series issued upon original issuance,
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 3.06, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as an
Authenticating Agent, having a combined capital and surplus of not less than
$50,000,000 and, if other than the Company itself, subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall resign immediately in the manner and with the
effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and, if other than the Company, to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and, if other than the Company, to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee, with the approval of the Company, may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.07.
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternate certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
THE CHASE MANHATTAN BANK,
as Trustee
ARTICLE VII
Securityholders' Lists and Reports by
Trustee and Company
SECTION 701. Company To Furnish Trustee Names and Addresses of Securityholders. The Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not more than 15 days after December 15 and June 15 in each year in such form as the Trustee may reasonably require, a list of the names and addresses of the Holders of Securities of each series as of such December 15 and June 15, as applicable, and
(2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security Registrar for Securities of a series, no such list need be furnished with respect to such series of Securities.
SECTION 7.02. Preservation of Information; Communications to
Securityholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders of Securities
contained in the most recent list furnished to the Trustee as provided in
Section 7.01 and the names and addresses of Holders of Securities received by
the Trustee in its capacity as Security Registrar, if so acting. The Trustee may
destroy any list furnished to it as provided in Section 7.01 upon receipt of a
new list so furnished.
(b) If three or more Holders of Securities of any series (hereinafter referred to as "applicants") apply in
writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security of such series for a period of at least six months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities of such series or with the Holders of all Securities with respect to their rights under this Indenture or under such Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within five Business Days after the receipt of such application, at its election, either:
(i) afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 7.02(a), or
(ii) inform such applicants as to the approximate number of Holders of Securities of such series or all Securities, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.
If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Holder of a Security of such series or to all Securityholders, as the case may be, whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 7.02(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless, within five days after such tender, the Trustee shall mail to such applicants and file with the Commission, together with a copy of the material to be mailed, a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interests of the Holders of Securities of such series or all Securityholders, as the case may be, or would be in violation of applicable law. Such written statement shall specify the basis of such opinion. If the Commission, after opportunity for a hearing upon the objections specified in the written statement so filed, shall enter an order refusing to sustain any of such objections or if, after the entry of an order sustaining one or more of such
objections, the Commission shall find, after notice and opportunity for hearing, that all the objections so sustained have been met and shall enter an order so declaring, the Trustee shall mail copies of such material to all Securityholders of such series or all Securityholders, as the case may be, with reasonable promptness after the entry of such order and the renewal of such tender; otherwise the Trustee shall be relieved of any obligation or duty to such applicants respecting their application.
(c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 7.02(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 7.02(b).
SECTION 7.03. Reports by Trustee. (a) Within 60 days after May
15 of each year commencing with the first May 15 after the issuance of
Securities, the Trustee shall transmit by mail, at the Company's expense, to all
Holders as their names and addresses appear in the Security Register, as
provided in Trust Indenture Act 313(c), a brief report dated as of May 15 in
accordance with and with respect to the matters required by Trust Indenture Act
Section 313(a).
(b) The Trustee shall transmit by mail, at the Company's
expense, to all Holders as their names and addresses appear in the Security
Register, as provided in Trust Indenture Act 313(c), a brief report in
accordance with and with respect to the matters required by Trust Indenture Act
Section 313(b).
(c) A copy of each such report shall, at the time of such transmission to Holders, be furnished to the Company and, in accordance with Trust Indenture Act Section 313(d), be filed by the Trustee with each stock exchange upon which the Securities are listed, and also with the Commission.
SECTION 7.04. Reports by Company. The Company 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. The Company also shall comply with the other provisions of Trust Indenture Act Section 314(a).
ARTICLE VIII
Consolidation, Merger, Conveyance or Transfer
SECTION 8.01. Consolidation, Merger, Conveyance or Transfer on Certain Terms. None of the Company, TBS or TWC shall consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, unless:
(1)(a) in the case of the Company, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety shall be organized and existing
under the laws of the United States of America or any State thereof or
the District of Columbia, and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all the Securities
and the performance of every covenant of this Indenture (as
supplemented from time to time) on the part of the Company to be
performed or observed; (b) in the case of either Guarantor, the Person
formed by such consolidation or into which such Guarantor is merged or
the Person which acquires by conveyance or transfer the properties and
assets of such Guarantor substantially as an entirety shall be either
(i) the Company or (ii) a Person organized and existing under the laws
of the United States of America or any State thereof or the District of
Columbia, and in the case of clause (ii), shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the performance of every covenant
of this Indenture (as supplemented from time to time) on the part of
such Guarantor to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of Default, and no event which,
after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an opinion of Counsel each stating that such consolidation, merger, conveyance or transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.
SECTION 8.02. Successor Person Substituted. Upon any consolidation or merger, or any conveyance or transfer of the properties and assets of the Company or either Guarantor substantially as an entirety in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company or such Guarantor is merged or to which such conveyance or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company or such Guarantor under this Indenture with the same effect as if such successor had been named as the Company or such Guarantor herein. In the event of any such conveyance or transfer, the Company or such Guarantor, as the case may be, as the predecessor shall be discharged from all obligations and covenants under this Indenture and the Securities and may be dissolved, wound up or liquidated at any time thereafter.
ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Securityholders. Without the consent of the Holders of any Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation or Person to the Company or any Guarantor, and the assumption by any such successor of the respective covenants of the Company or any Guarantor herein and in the Securities contained; or
(2) to add to the covenants of the Company or any Guarantor, or to surrender any right or power herein
conferred upon the Company or any Guarantor, for the benefit of the Holders of the Securities of any or all series (and if such covenants or the surrender of such right or power are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included or such surrenders are expressly being made solely for the benefit of one or more specified series); or
(3) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; or
(4) to add to this Indenture such provisions as may be expressly permitted by the TIA, excluding, however, the provisions referred to in Section 316(a)(2) of the TIA as in effect at the date as of which this instrument was executed or any corresponding provision in any similar federal statute hereafter enacted; or
(5) to establish any form of Security, as provided in Article II and to provide for the issuance of any series of Securities as provided in Article III and to set forth the terms thereof, and/or to add to the rights of the Holders of the Securities of any series; or
(6) to evidence and provide for the acceptance of appointment by another corporation as a successor Trustee hereunder with respect to one or more series of Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to Section 6.11; or
(7) to add any additional Events of Default in respect of the Securities of any or all series (and if such additional Events of Default are to be in respect of less than all series of Securities, stating that such Events of Default are expressly being included solely for the benefit of one or more specified series); or
(8) to provide for the issuance of Securities in coupon as well as fully registered form; or
(9) to provide for the terms and conditions of conversion into Common Stock or other Marketable Securities of the Securities of any series which are convertible into Common Stock or other Marketable Securities, if different from those set forth in Article XII; or
(10) to secure the Securities of any series pursuant to
Section 10.06 or otherwise.
No supplemental indenture for the purposes identified in Clauses (2), (3), (5) or (7) above may be entered into if to do so would adversely affect the rights of the Holders of Outstanding Securities of any series in any material respect.
SECTION 9.02. Supplemental Indentures with Consent of Securityholders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of all series affected by such supplemental indenture or indentures (acting as one class), by Act of said Holders delivered to the Company and the Trustee (in accordance with Section 1.04 hereof), the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Securities of each such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby:
(1) change the Maturity of the principal of, or the Stated Maturity of any premium on, or any installment of interest on, any Security, or reduce the principal amount thereof or the interest or any premium thereon, or change the method of computing the amount of principal thereof or interest thereon on any date or change any Place of Payment where, or the coin or currency in which, any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Maturity or the Stated Maturity, as the case may be, thereof (or, in the case of redemption or repayment, on or after the Redemption Date or the Repayment Date, as the case may be), or alter the provisions of this Indenture so as to affect adversely the terms, if any, of conversion of any Securities into Common Stock or other securities; or
(2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences, provided for in this Indenture; or
(3) modify any of the provisions of this Section, Section 5.13 or Section 10.07, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby;
(4) impair or adversely affect the right of any Holder to institute suit for the enforcement of any payment on, or with respect to, the Securities of any series on or after the Stated Maturity of such Securities (or in the case of redemption, on or after the Redemption Date);
(5) amend or modify Section 13.01 of this Indenture in any manner adverse to the rights of the Holders of the Outstanding Securities of any series.
For purposes of this Section 9.02, if the Securities of any series are issuable upon the exercise of warrants, each holder of an unexercised and unexpired warrant with respect to such series shall be deemed to be a Holder of Outstanding Securities of such series in the amount issuable upon the exercise of such warrant. For such purposes, the ownership of any such warrant shall be determined by the Company in a manner consistent with customary commercial practices. The Trustee for such series shall be entitled to rely on an Officers' Certificate as to the principal amount of Securities of such series in respect of which consents shall have been executed by holders of such warrants.
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of Holders of Securities of any other series.
It shall not be necessary for any Act of Securityholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.04. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby to the extent provided therein.
SECTION 9.05. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of TIA as then in effect.
SECTION 9.06. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.
ARTICLE X
Covenants
SECTION 10.01. Payment of Principal, Premium and Interest. With respect to each series of Securities, the Company will duly and punctually pay the principal of (and premium, if any) and interest on such Securities in accordance with their terms and this Indenture, and will duly comply with all the other terms, agreements and conditions contained in, or made in the Indenture for the benefit of, the Securities of such series.
SECTION 10.02. Maintenance of Office or Agency. The Company will maintain an office or agency in each Place of Payment where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served and where any Securities with conversion privileges may be presented and surrendered for conversion. The Company will give prompt written notice to the Trustee of the location, and of any change in the location, of such office or agency. If at any time the Company shall fail to maintain such office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee its agent to receive all such presentations, surrenders, notices and demands.
Unless otherwise set forth in, or pursuant to, a Board Resolution or Indenture supplemental hereto with respect to a series of Securities, the Company hereby initially designates as the Place of Payment for each series of Securities, the Borough of Manhattan, the City and State of New York, and initially appoints the Trustee at its Corporate Trust Office as the Company's office or agency for each such purpose in such city.
SECTION 10.03. Money for Security Payments To Be Held in Trust. If the Company shall at any time act as its own Paying Agent for any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on, any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided, and will promptly notify the Trustee of its action or failure to act.
Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, on or prior to each due date of the principal of (and premium, if any) or interest on, any Securities of such series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal (and premium, if any) or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee for any series of Securities to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of principal of (and premium, if any) or interest on Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any such payment of principal (and premium, if any) or interest on the Securities of such series; and
(3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture with respect to any series of Securities or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent in respect of each and every series of Securities as to which it seeks to discharge this Indenture or, if for any other purpose, all sums so held in trust by the Company in respect of all Securities, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent;
and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease. The Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company mail to the Holders of the Securities as to which the money to be repaid was held in trust, as their names and addresses appear in the Security Register, a notice that such moneys remain unclaimed and that, after a date specified in the notice, which shall not be less than 30 days from the date on which the notice was first mailed to the Holders of the Securities as to which the money to be repaid was held in trust, any unclaimed balance of such moneys then remaining will be paid to the Company free of the trust formerly impressed upon it.
SECTION 10.04. Statement as to Compliance. The Company and each Guarantor will deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement signed by the principal executive officer, principal financial officer or principal accounting officer of the Company or such Guarantor, as applicable, stating that:
(1) a review of the activities of the Company or such Guarantor, as applicable, during such year and of performance under this Indenture and under the terms of the Securities has been made under his supervision; and
(2) to the best of his knowledge, based on such review, the Company or such Guarantor, as applicable, has fulfilled all its obligations under this Indenture and has complied with all conditions and covenants on its part contained in this Indenture through such year, or, if there has been a default in the fulfillment of any such obligation, covenant or condition, specifying
each such default known to him and the nature and status thereof.
For the purpose of this Section 10.04, default and compliance shall be determined without regard to any grace period or requirement of notice provided pursuant to the terms of this Indenture.
SECTION 10.05. Legal Existence. Subject to Article VIII the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence.
SECTION 10.06. Limitation on Liens. Neither the Company nor any Material Subsidiary of the Company shall incur, create, issue, assume, guarantee or otherwise become liable for any indebtedness for money borrowed that is secured by a lien on any asset now owned or hereafter acquired by it unless the Company makes or causes to be made effective provision whereby the Securities issued under this Indenture will be secured by such lien equally and ratably with (or prior to) all other indebtedness thereby secured so long as any such indebtedness shall be secured. The foregoing restriction does not apply to the following:
(i) liens existing as of the date this Indenture;
(ii) liens created by Subsidiaries of the Company to secure indebtedness of such Subsidiaries to the Company or to one or more other Subsidiaries of the Company;
(iii) liens affecting property of a Person existing at the time it becomes a Subsidiary of the Company or at the time it merges into or consolidates with the Company or a Subsidiary of the Company or at the time of a sale, lease or other disposition of all or substantially all of the properties of such Person to the Company or its Subsidiaries;
(iv) liens on property existing at the time of the acquisition thereof or incurred to secure payment of all or a part of the purchase price thereof or to secure indebtedness incurred prior to, at the time of, or within one year after the acquisition thereof for the purpose of financing all or part of the purchase price thereof;
(v) liens on any property to secure all or part of the cost of improvements or construction thereon or
indebtedness incurred to provide funds for such purpose in a principal amount not exceeding the cost of such improvements or construction;
(vi) liens consisting of or relating to the sale, transfer or financing of motion pictures, video and television programs, sound recordings, books or rights with respect thereto to or with so-called tax shelter groups or other third-party investors in connection with the financing of such motion pictures, video and television programming, sound recordings or books in the ordinary course of business and the granting to the Company or any of its Subsidiaries of rights to distribute such motion pictures, video and television programming, sound recordings or books; provided, however, that no such lien shall attach to any asset or right of the Company or its Subsidiaries (other than (i) the motion pictures, video and television programming, sound recordings, books or rights which were sold, transferred to or financed by the tax shelter group or third-party investors in question or the proceeds arising therefrom and (ii) the stock or other equity interests of a Subsidiary substantially all of the assets of which consist of such motion pictures, video and television programming, sound recordings, books or rights and related proceeds);
(vii) liens on shares of stock, indebtedness or other securities of a Person that is not a Subsidiary of the Company;
(viii) liens on Works which either (1) existed in such Works before the time of their acquisition and were not created in anticipation thereof, or (2) were created solely for the purpose of securing obligations to financiers, producers, distributors, exhibitors, completion guarantors, inventors, copyright holders, financial institutions or other participants incurred in the ordinary course of business in connection with the acquisition, financing, production, completion, distribution or exhibition of Works;
(ix) any lien on the office building and hotel complex located in Atlanta, Georgia known as the CNN Center Complex, including the parking decks for such complex (to the extent such parking decks are owned or leased by the Company or its Subsidiaries), or any portion thereof and all property rights therein and the products, revenues and proceeds therefrom created as
part of any mortgage financing or sale-leaseback of the CNN Center Complex;
(x) liens on satellite transponders and all property rights therein and the products, revenues and proceeds therefrom which secure obligations incurred in connection with the acquisition, utilization or operation of such satellite transponders or the refinancing of any such obligations;
(xi) restrictions on the Atlanta National League Baseball Club, Inc. and Atlanta Hawks, Ltd. and their respective assets imposed by Major League Baseball or the Commissioner of Baseball, and the National Basketball Association, respectively, including, without limitation, restrictions on the transferability of the Company's or any of its Subsidiary's interests therein;
(xii) liens on capital leases entered into after the date of this Indenture provided that such liens extend only to the property or assets that are the subject of such capital leases;
(xiii) liens resulting from progress payments or partial payments under United States government contracts or subcontracts;
(xiv) other liens arising in connection with indebtedness of the Company and its Subsidiaries in an aggregate principal amount for the Company and its Subsidiaries not exceeding at the time such lien is issued, created or assumed the greater of (A) 10% of the Consolidated Net Worth of the Company and (B) $500 million; and
(xv) any extensions, renewal or replacement of any lien referred to in the foregoing clauses (i) through (xiv) inclusive, or of any indebtedness secured thereby; provided that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or replacement, or at the time the lien was issued, created or assumed or otherwise permitted, and that such extension, renewal or replacement lien shall be limited to all or part of substantially the same property which secured the lien extended, renewed or replaced (plus improvements on such property).
SECTION 10.07. Waiver of Certain Covenants. The Company may
omit in respect of any series of Securities, in any particular instance, to
comply with any covenant or condition set forth in Sections 10.05 or 10.06 or
set forth in a Board Resolution or supplemental indenture with respect to the
Securities of such series, unless otherwise specified in such Board Resolution
or supplemental indenture, if before or after the time for such compliance the
Holders of not less than a majority in principal amount of the Outstanding
Securities of all series affected by such waiver (voting as one class) shall, by
Act of such Securityholders delivered to the Company and the Trustee (in
accordance with Section 1.04 hereof), either waive such compliance in such
instance or generally waive compliance with such covenant or condition, but no
such waiver shall extend to or affect such covenant or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
covenant or condition shall remain in full force and effect. Nothing in this
Section 10.07 shall permit the waiver of compliance with any covenant or
condition set forth in such Board Resolution or supplemental indenture which, if
in the form of an indenture supplemental hereto, would not be permitted by
Section 9.02 without the consent of the Holder of each Outstanding Security
affected thereby.
ARTICLE XI
Redemption of Securities
SECTION 11.01. Applicability of Article. The Company may reserve the right to redeem and pay before Stated Maturity all or any part of the Securities of any series, either by optional redemption, sinking or purchase fund or analogous obligation or otherwise, by provision therefor in the form of Security for such series established and approved pursuant to Section 2.02 and on such terms as are specified in such form or in the indenture supplemental hereto with respect to Securities of such series as provided in Section 3.01. Redemption of Securities of any series shall be made in accordance with the terms of such Securities and, to the extent that this Article does not conflict with such terns, the succeeding Sections of this Article. Notwithstanding anything to the contrary in this Indenture, except in the case of redemption pursuant to a sinking fund, the Trustee shall not make any payment in connection with the redemption of Securities until the close of business on the Redemption Date.
SECTION 11.02. Election To Redeem; Notice to Trustee. The election of the Company to redeem any Securities redeemable at the election of the Company shall be evidenced by, or pursuant to authority granted by, a Board Resolution. In case of any redemption at the election of the Company of less than all of the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series and the Tranche (as defined in Section 11.03) to be redeemed.
In the case of any redemption of Securities (i) prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, or (ii) pursuant to an election of the Company which is subject to a condition specified in the terms of such Securities, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction or condition.
SECTION 11.03. Selection by Trustee of Securities To Be Redeemed. If less than all the Securities of like tenor and terms of any series (a "Tranche") are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such Tranche not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may include provision for the selection for redemption of portions of the principal of Securities of such Tranche of a denomination larger than the minimum authorized denomination for Securities of that series. Unless otherwise provided in the terms of a particular series of Securities, the portions of the principal of Securities so selected for partial redemption shall be equal to the minimum authorized denomination of the Securities of such series, or an integral multiple thereof, and the principal amount which remains outstanding shall not be less than the minimum authorized denomination for Securities of such series. If less than all the Securities of unlike tenor and terms of a series are to be redeemed, the particular Tranche of Securities to be redeemed shall be selected by the Company.
If any convertible Security selected for partial redemption is converted in part before the termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security
shall be deemed (so far as may be) to be the portion selected for redemption.
Upon any redemption of fewer than all the Securities of a series or Tranche, the Company and the Trustee may treat as Outstanding any Securities surrendered for conversion during the period of fifteen days next preceding the mailing of a notice of redemption, and need not treat as Outstanding any Security authenticated and delivered during such period in exchange for the unconverted portion of any Security converted in part during such period.
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed.
Securities shall be excluded from eligibility for selection for redemption if they are identified by registration and certificate number in a written statement signed by an authorized officer of the Company and delivered to the Trustee at least 60 days prior to the Redemption Date as being owned of record and beneficially by, and not pledged or hypothecated by either, (a) the Company or (b) an entity specifically identified in such written statement as being an Affiliate of the Company.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal of such Security which has been or is to be redeemed.
SECTION 11.04. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 (or 15 if so provided in the Board Resolution establishing the relevant series) nor more than 60 days prior to the Redemption Date, to each holder of Securities to be redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the respective principal amounts) of the Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security, and that interest, if any, thereon shall cease to accrue from and after said date;
(5) the place where such Securities are to be surrendered for payment of the Redemption Price, which shall be the office or agency of the Company in the Place of Payment;
(6) that the redemption is on account of a sinking or purchase fund, or other analogous obligation, if that be the case;
(7) if such Securities are convertible into Common Stock or other securities, the Conversion Price or other conversion price and the date on which the right to convert such Securities into Common Stock or other securities will terminate; and
(8) if applicable, that the redemption may be rescinded by the Company, at its sole option, pursuant to Section 11.09 of this Indenture upon the occurrence of a Redemption Rescission Event.
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.
SECTION 11.05. Deposit of Redemption Price. On or prior to any Redemption Date and subject to Section 11.09, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of all the Securities which are to be redeemed on that date. If any Security to be redeemed is converted into Common Stock or other securities, any money so deposited with the Trustee or a Paying Agent shall be paid to the Company upon Company Request or, if then so segregated and held in trust by the Company, shall be discharged from such trust.
SECTION 11.06. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, subject to Section 11.09, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price) such Securities shall cease to bear interest and any rights to convert such Securities shall terminate. Upon surrender of such Securities for redemption in accordance with the notice and subject to Section 11.09, such Securities shall be paid by the Company at the Redemption Price. Unless otherwise provided with respect to such Securities pursuant to Section 3.01, installments of interest the Stated Maturity of which is on or prior to the Redemption Date shall be payable to the Holders of such Securities registered as such on the relevant Regular Record Dates according to their terms and the provisions of Section 3.07.
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Security, or as otherwise provided in such Security.
SECTION 11.07. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at the office or agency of the Company in the Place of Payment with respect to that series (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and Stated Maturity and of like tenor and terms, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.
SECTION 11.08. Provisions with Respect to Any Sinking Funds. Unless the form or terms of any series of Securities shall provide otherwise, in lieu of making all or any part of any mandatory sinking fund payment with respect to such series of Securities in cash, the Company may at its option (1) deliver to the Trustee for cancelation any Securities of such series theretofore acquired by the Company or converted by the Holder thereof into Common Stock or other securities, or (2) receive credit for any
Securities of such series (not previously so credited) acquired by the Company (including by way of optional redemption (pursuant to the sinking fund or otherwise but not by way of mandatory sinking fund redemption) or converted by the Holder thereof into Common Stock or other securities and theretofore delivered to the Trustee for cancelation, and if it does so then (i) Securities so delivered or credited shall be credited at the applicable sinking fund Redemption Price with respect to Securities of such series, and (ii) on or before the 60th day next preceding each sinking fund Redemption Date with respect to such series of Securities, the Company will deliver to the Trustee (A) an Officers' Certificate specifying the portions of such sinking fund payment to be satisfied by payment of cash and by delivery or credit of Securities of such series acquired by the Company or converted by the Holder thereof, and (B) such Securities, to the extent not previously surrendered. Such Officers' Certificate shall also state the basis for such credit and that the Securities for which the Company elects to receive credit have not been previously so credited and were not acquired by the Company through operation of the mandatory sinking fund, if any, provided with respect to such Securities and shall also state that no Event of Default with respect to Securities of such series has occurred and is continuing. All Securities so delivered to the Trustee shall be canceled by the Trustee and no Securities shall be authenticated in lieu thereof.
If the sinking fund payment or payments (mandatory or optional) with respect to any series of Securities made in cash plus any unused balance of any preceding sinking fund payments with respect to Securities of such series made in cash shall exceed $50,000 (or a lesser sum if the Company shall so request), unless otherwise provided by the terms of such series of Securities, that cash shall be applied by the Trustee on the sinking fund Redemption Date with respect to Securities of such series next following the date of such payment to the redemption of Securities of such series at the applicable sinking fund Redemption Price with respect to Securities of such series, together with accrued interest, if any, to the date fixed for redemption, with the effect provided in Section 11.06. The Trustee shall select, in the manner provided in Section 11.03, for redemption on such sinking fund Redemption Date a sufficient principal amount of Securities of such series to utilize that cash and shall thereupon cause notice of redemption of the Securities of such series for the sinking fund to be given in the manner provided in Section 11.04 (and with the effect provided in Section 11.06) for the redemption of Securities in part at the option of the Company. Any sinking fund moneys not so
applied or allocated by the Trustee to the redemption of Securities of such
series shall be added to the next cash sinking fund payment with respect to
Securities of such series received by the Trustee and, together with such
payment, shall be applied in accordance with the provisions of this Section
11.08. Any and all sinking fund moneys with respect to Securities of any series
held by the Trustee at the Maturity of Securities of such series, and not held
for the payment or redemption of particular Securities of such series, shall be
applied by the Trustee, together with other moneys, if necessary, to be
deposited sufficient for the purpose, to the payment of the principal of the
Securities of such series at Maturity.
On or before each sinking fund Redemption Date provided with respect to Securities of any series, the Company shall pay to the Trustee in cash a sum equal to all accrued interest, if any, to the date fixed for redemption on Securities to be redeemed on such sinking fund Redemption Date pursuant to this Section 11.08.
SECTION 11.09. Rescission of Redemption. In the event that
this Section 11.09 is specified to be applicable to a series of Securities
pursuant to Section 3.01 and a Redemption Rescission Event shall occur following
any day on which a notice of redemption shall have been given pursuant to
Section 11.04 hereof but at or prior to the time and date fixed for redemption
as set forth in such notice of redemption, the Company may, at its sole option,
at any time prior to the earlier of (i) the close of business on that day which
is two Trading Days following such Redemption Rescission Event and (ii) the time
and date fixed for redemption as set forth in such notice, rescind the
redemption to which such notice of redemption shall have related by making a
public announcement of such rescission (the date on which such public
announcement shall have been made being hereinafter referred to as the
"Rescission Date"). The Company shall be deemed to have made such announcement
if it shall issue a release to the Dow Jones New Service, Reuters Information
Services or any successor news wire service. From and after the making of such
announcement, the Company shall have no obligation to redeem Securities called
for redemption pursuant to such notice of redemption or to pay the Redemption
Price therefor and all rights of Holders of Securities shall be restored as if
such notice of redemption had not been given. As promptly as practicable
following the making of such announcement, the Company shall telephonically
notify the Trustee and the Paying Agent of such rescission. The Company shall
give notice of any such rescission by first-class mail, postage
prepaid, mailed as promptly as practicable but in no event later than the close of business on that day which is five Trading Days following the Rescission Date to each Holder of Securities at the close of business on the Rescission Date, to any other Person that was a Holder of Securities and that shall have surrendered Securities for conversion following the giving of notice of the subsequently rescinded redemption and to the Trustee and the Paying Agent. Each notice of rescission shall (w) state that the redemption described in the notice of redemption has been rescinded, (x) state that any Converting Holder shall be entitled to rescind the conversion of Securities surrendered for conversion following the day on which notice of redemption was given but on or prior to the date of the mailing of the Company's notice of rescission, (y) be accompanied by a form prescribed by the Company to be used by any Converting Holder rescinding the conversion of Securities so surrendered for conversion (and instructions for the completion and delivery of such form, including instructions with respect to any payment that may be required to accompany such delivery) and (z) state that such form must be properly completed and received by the Company no later than the close of business on a date that shall be 1.5 Trading Days following the date of the mailing of such notice of rescission.
ARTICLE XII
Conversion
SECTION 12.01. Conversion Privilege. In the event that this
Article XII is specified to be applicable to a series of Securities pursuant to
Section 3.01, the Holder of a Security of such series shall have the right, at
such Holder's option, to convert, in accordance with the terms of such series of
Securities and this Article XII, all or any part (in a denomination of, unless
otherwise specified in a Board Resolution or supplemental indenture with Respect
to Securities of such series, $1,000 in principal amount or any integral
multiple thereof) of such Security into shares of Common Stock or other
Marketable Securities specified in such Board Resolution at any time or, as to
any Securities called for redemption, at any time prior to the time and date
fixed for such redemption (unless the Company shall default in the payment of
the Redemption Price, in which case such right shall not terminate at such time
and date).
SECTION 12.02. Conversion Procedure; Rescission of Conversion; Conversion Price; Fractional Shares.
(a) Each Security to which this Article is applicable shall be convertible at the office of the Conversion Agent, and at such other place or places, if any, specified in a Board Resolution with respect to the Securities of such series, into fully paid and nonassessable shares (calculated to the nearest 1/100th of a share) of Common Stock or other Marketable Securities. The Securities will be converted into shares of Common Stock or such other Marketable Securities at the Conversion Price therefor. No payment or adjustment shall be made in respect of dividends on the Common Stock or such other Marketable Securities, or accrued interest on a converted Security except as described in Section 12.09. The Company may, but shall not be required, in connection with any conversion of Securities, to issue a fraction of a share of Common Stock or of such other Marketable Security, and, if the Company shall determine not to issue any such fraction, the Company shall, subject to Section 12.03(4), make a cash payment (calculated to the nearest cent) equal to such fraction multiplied by the Closing Price of the Common Stock or such other Marketable Security on the last Trading Day prior to the date of conversion.
(b) Before any Holder of a Security shall be entitled to convert the same into Common Stock or other Marketable Securities, such Holder shall surrender such Security duly endorsed to the Company or in blank, at the office of the Conversion Agent or at such other place or places, if any, specified in a Board Resolution with respect to the Securities of such series, and shall give written notice to the Company at said office or place that he elects to convert the same and shall state in writing therein the principal amount of Securities to be converted and the name or names (with addresses) in which he wishes the certificate or certificates for Common Stock or for such other Marketable Securities to be issued; provided, however, that no Security or portion thereof shall be accepted for conversion unless the principal amount of such Security or such portion, when added to the principal amount of all other Securities or portions thereof then being surrendered by the Holder thereof for conversion, exceeds the then effective Conversion Price with respect thereto. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares of Common Stock or such other Marketable Securities which shall be deliverable upon conversion shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted thereby) so surrendered. Subject to the next succeeding sentence, the Company will, as soon as practicable thereafter, issue
and deliver at said office or place to such Holder of a Security, or to his nominee or nominees, certificates for the number of full shares of Common Stock or other Marketable Security to which he shall be entitled as aforesaid, together, subject to the last sentence of paragraph (a) above, with cash in lieu of any fraction of a share to which he would otherwise be entitled. The Company shall not be required to deliver certificates for shares of Common Stock or other Marketable Securities while the stock transfer books for such stock or the transfer books for such Marketable Securities, as the case may be, or the Security Register are duly closed for any purpose, but certificates for shares of Common Stock or other Marketable Securities shall be issued and delivered as soon as practicable after the opening of such books or Security Register. A Security shall be deemed to have been converted as of the close of business on the date of the surrender of such Security for conversion as provided above, and the person or persons entitled to receive the Common Stock or other Marketable Securities issuable upon such conversion shall be treated for all purposes as the record Holder or Holders of such Common Stock or other Marketable Securities as of the close of business on such date. In case any Security shall be surrendered for partial conversion, the Company shall execute and the Trustee shall authenticate and deliver to or upon the written order of the Holder of the Securities so surrendered, without charge to such Holder (subject to the provisions of Section 12.08), a new Security or Securities in authorized denominations in an aggregate principal amount equal to the unconverted portion of the surrendered Security.
(c) Notwithstanding anything to the contrary contained herein,
in the event the Company shall have rescinded a redemption of Securities
pursuant to Section 11.09 hereof, any Holder of Securities that shall have
surrendered Securities for conversion following the day on which notice of the
subsequently rescinded redemption shall have been given but prior to the later
of (a) the close of business on the Trading Day next succeeding the date on
which public announcement of the rescission of such redemption shall have been
made and (b) the date of the mailing of the notice of rescission required by
Section 11.09 hereof (a "Converting Holder") may rescind the conversion of such
Securities surrendered for conversion by (i) properly completing a form
prescribed by the Company and mailed to Holders of Securities (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 Securities Exchange Act of 1934) of Securities that the beneficial ownership (within the meaning of such Rule) of such Securities shall not have changed from the date on which such Securities 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 or other securities issued to such Converting Holder upon a conversion of Securities that shall be rescinded by the proper delivery of such form (the "Surrendered Securities"), (y) any securities, evidences of indebtedness or assets (other than cash) distributed by the Company to such Converting Holder by reason of such Converting Holder being a record holder of Surrendered Securities 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 Securities and (II) any cash paid or payable by the Company to such Converting Holder by reason of such Converting Holder being a record holder of Surrendered Securities. 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 Company shall instruct the transfer agent or agents for shares of Common Stock or other securities to cancel any certificates representing Surrendered Securities (which Surrendered Securities shall be deposited in the treasury of the Company) and shall instruct the Registrar to reissue certificates representing Securities to such Converting Holder (which Securities 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 Securities 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 Securities during the period from the time such Securities 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 Securities, 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 12.03. Adjustment of Conversion Price for Common Stock or Marketable Securities. The Conversion Price with respect to any Security which is convertible into Common Stock or other Marketable Securities shall be adjusted from time to time as follows:
(1) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, (i) pay a dividend in shares of its Common Stock or other Marketable Securities, (ii) combine its outstanding shares of Common Stock or other Marketable Securities into a smaller number of shares or securities, (iii) subdivide its outstanding shares of Common Stock or other Marketable Securities or (iv) issue by reclassification of its shares of Common Stock or other Marketable Securities any shares of stock or other Marketable Securities of the Company, then the Conversion Price in effect immediately before such action shall be adjusted so that the Holders of such Securities, upon conversion thereof into Common Stock or other Marketable Securities immediately following such event, shall be entitled to receive the kind and amount of shares of capital stock of the Company or other Marketable Securities which they would have owned or been entitled to receive upon or by reason of such event if such Securities had been converted immediately before the record date (or, if no record date, the effective date) for such event. An adjustment made pursuant to this Section 12.03(1) shall become effective retroactively immediately after the record date in the case of a dividend or distribution and shall become effective retroactively immediately after the effective date in the case of a subdivision, combination or reclassification. For the purposes of this Section 12.03(1), each Holder of Securities 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 or reclassification (provided that if the kind or amount of securities receivable upon such dividend, subdivision, combination or reclassification is not the same for each nonelecting share, then the kind and amount of securities or other property receivable upon such dividend, subdivision, combination or
reclassification for each nonelecting share shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares).
(2) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, issue rights or warrants to all holders of shares of its Common Stock or other Marketable Securities entitling them (for a period expiring within 45 days after the record date for such issuance) to subscribe for or purchase shares of Common Stock or other Marketable Securities (or securities convertible into shares of Common Stock or other Marketable Securities) at a price per share less than the Current Market Price of the Common Stock or other Marketable Securities at such record date (treating the price per share of the securities convertible into Common Stock or other Marketable Securities as equal to (x) the sum of (i) the price for a unit of the security convertible into Common Stock or other Marketable Securities plus (ii) any additional consideration initially payable upon the conversion of such security into Common Stock or other Marketable Securities divided by (y) the number of shares of Common Stock or other Marketable Securities initially underlying such convertible security), the Conversion Price with respect to such Securities shall be adjusted so that it shall equal the price determined by dividing the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction, the numerator of which shall be the number of shares of Common Stock or other Marketable Securities outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock or other Marketable Securities offered for subscription or purchase (or into which the convertible securities so offered are initially convertible), and the denominator of which shall be the number of shares of Common Stock or other Marketable Securities outstanding on the date of issuance of such rights or warrants plus the number of shares or securities which the aggregate offering price of the total number of shares or securities so offered for subscription or purchase (or the aggregate purchase price of the convertible securities so offered plus the aggregate amount of any additional consideration initially payable upon conversion of such Securities into Common Stock or other Marketable Securities) would purchase at such Current Market Price of the Common Stock or other Marketable Securities. Such adjustment shall become effective retroactively immediately after
the record date for the determination of stockholders entitled to receive such rights or warrants.
(3) In case the Company shall, at any time or from time to time while any of such Securities are outstanding, distribute to all holders of shares of its Common Stock or other Marketable Securities (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation and the Common Stock or other Marketable Securities are not changed or exchanged) cash, evidences of its indebtedness, securities or assets (excluding (i) regular periodic cash dividends in amounts, if any, determined from time to time by the Board of Directors, (ii) dividends payable in shares of Common Stock or other Marketable Securities for which adjustment is made under Section 12.03(1) or (iii) rights or warrants to subscribe for or purchase securities of the Company (excluding those referred to in Section 12.03(2)), then in each such case the Conversion Price with respect to such Securities shall be adjusted so that it shall equal the price determined by dividing the Conversion Price in effect immediately prior to the date of such distribution by a fraction, the numerator of which shall be the Current Market Price of the Common Stock or other Marketable Securities on the record date referred to below, and the denominator of which shall be such Current Market Price of the Common Stock or other Marketable Securities less the then fair market value (as determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the cash or assets or evidences of indebtedness or securities so distributed or of such subscription rights or warrants applicable to one share of Common Stock or one other Marketable Security (provided that such denominator shall never be less than 1.0); provided, however, that no adjustment shall be made with respect to any distribution of rights to purchase securities of the Company if a Holder of Securities would otherwise be entitled to receive such rights upon conversion at any time of such Securities into Common Stock or other Marketable Securities unless such rights are subsequently redeemed by the Company, in which case such redemption shall be treated for purposes of this Section as a dividend on the Common Stock or other Marketable Securities. Such adjustment shall become effective retroactively immediately after the record date for the determination of stockholders or holders of Marketable Securities entitled to receive
such
distribution; and in the event that such distribution is not so made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such record date had not been fixed.
(4) The Company shall be entitled to make such additional adjustments in the Conversion Price, in addition to those required by subsections 12.03(1), 12.03(2) and 12.03(3), as shall be necessary in order that any dividend or distribution of Common Stock or other Marketable Securities, any subdivision, reclassification or combination of shares of Common Stock or other Marketable Securities or any issuance of rights or warrants referred to above shall not be taxable to the holders of Common Stock or other Marketable Securities for United States Federal income tax purposes.
(5) In any case in which this Section 12.03 shall require that any adjustment be made effective as of or retroactively immediately following a record date, the Company may elect to defer (but only for five (5) Trading Days following the filing of the statement referred to in Section 12.05) issuing to the Holder of any Securities converted after such record date the shares of Common Stock and other capital stock of the Company or other Marketable Securities issuable upon such conversion over and above the shares of Common Stock and other capital stock of the Company or other Marketable Securities issuable upon such conversion on the basis of the Conversion Price prior to adjustment; provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's right to receive such additional shares upon the occurrence of the event requiring such adjustment.
(6) All calculations under this Section 12.03 shall be made to the nearest cent or one-hundredth of a share or security, with one-half cent and .005 of a share, respectively, being rounded upward. Notwithstanding any other provision of this Section 12.03, the Company shall not be required to make any adjustment of the Conversion Price unless such adjustment would require an increase or decrease of at least 1% of such price. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at
least 1% in such price. Any adjustments under this Section 12.03 shall be made successively whenever an event requiring such an adjustment occurs.
(7) In the event that at any time, as a result of an adjustment made pursuant to this Section 12.03, the Holder of any Security thereafter surrendered for conversion shall become entitled to receive any shares of stock of or other Marketable Securities of the Company other than shares of Common Stock or Marketable Securities into which the Securities originally were convertible, the Conversion Price of such other shares or Marketable Securities so receivable upon conversion of any such Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock and Marketable Securities contained in subparagraphs (1) through (6) of this Section 12.03, and the provision of Sections 12.01, 12.02 and 12.04 through 12.09 with respect to the Common Stock or other Marketable Securities shall apply on like or similar terms to any such other shares or Marketable Securities and the determination of the Board of Directors as to any such adjustment shall be conclusive.
(8) No adjustment shall be made pursuant to this Section (i) if the effect thereof would be to reduce the Conversion Price below the par value (if any) of the Common Stock or other Marketable Security, if any, or (ii) subject to 12.03(5) hereof, with respect to any Security that is converted prior to the time such adjustment otherwise would be made.
SECTION 12.04. Consolidation or Merger of the Company. In case of either (a) any consolidation or merger to which the Company is a party, other than a merger or consolidation in which the Company is the surviving or continuing corporation and which does not result in a reclassification of, or change (other than a change in par value or from par value to no par value or from no par value to par value, as a result of a subdivision or combination) in, outstanding shares of Common Stock or other Marketable Securities or (b) any sale or conveyance of all or substantially all of the property and assets of the Company to another Person, then each Security then Outstanding shall be convertible from and after such merger, consolidation, sale or conveyance of property and assets into the kind and amount of shares of stock or other securities and property (including cash) receivable upon such consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock or other Marketable Securities into which such Securities would have been converted immediately prior to such consolidation, merger, sale or conveyance, subject to adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article XII (and assuming such holder of Common Stock or other Marketable Securities failed to exercise his rights of election, if any, as to the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance (provided that, if the kind or amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance is not the same for each nonelecting share, then the kind and amount of securities, cash or other property (including cash) receivable upon such consolidation, merger, sale or conveyance for each nonelecting share, shall be deemed to be the kind and amount so receivable per share by a plurality of the nonelecting shares or securities)). The Company shall not enter into any of the transactions referred to in clause (a) or (b) of the preceding sentence unless effective provision shall be made so as to give effect to the provisions set forth in this Section 12.04. The provisions of this Section 12.04 shall apply similarly to successive consolidations, mergers, sales or conveyances.
SECTION 12.05. Notice of Adjustment. Whenever an adjustment in the Conversion Price with respect to a series of Securities is required:
(1) the Company shall forthwith place on file with the Trustee and any Conversion Agent for such Securities a certificate of the Treasurer of the Company, stating the adjusted Conversion Price determined as provided herein and setting forth in reasonable detail such facts as shall be necessary to show the reason for and the manner of computing such adjustment, such certificate to be conclusive evidence that the adjustment is correct; and
(2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be mailed, first class postage prepaid, by the Company to the Holders of record of such Outstanding Securities.
SECTION 12.06. Notice in Certain Events. In case:
(1) of a consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company is required, or of the sale or conveyance to another person or entity or group of persons or entities acting in concert as a partnership, limited partnership, syndicate or other group (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of all or substantially all of the property and assets of the Company; or
(2) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or
(3) of any action triggering an adjustment of the Conversion Price pursuant to this Article XII;
then, in each case, the Company shall cause to be filed with the Trustee and the Agent for the applicable Securities, and shall cause to be mailed, first class postage prepaid, to the Holders of record of applicable Securities, at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of any distribution or grant of rights or warrants triggering an adjustment to the Conversion Price pursuant to this Article XII, or, if a record is not to be taken, the date as of which the holders of record of Common Stock or other Marketable Securities entitled to such distribution, rights or warrants are to be determined, or (y) the date on which any reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up triggering an adjustment to the Conversion Price pursuant to this Article XII is expected to become effective, and the date as of which it is expected that holders of Common Stock or other Marketable Securities of record shall be entitled to exchange their Common Stock or other Marketable Securities for securities or other property deliverable upon such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up.
Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in clause (1), (2) or (3) of this Section.
SECTION 12.07. Company To Reserve Stock or other Marketable Securities; Registration; Listing. (a) The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued shares of Common Stock or other Marketable Securities, for the purpose of effecting the conversion of the Securities, such number of its duly authorized shares of Common Stock or number or principal amount of other Marketable Securities as shall from time to time be sufficient to effect the conversion of all applicable outstanding Securities into such Common Stock or other Marketable Securities at any time (assuming that, at the time of the computation of such number of shares or securities, all such Securities would be held by a single Holder); provided, however, that nothing contained herein shall preclude the Company from satisfying its obligations in respect of the conversion of the Securities by delivery of purchased shares of Common Stock or other Marketable Securities which are held in the treasury of the Company. The Company shall from time to time, in accordance with the laws of the State of Delaware, use its best efforts to cause the authorized amount of the Common Stock or other Marketable Securities to be increased if the aggregate of the authorized amount of the Common Stock or other Marketable Securities remaining unissued and the issued shares of such Common Stock or other Marketable Securities in its treasury (other than any such shares reserved for issuance in any other connection) shall not be sufficient to permit the conversion of all Securities.
(b) If any shares of Common Stock or other Marketable Securities which would be issuable upon conversion of Securities hereunder require registration with or approval of any governmental authority before such shares or securities may be issued upon such conversion, the Company will in good faith and as expeditiously as possible endeavor to cause such shares or securities to be duly registered or approved, as the case may be. The Company will endeavor to list the shares of Common Stock or other Marketable Securities required to be delivered upon conversion of the Securities prior to such delivery upon the principal national securities exchange upon which the outstanding Common Stock or other Marketable Securities is listed at the time of such delivery.
SECTION 12.08. Taxes on Conversion. The Company shall pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of shares of Common Stock or other Marketable Securities on conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock or other Marketable Securities or the portion, if any, of the
Securities which are not so converted in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of such tax or has established to the satisfaction of the Company that such tax has been paid.
SECTION 12.09. Conversion After Record Date. If any Securities are surrendered for conversion subsequent to the record date preceding an Interest Payment Date but on or prior to such Interest Payment Date (except Securities called for redemption on a Redemption Date between such record date and Interest Payment Date), the Holder of such Securities at the close of business on such record date shall be entitled to receive the interest payable on such securities on such Interest Payment Date notwithstanding the conversion thereof. Securities surrendered for conversion during the period from the close of business on any record date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except in the case of Securities which have been called for redemption on a Redemption Date within such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the Securities being surrendered for conversion. Except as provided in this Section 12.09, no adjustments in respect of payments of interest on Securities surrendered for conversion or any dividends or distributions or interest on the Common Stock or other Marketable Securities issued upon conversion shall be made upon the conversion of any Securities.
SECTION 12.10. Corporate Action Regarding Par Value of Common Stock. Before taking any action which would cause an adjustment reducing the applicable Conversion Price below the then par value (if any) of the shares of Common Stock or other Marketable Securities deliverable upon conversion of the Securities, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock or other Marketable Securities at such adjusted Conversion Price.
SECTION 12.11. Company Determination Final. Any determination that the Company or the Board of Directors must make pursuant to this Article is conclusive.
SECTION 12.12. Trustee's Disclaimer. The Trustee has no duty to determine when an adjustment under this
Article should be made, how it should be made or what it should be. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section as the Trustee.
ARTICLE XIII
Guarantees
SECTION 13.01. Guarantees. (a) Each of TBS and TWC irrevocably
and unconditionally guarantees (each, a "Guarantee"), to each Holder of
Securities (including each Holder of Securities issued under the Indenture after
the date of this 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 this 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 this Indenture and the Securities. Each of TBS and TWC further
agrees that its obligations hereunder shall be unconditional irrespective of the
absence or existence of any action to enforce the same, the recovery of any
judgment against the Company or the other Guarantor (except to the extent such
judgment is paid) or any waiver or amendment of the provisions of this Indenture
or the Securities to the extent that any such action or any similar action would
otherwise constitute a legal or equitable discharge or defense of a guarantor
(except that each such waiver or amendment shall be effective in accordance with
its terms).
(b) Each of TBS and TWC further agrees that each Guarantee constitutes a guarantee of payment, performance and compliance and not merely of collection.
(c) Each of TBS and TWC further agrees to waive presentment to, demand of payment from and protest to the Company of any of the Guarantees, and also waives diligence, notice of acceptance of its Guarantee, presentment, demand for payment, notice of protest for nonpayment, the filing of claims with a court in the event of merger or bankruptcy of the Company and any right to require a proceeding first against the Company or any other Person. The obligations of
TBS and TWC shall not be affected by any failure or policy on the part of the Trustee to exercise any right or remedy under this Indenture or the Securities of any series.
(d) The obligation of each of TBS and TWC to make any payment hereunder may be satisfied by causing the Company to make such payment. If any Holder of any Security or the Trustee is required by any court or otherwise to return to the Company, TBS or TWC, or any custodian, trustee, liquidator or other similar official acting in relation to any of the Company, TBS or TWC, any amount paid by any of them to the Trustee or such Holder, the Guarantee of TBS and the Guarantee of TWC, to the extent theretofore discharged, shall be reinstated in full force and effect.
(e) Each of TBS and TWC 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 Guarantees.
(f) Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of each of the Guarantees of TWC and TBS shall not exceed the maximum amount that can be guaranteed by the relevant Guarantor without rendering the relevant Guarantee under this Indenture voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.
TIME WARNER INC.,
by /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
/s/ Susan A. Waxenberg
--------------------------------
Name: Susan A. Waxenberg
Title: Assistant Secretary
|
TIME WARNER COMPANIES, INC.,
by /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
/s/ Susan A. Waxenberg
--------------------------------
Name: Susan A. Waxenberg
Title: Assistant Secretary
|
TURNER BROADCASTING SYSTEM, INC.,
by /s/ Thomas W. McEnerney
----------------------------------
Name: Thomas W. McEnerney
Title: Vice President
Attest:
/s/ Marie N .White
--------------------------------
Name: Marie N. White
Title: Asst, Secretary
|
THE CHASE MANHATTAN BANK, as Trustee
by /s/ R. Lorenzen
---------------------------------
Name: R. Lorenzen
Title: Senior Trust Officer
Attest:
/s/ L. O'Brien
--------------------------------
Name: L. O'Brien
Title: Senior Trust Officer
|
| ARTICLE 5 |
| This schedule contains summary financial information extracted from the financial statements of Time Warner Inc. for the six months ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. |
| MULTIPLIER: 1,000,000 |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | JUN 30 1998 |
| CASH | 344 |
| SECURITIES | 0 |
| RECEIVABLES | 3,074 |
| ALLOWANCES | 935 |
| INVENTORY | 2,617 |
| CURRENT ASSETS | 4,429 |
| PP&E | 3,150 |
| DEPRECIATION | 1,143 |
| TOTAL ASSETS | 31,850 |
| CURRENT LIABILITIES | 4,014 |
| BONDS | 9,915 |
| COMMON | 6 |
| PREFERRED MANDATORY | 1,859 |
| PREFERRED | 3 |
| OTHER SE | 9,311 |
| TOTAL LIABILITY AND EQUITY | 31,850 |
| SALES | 6,809 |
| TOTAL REVENUES | 6,809 |
| CGS | 3,964 |
| TOTAL COSTS | 3,964 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 455 |
| INCOME PRETAX | 223 |
| INCOME TAX | 184 |
| INCOME CONTINUING | 39 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 39 |
| EPS PRIMARY | (0.21) |
| EPS DILUTED | (0.21) |