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, 2000, 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 001-12878
_________
TIME WARNER ENTERTAINMENT COMPANY, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3666692
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
American Television and Communications
Corporation Delaware 13-2922502
Warner Communications Inc. Delaware 13-2696809
(Exact name of registrant
as specified in its charter) (State or other (I.R.S. Employer
jurisdiction or Identification Number)
organization)
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including zip code, and telephone number, including
area code, of each registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No / /
TIME WARNER ENTERTAINMENT COMPANY, L.P.
AND TWE GENERAL PARTNERS
INDEX TO FORM 10-Q
Page
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TWE
General
TWE Partners
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PART I. FINANCIAL INFORMATION
Management's discussion and analysis of results of operations and financial condition....... 1 22
Consolidated balance sheets at June 30, 2000 and December 31, 1999.......................... 10 26
Consolidated statements of operations for the three months and six months ended
June 30, 2000 and 1999................................................................... 11 27
Consolidated statements of cash flows for the six months ended June 30, 2000 and 1999....... 12 29
Consolidated statements of partnership capital and shareholders' equity for the
six months ended June 30, 2000 and 1999.................................................. 13 30
Notes to consolidated financial statements.................................................. 14 31
PART II. OTHER INFORMATION.................................................................. 39
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Description of Business
Time Warner Entertainment Company, L.P. ("TWE" or the "Company") classifies
its business interests into four fundamental areas: Cable Networks, consisting
principally of interests in cable television programming; Filmed Entertainment,
consisting principally of interests in filmed entertainment, television
production and television broadcasting; Cable, consisting principally of
interests in cable television systems; and Digital Media, consisting principally
of interests in Internet-related and digital media businesses. TWE also manages
the cable properties owned by Time Warner Inc. ("Time Warner") and the combined
cable television operations are conducted under the name of Time Warner Cable.
Use of EBITA
TWE evaluates operating performance based on several factors, including its
primary financial measure of 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.
These business combinations include 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, which
created over $10 billion of intangible assets that generally are being amortized
over a twenty to forty year period. The exclusion of noncash amortization
charges also is 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, generally are 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.
Transactions Affecting Comparability of Results of Operations
As more fully described herein, the comparability of TWE's operating
results has been affected by certain significant transactions and nonrecurring
items in each period.
For 2000, the significant, nonrecurring items included (i) net pretax
losses of approximately $8 million recognized in the second quarter relating to
the sale or exchange of various cable television systems and investments, (ii) a
$50 million pretax charge in the second quarter related to the Six Flags
Entertainment Corporation ("Six Flags") litigation, (iii) a pretax gain of $10
million in the first quarter relating to the partial recognition of a deferred
gain on the 1998 sale of Six Flags and (iv) a noncash charge of $524 million in
the first quarter reflecting the cumulative effect of an accounting change in
connection with the adoption of a new film accounting standard.
For 1999, the significant, nonrecurring items included (i) net pretax gains
of approximately $760 million recognized in the second quarter relating to the
sale or exchange of various cable television systems and investments, (ii) a
pretax gain of $10 million recognized in each of the first and second quarters
relating to the partial recognition of a deferred gain on the 1998 sale of Six
Flags and (iii) an approximate $215 million pretax gain recognized in the first
quarter in connection with the early termination and settlement of a long-term,
home video distribution agreement.
1
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
In order to meaningfully assess underlying operating trends, management
believes that the results of operations for each period should be analyzed after
excluding the effects of significant nonrecurring items. As such, the following
discussion and analysis focuses on amounts and trends adjusted to exclude the
impact of these unusual items. However, unusual items may occur in any period.
Accordingly, investors and other financial statement users individually should
consider the types of events and transactions for which adjustments have been
made.
RESULTS OF OPERATIONS
EBITA and operating income are as follows:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
Operating Operating
EBITA Income EBITA Income
-------------- --------------- ------------- ---------------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ---- ------ ---- ---- ---- ----
(millions)
Filmed Entertainment-Warner Bros.(a)................ $121 $ 132 $ 90 $ 101 $ 267 $ 478 $206 $ 417
Broadcasting-The WB Network......................... (21) (30) (22) (31) (52) (71) (54) (73)
Cable Networks-HBO.................................. 150 131 150 131 294 256 294 256
Cable(b)............................................ 385 1,099 276 1,011 778 1,436 560 1,263
Digital Media....................................... (17) - (17) - (30) - (30) -
---- ------ ----- ------ ----- ------ ---- ------
Total............................................... $618 $1,332 $477 $1,212 $1,257 $2,099 $976 $1,863
==== ====== ==== ====== ====== ====== ==== ======
- ------------
(a) Includes a pretax charge of $24 million recognized in the second quarter
of 2000 in connection with the Six Flags litigation, a pretax gain of $10
million related to the partial recognition of a deferred gain on the 1998
sale of Six Flags recognized in the first quarter of 2000 and in each of
the first and second quarters of 1999 and a pretax gain of approximately
$215 million recognized in the first quarter of 1999 relating to the early
termination and settlement of a long-term, home video distribution
agreement.
(b) Includes net pretax losses related to the sale or exchange of certain
cable television systems and investments of approximately $8 million in
the second quarter of 2000 and net pretax gains of approximately $760
million in the second quarter of 1999.
Three Months Ended June 30, 2000 Compared to the Three Months Ended June 30,
1999
Consolidated Results
TWE had revenues of $3.313 billion and net income of $145 million for the
three months ended June 30, 2000, compared to revenues of $3.060 billion and net
income of $767 million for the three months ended June 30, 1999.
As previously described, the comparability of TWE's operating results for
2000 and 1999 has been affected by certain significant, nonrecurring items
recognized in each period. These nonrecurring items aggregated approximately $58
million of net pretax losses in 2000, compared to approximately $770 million of
net pretax gains in 1999.
TWE's net income decreased to $145 million in 2000, compared to $767
million in 1999. However, excluding the effect of the nonrecurring items
referred to earlier, net income increased by $48 million to $203 million in 2000
from $155 million in 1999. As discussed more fully below, this increase
principally resulted from an overall increase in TWE's business segment
operating income, offset in part by higher interest expense principally due to
higher market interest rates on variable-rate debt, higher losses associated
with TWE's asset securitization program and higher losses from certain
investments accounted for under the equity method.
2
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
As a U.S. partnership, TWE is not subject to U.S. federal and state income
taxation. Income and withholding taxes of $25 million and $27 million for the
three months ended June 30, 2000 and 1999, respectively, have been provided for
the operations of TWE's domestic and foreign subsidiary corporations.
Business Segment Results
Filmed Entertainment-Warner Bros. Revenues increased to $1.452 billion in
2000, compared to $1.446 billion in 1999. EBITA, including the negative effect
on operating trends of one-time items relating to Six Flags, decreased to $121
million in 2000 from $132 million in 1999. Operating income similarly decreased
to $90 million in 2000 from $101 million in 1999 due to the one-time items.
Revenues principally benefited from an increase in the distribution of
television product, offset in part by lower revenues from the distribution of
theatrical product. Revenues from the distribution of theatrical product
decreased principally due to difficult comparisons to last year's theatrical
success of The Matrix and lower revenues from worldwide television exhibition,
which more than offset significant increases in DVD and home video sales.
Revenues from the distribution of television product increased principally due
to higher aggregate revenues from broadcast network and syndicated television
exhibition, offset in part by lower aggregate revenues from basic cable
exhibition.
Operating results for both periods include items related to Six Flags. The
2000 results include a pretax charge of $24 million relating to the Six Flags
litigation. The 1999 results include a pretax gain of $10 million relating to
the partial recognition of a deferred gain on the 1998 sale of Six Flags.
Excluding the impact of Six Flags, EBITA and operating income principally
increased as a result of the revenue gains and lower film costs.
Broadcasting-The WB Network. Revenues increased to $109 million in 2000,
compared to $83 million in 1999. EBITA improved to a loss of $21 million in 2000
from a loss of $30 million in 1999. Operating losses decreased to $22 million in
2000 from $31 million in 1999. Revenues increased principally as a result of one
additional night of prime-time programming in comparison to the prior year and
advertising rate increases, offset in part by lower prime-time television
ratings. Prime-time television ratings were negatively affected by lower
household delivery associated with the WGN Superstation discontinuing its
carriage of The WB Network's programming beginning in the fall of 1999. The
EBITA and operating loss improvements were due to the revenue gains, which more
than offset higher programming costs associated with the expanded programming
schedule.
Cable Networks-HBO. Revenues increased to $570 million in 2000, compared to
$546 million in 1999. EBITA and operating income increased to $150 million in
2000 from $131 million in 1999. Revenues benefited primarily from an increase in
subscriptions. EBITA and operating income increased principally due to the
revenue gains and increased cost savings.
Cable. Revenues increased to $1.280 billion in 2000, compared to $1.114
billion in 1999. EBITA, including the negative effect on operating trends of
one-time items recognized in each period, decreased to $385 million in 2000 from
$1.099 billion in 1999. Operating income similarly decreased to $276 million in
2000 from $1.011 billion in 1999 due to one-time items. Revenues increased due
to growth in basic cable subscribers, increases in basic cable rates, increases
in advertising and pay-per-view revenues and increases from the deployment of
digital cable and high-speed online services. The operating results of the Cable
segment were affected by net pretax losses of approximately $8 million in 2000
and net pretax gains of approximately $760 million in 1999 relating to the sale
or exchange of various cable television systems and investments. Excluding the
effect of these items, EBITA and operating income increased
3
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
principally as a result of the revenue gains and pension-related cost savings,
offset in part by higher programming costs and higher depreciation related to
capital spending.
Digital Media. Digital Media had $17 million of operating losses on
$2 million of revenues in 2000 principally due to start-up costs associated with
TWE's digital media businesses. TWE's digital media businesses include
Entertaindom, an advertiser-supported entertainment destination site, and other
entertainment-related websites. Due to the start-up nature of most of these
businesses, losses are expected to continue in 2000.
Interest and Other, Net. Interest and other, net, increased to $246 million
of expense in 2000, compared to $167 million of expense in 1999. Interest
expense increased to $169 million in 2000, compared to $136 million in 1999 as a
result of higher market interest rates on variable-rate debt and $26 million of
additional interest expense recorded in 2000 in connection with the Six Flags
litigation. Other expense, net, increased to $77 million in 2000, compared to
$31 million in 1999, primarily because of higher losses associated with TWE's
asset securitization program and higher losses from certain investments
accounted for under the equity method of accounting.
Minority Interest. Minority interest expense decreased to $43 million in
2000, compared to $233 million in 1999. The decrease in minority interest
expense was principally due to the allocation of a portion of the higher net
pretax gains in 1999 relating to the sale or exchange of various cable
television systems and investments owned by the TWE-Advance/Newhouse Partnership
("TWE-A/N") to the minority owners of that partnership. Excluding the
significant effect of the gains recognized in each period, minority interest
expense decreased principally due to a higher allocation of losses in 2000 to a
minority partner in The WB Network.
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999
Consolidated Results
TWE had revenues of $6.624 billion, income of $369 million before the
cumulative effect of an accounting change and a net loss of $155 million for the
six months ended June 30, 2000, compared to revenues of $5.994 billion and net
income of $1.079 billion for the six months ended June 30, 1999.
As previously described, the comparability of TWE's operating results
for 2000 and 1999 has been affected by certain significant, nonrecurring items
recognized in each period. These nonrecurring items, excluding the impact of the
accounting change, aggregated approximately $48 million of net pretax losses in
2000, compared to approximately $995 million of net pretax gains in 1999. In
addition, net income in 2000 was reduced by an after-tax charge of $524 million
relating to the cumulative effect of the accounting change.
TWE had a net loss of $155 million in 2000, compared to net income of
$1.079 billion in 1999. However, excluding the significant effect of the
nonrecurring items referred to earlier, net income increased by $175 million to
$417 million in 2000 from $242 million in 1999. As discussed more fully below,
this increase principally resulted from an overall increase in TWE's business
segment operating income and lower losses from certain investments accounted for
under the equity method, offset in part by higher interest expense principally
due to higher market interest rates on variable-rate debt and higher losses
associated with TWE's asset securitization program.
4
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Business Segment Results
Filmed Entertainment-Warner Bros. Revenues increased to $3.019 billion in
2000, compared to $2.826 billion in 1999. EBITA, including the negative effect
on operating trends of one-time items recognized in each period, decreased to
$267 million in 2000 from $478 million in 1999. Operating income similarly
decreased to $206 million in 2000 from $417 million in 1999 due to the one-time
items. Revenues benefited from increases in the distribution of both theatrical
and television product, offset in part by lower revenues from consumer product
operations. Revenues from the distribution of theatrical product increased
principally due to higher worldwide DVD and home video sales, offset in part by
lower revenues from worldwide theatrical and television exhibition. Revenues
from the distribution of television product increased principally due to higher
aggregate revenues from basic cable, broadcast network and syndicated television
exhibition.
Operating results for both periods include one-time items. The 2000 results
include a pretax charge of $24 million relating to the Six Flags litigation and
a $10 million pretax gain relating to the partial recognition of a deferred gain
on the 1998 sale of Six Flags. The 1999 results include pretax gains of $20
million relating to the partial recognition of the deferred gain on the 1998
sale of Six Flags and an approximate $215 million net pretax gain recognized in
connection with the early termination and settlement of a long-term, home video
distribution agreement. Excluding the effect of these items, EBITA and operating
income increased principally as a result of the revenue gains and lower film
costs, offset in part by lower investment-related income.
Broadcasting-The WB Network. Revenues increased to $211 million in 2000,
compared to $162 million in 1999. EBITA improved to a loss of $52 million in
2000 from a loss of $71 million in 1999. Operating losses decreased to $54
million in 2000 from $73 million in 1999. Revenues increased principally as a
result of one additional night of prime-time programming in comparison to the
prior year and advertising rate increases, offset in part by lower prime-time
television ratings. Prime-time television ratings were negatively affected by
lower household delivery associated with the WGN Superstation discontinuing its
carriage of The WB Network's programming beginning in the fall of 1999. The
EBITA and operating loss improvements were due to the revenue gains, which more
than offset higher programming costs associated with the expanded programming
schedule.
Cable Networks-HBO. Revenues increased to $1.124 billion in 2000, compared
to $1.072 billion in 1999. EBITA and operating income increased to $294 million
in 2000 from $256 million in 1999. Revenues benefited primarily from an increase
in subscriptions. The increase in EBITA and operating income was principally due
to the revenue gains and increased cost savings, offset in part by lower gains
from the sale of certain investments.
Cable. Revenues increased to $2.511 billion in 2000, compared to $2.188
billion in 1999. EBITA, including the negative effect on operating trends of
one-time items recognized in each period, decreased to $778 million in 2000 from
$1.436 billion in 1999. Operating income similarly decreased to $560 million in
2000 from $1.263 billion in 1999 due to the one-time items. Revenues increased
due to growth in basic cable subscribers, increases in basic cable rates,
increases in advertising revenues and the deployment of digital cable and
high-speed online services. The operating results of the Cable segment were
affected by net pretax losses of approximately $8 million in 2000 and net pretax
gains of approximately $760 million in 1999 relating to the sale or exchange of
various cable television systems and investments. Excluding the effect of these
items, EBITA and operating income increased principally as a result of the
revenue gains and pension-related cost savings, offset in part by higher
programming costs and higher depreciation related to capital spending.
5
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Digital Media. Digital Media had $30 million of operating losses on $3
million of revenues in 2000 principally due to start-up costs associated with
TWE's digital media businesses. TWE's digital media businesses include
Entertaindom, an advertiser-supported entertainment destination site, and other
entertainment-related websites. Due to the start-up nature of most of these
businesses, losses are expected to continue in 2000.
Interest and Other, Net. Interest and other, net, increased to $426 million
of expense in 2000, compared to $387 million of expense in 1999. Interest
expense increased to $313 million in 2000, compared to $273 million in 1999 as a
result of higher market interest rates on variable-rate debt and $26 million of
additional interest expense recorded in 2000 in connection with the Six Flags
litigation. Other expense, net, decreased to $113 million in 2000, compared to
$114 million in 1999. This decrease principally related to lower losses from
certain investments accounted for under the equity method, offset primarily by
higher losses associated with TWE's asset securitization program.
Minority Interest. Minority interest expense decreased to $83 million in
2000, compared to $306 million in 1999. The decrease in minority interest
expense was principally due to the allocation of a portion of the higher net
pretax gains in 1999 relating to the sale or exchange of various cable
television systems and investments owned by TWE-A/N to the minority owners of
that partnership. Excluding the significant effect of the gains recognized in
each period, minority interest expense decreased principally due to a higher
allocation of losses in 2000 to a minority partner in The WB Network.
FINANCIAL CONDITION AND LIQUIDITY
June 30, 2000
Financial Condition
At June 30, 2000, TWE had $6.2 billion of debt, $179 million of cash and
equivalents (net debt of $6.0 billion) and $6.5 billion of partners' capital.
This compares to $6.7 billion of debt, $517 million of cash and equivalents (net
debt of $6.2 billion) and $7.1 billion of partners' capital at December 31,
1999.
Cash Flows
During the first six months of 2000, TWE's cash provided by operations
amounted to $1.675 billion and reflected $1.257 billion of business segment
EBITA, $437 million of noncash depreciation expense, $246 million of proceeds
from TWE's asset securitization program and $86 million related to an aggregate
decrease in working capital requirements, other balance sheet accounts and
noncash items, less $263 million of interest payments, $51 million of income
taxes and $37 million of corporate expenses. Cash provided by operations of
$1.519 billion in the first six months of 1999 reflected $2.099 billion of
business segment EBITA, $406 million of noncash depreciation expense and $21
million of proceeds from TWE's asset securitization program, less $242 million
of interest payments, $49 million of income taxes, $36 million of corporate
expenses and $680 million related to an aggregate increase in working capital
requirements, other balance sheet accounts and noncash items.
Cash used by investing activities was $1.051 billion in the first six
months of 2000, compared to $662 million in the first six months of 1999,
principally as a result of a decrease in cash proceeds from the sale of
investments and an increase in capital expenditures. Capital expenditures
increased to $894 million in the first six months of 2000, compared
6
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
to $649 million in the first six months of 1999, reflecting higher spending on
variable capital to facilitate a more aggressive roll-out of Time Warner
Cable's popular digital cable and high-speed online services.
Cash used by financing activities was $962 million in the first six months
of 2000, compared to $827 million in the first six months of 1999. The use of
cash in 2000 principally resulted from the payment of $473 million of capital
distributions to Time Warner and $423 million of debt reduction. The use of cash
in 1999 principally resulted from the redemption of preferred stock of a
subsidiary at an aggregate cost of $217 million, the payment of $280 million of
capital distributions to Time Warner and $229 million of debt reduction.
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 segment amounted to
$836 million in the six months ended June 30, 2000, compared to $587 million in
the six months ended June 30, 1999. Cable capital spending for the remainder of
2000 is budgeted to be approximately $850 million, reflecting higher spending on
variable capital to facilitate a more aggressive roll-out of Time Warner Cable's
popular digital cable and high-speed online services. Capital spending is
expected to continue to be funded by cable operating cash flow.
Investment in Road Runner
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 online
businesses ("Road Runner"). In exchange for contributing these operations, TWE
and TWE-A/N received a collective 57.9% common equity interest in Road Runner
and MediaOne received a 31.4% interest. In exchange for Microsoft and Compaq
contributing $425 million of cash to Road Runner, Microsoft and Compaq each
received a preferred equity interest therein that is convertible into a 10%
common equity interest (the "Preferred Equity Interests").
In June 2000, AT&T Corp. ("AT&T") acquired MediaOne Group, Inc.
("MediaOne"). As a condition to closing the acquisition, AT&T agreed to a
requirement by the United States Department of Justice to divest itself of
MediaOne's interest in Road Runner within an eighteen-month period of time. As a
result, TWE is evaluating strategic alternatives for restructuring Road Runner's
ownership and operations. In connection with some of these alternatives, TWE
could be required to record a one-time restructuring charge that could range
from $150-250 million. This charge would be expected to cover any premium paid
to redeem Road Runner's Preferred Equity Interests, lease termination and other
related restructuring costs. Such a charge would be recorded in interest and
other, net. In addition, as part of a restructuring, TWE's Cable segment could
begin consolidating a portion of the operations of Road Runner. This would
result in the Cable segment recognizing operating losses from Road Runner, which
previously had been included in interest and other, net, through TWE's equity in
the pretax losses of Road Runner.
7
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Warner Bros. Backlog
Warner Bros.'s 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. Warner Bros.'s backlog amounted to $3.178 billion at June 30, 2000,
compared to $3.033 billion at December 31, 1999 (including amounts relating to
licensing of film product to TWE's cable television networks of $331 million and
to Time Warner's cable television networks of $650 million at June 30, 2000 and
$365 million to TWE's cable television networks and $599 million to Time
Warner's cable television networks at December 31, 1999).
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 received periodically
over the term of the related licensing agreements or on an accelerated basis
using a $500 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. As of June 30, 2000, including cash received
under the securitization facility and other advanced payments, approximately
$625 million of cash licensing fees had been collected against the backlog. 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.
Caution Concerning Forward-Looking Statements
The Securities and Exchange Commission (the "SEC") encourages companies to
disclose forward-looking information so that investors can better understand a
company's future prospects and make informed investment decisions. This
document, 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. Words such as "anticipates,"
"estimates," "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 or
beliefs about future events. As with any projection or forecast, they are
inherently susceptible to uncertainty and changes in circumstances, and TWE is
under no obligation to (and expressly disclaims any such obligation to) update
or alter its forward-looking statements whether as a result of such changes, new
information, future events or otherwise.
TWE operates in highly competitive, consumer driven and rapidly changing
media and entertainment businesses that are dependent on government regulation
and economic, political and social conditions in the countries in which they
operate, consumer demand for their products and services, technological
developments 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 with the SEC and:
. For TWE's cable business, more aggressive than expected competition from
new technologies and other types of video programming distributors,
including DBS and DSL; increases in government regulation of basic cable
or equipment rates or other terms of service (such as "digital must-carry"
or common carrier requirements); increased difficulty in obtaining
franchise renewals; the failure of new equipment (such as digital set-top
boxes) or services
8
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
(such as digital cable, high-speed online services, telephony
over cable or video on demand) to appeal to enough consumers or
to be available at reasonable prices to function as expected and 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 (and the negative impact on premium
programmers of increases in basic cable rates); increased regulation of
distribution agreements; 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 TWE's film and television businesses, their ability to continue to
attract and select desirable talent and scripts at manageable costs;
general increases in production costs; 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 TWE's digital media businesses, their ability to locate and invest in
profitable businesses, to develop products and services that are
attractive, accessible and commercially viable in terms of content,
technology and cost; their ability to manage costs and generate revenues;
aggressive competition from existing and developing technologies and
products; the resolution of issues concerning commercial activities via
the Internet, including security, reliability, cost, ease of use and
access; and the possibility of increased government regulation of new
media services.
In addition, TWE's overall financial strategy, including growth in
operations, maintaining its financial ratios and strengthened balance sheet,
could be adversely affected by increased interest rates, failure to meet
earnings expectations, significant acquisitions or other transactions,
consequences of the euro conversion and changes in TWE's plans, strategies and
intentions.
9
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
2000 1999
-------- -------------
(millions)
ASSETS
Current assets
Cash and equivalents............................................................ $ 179 $ 517
Receivables, including $1.114 and $1.354 billion due from Time Warner,
less allowances of $696 and $668 million.................................... 2,678 3,328
Inventories..................................................................... 581 639
Prepaid expenses................................................................ 179 246
------- ------
Total current assets............................................................ 3,617 4,730
Noncurrent inventories and film costs........................................... 2,478 2,855
Investments..................................................................... 702 774
Property, plant and equipment................................................... 6,971 6,488
Cable television franchises..................................................... 5,471 5,464
Goodwill........................................................................ 3,665 3,731
Other assets.................................................................... 664 801
------- -------
Total assets.................................................................... $23,568 $24,843
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable................................................................ $ 1,761 $ 1,791
Participations payable.......................................................... 1,077 1,258
Programming costs payable....................................................... 539 459
Debt due within one year........................................................ 7 6
Other current liabilities, including $1.022 billion and $893 million
due to Time Warner......................................................... 2,285 2,209
----- -----
Total current liabilities....................................................... 5,669 5,723
Long-term debt.................................................................. 6,231 6,655
Other long-term liabilities, including $1.328 and $1.292 billion
due to Time Warner ......................................................... 3,413 3,501
Minority interests.............................................................. 1,802 1,815
Partners' capital
Contributed capital............................................................. 7,349 7,338
Partnership deficit............................................................. (896) (189)
------- -------
Total partners' capital......................................................... 6,453 7,149
------- -------
Total liabilities and partners' capital......................................... $23,568 $24,843
======= =======
See accompanying notes.
10
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Revenues(a)........................................................... $3,313 $3,060 $6,624 $5,994
------ ------ ------ ------
Cost of revenues(a)(b)................................................ (1,976) (1,879) (4,002) (3,697)
Selling, general and administrative(a)(b)............................. (711) (609) (1,357) (1,173)
Amortization of goodwill and other intangible assets.................. (141) (120) (281) (236)
Gain (loss) on sale or exchange of cable systems and investments...... (8) 760 (8) 760
Gain on early termination of video distribution agreement............. - - - 215
------ ------ ------- ------
Business segment operating income..................................... 477 1,212 976 1,863
Interest and other, net(a)............................................ (246) (167) (426) (387)
Corporate services(a)................................................. (18) (18) (37) (36)
Minority interest..................................................... (43) (233) (83) (306)
------ ------ ------- -----
Income before income taxes and cumulative effect of accounting
change............................................................ 170 794 430 1,134
Income taxes.......................................................... (25) (27) (61) (55)
------ ------ ------ ------
Income before cumulative effect of accounting change.................. 145 767 369 1,079
Cumulative effect of accounting change................................ - - (524) -
------ ------- ----- -----
Net income (loss)..................................................... $ 145 $ 767 $ (155) $1,079
====== ===== ====== ======
- ---------------
(a) Includes the following income (expenses) resulting from transactions with the partners of TWE and other related companies:
Revenues...................................................... $ 126 $ 152 $ 219 $ 272
Cost of revenues.............................................. (84) (58) (147) (136)
Selling, general and administrative........................... (23) (12) (47) (16)
Interest and other, net....................................... 6 8 9 28
Corporate expenses............................................ (18) (18) (37) (36)
(b) Includes depreciation expense of:............................... $ 222 $ 214 $ 437 $ 406
===== ===== ===== =====
See accompanying notes.
11
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
--------------------
2000 1999
---- ----
(millions)
OPERATIONS
Net income (loss)............................................................... $ (155) $1,079
Adjustments for noncash and nonoperating items:
Cumulative effect of accounting change...................................... 524 -
Depreciation and amortization............................................... 718 642
Amortization of film costs.................................................. 732 877
(Gain) loss on sale or exchange of cable systems and investments............ 8 (760)
Equity in losses of investee companies after distributions.................. 111 100
Changes in operating assets and liabilities..................................... (263) (419)
------ -----
Cash provided by operations..................................................... 1,675 1,519
------ ------
INVESTING ACTIVITIES
Investments and acquisitions.................................................... (231) (223)
Capital expenditures............................................................ (894) (649)
Investment proceeds............................................................. 74 210
------- -----
Cash used by investing activities............................................... (1,051) (662)
------ -----
FINANCING ACTIVITIES
Borrowings...................................................................... 894 1,310
Debt repayments................................................................. (1,317) (1,539)
Redemption of preferred stock of subsidiary..................................... - (217)
Capital distributions........................................................... (473) (280)
Other........................................................................... (66) (101)
------ ------
Cash used by financing activities............................................... (962) (827)
------ -----
INCREASE (DECREASE) IN CASH AND EQUIVALENTS..................................... (338) 30
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD..................................... 517 87
------ ------
CASH AND EQUIVALENTS AT END OF PERIOD........................................... $ 179 $ 117
====== ======
See accompanying notes.
12
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF PARTNERSHIP CAPITAL
(Unaudited)
Six Months
Ended June 30,
--------------------
2000 1999
---- ----
(millions)
BALANCE AT BEGINNING OF PERIOD.................................................. $7,149 $5,107
Net income (loss)............................................................... (155) 1,079
Other comprehensive income (loss)............................................... (46) 47
------ -----
Comprehensive income(a)......................................................... (201) 1,126
Distributions................................................................... (509) (497)
Allocation of income to Time Warner General Partners' Senior Capital............ - (24)
Other........................................................................... 14 (1)
------ -----
BALANCE AT END OF PERIOD........................................................ $6,453 $5,711
====== ======
- -------------------
(a) Comprehensive income was $108 million for the three months ended June 30, 2000 and $773 million for the three months ended
June 30, 1999.
See accompanying notes.
13
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Time Warner Entertainment Company, L.P., a Delaware limited partnership
("TWE"), classifies its business interests into four fundamental areas: Cable
Networks, consisting principally of interests in cable television programming;
Filmed Entertainment, consisting principally of interests in filmed
entertainment, television production and television broadcasting; Cable,
consisting principally of interests in cable television systems; and Digital
Media, consisting principally of interests in Internet-related and digital media
businesses.
Each of the business interests within Cable Networks, Filmed Entertainment,
Cable and Digital Media is important to TWE's objective of increasing partner
value through the creation, extension and distribution of recognizable brands
and copyrights throughout the world. Such brands and copyrights include (1) HBO
and Cinemax, the leading pay-television services, (2) the unique and extensive
film, television and animation libraries of Warner Bros. and trademarks such as
the Looney Tunes characters and Batman, (3) The WB Network, a national
broadcasting network launched in 1995 as an extension of the Warner Bros. brand
and as an additional distribution outlet for Warner Bros.'s collection of
children's cartoons and television programming, (4) Time Warner Cable, the
second largest operator of cable television systems in the U.S. and (5) Internet
websites, such as Entertaindom.com.
The operating results of TWE's various business segments are presented
herein as an indication of financial performance (Note 5). Except for start-up
losses incurred in connection with The WB Network and Digital Media, TWE's
principal business segments generate significant operating income and cash flow
from operations. The cash flow from operations generated by such business
segments is considerably greater than their operating income due to significant
amounts of noncash amortization of intangible assets recognized principally in
Time Warner 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 was allocated to TWE upon the capitalization of the
partnership. Noncash amortization of intangible assets recorded by TWE's
business segments amounted to $141 million for the three months ended June 30,
2000 and $120 million for the three months ended June 30, 1999. On a
year-to-date basis, noncash amortization of intangible assets recorded by TWE's
business segments amounted to $281 million in 2000 and $236 million in 1999.
Certain of Time Warner's 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 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"), which was acquired by AT&T Corp. on June 15, 2000. Certain of Time
Warner's subsidiaries are the general partners of TWE ("Time Warner General
Partners").
Basis of Presentation
Interim Financial Statements
The accompanying consolidated 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
14
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
accounting principles applicable to interim periods. The accompanying
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements of TWE included in its Annual
Report on Form 10-K for the year ended December 31, 1999 (the "1999 Form
10-K").
Cumulative Effect of Change in Film Accounting Principle
In June 2000, TWE adopted Statement of Position 00-2, "Accounting by
Producers and Distributors of Films" ("SOP 00-2"). SOP 00-2 established new film
accounting standards, including changes in revenue recognition and accounting
for advertising, development and overhead costs. Specifically, SOP 00-2 requires
advertising costs for theatrical and television product to be expensed as
incurred. This compares to TWE's previous policy of first capitalizing and then
expensing advertising costs for theatrical product over the related revenue
streams. In addition, SOP 00-2 requires development costs for abandoned projects
and certain indirect overhead costs to be charged directly to expense, instead
of those costs being capitalized to film costs, which was required under the
previous accounting model. SOP 00-2 also requires all film costs to be
classified in the balance sheet as noncurrent assets. Provisions of SOP 00-2 in
other areas, such as revenue recognition, generally are consistent with TWE's
existing accounting policies.
TWE has adopted the provisions of SOP 00-2 retroactively to the beginning
of 2000. As a result, TWE's net income for the six months ended June 30, 2000
includes a one-time, noncash charge of $524 million, primarily to reduce the
carrying value of its film inventory. This charge has been reflected as a
cumulative effect of an accounting change in the accompanying consolidated
statement of operations.
As a result of adopting the provisions of SOP 00-2 retroactively to the
beginning of 2000, TWE has restated its operating results for the three months
ended March 31, 2000, as follows:
As Reported As Restated
----------- -----------
(millions)
Revenues........................................................................ $3,297 $3,311
Business segment operating income............................................... 497 499
Income before cumulative effect of accounting change............................ 222 224
Net income (loss)............................................................... 222 (300)
Revenue Classification Changes
In June 2000, the Securities and Exchange Commission issued an amendment to
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which delays the implementation date for TWE to the fourth quarter
of 2000. While TWE's existing revenue recognition policies are consistent with
the provisions of SAB 101, the new rules are expected to result in some changes
in how the filmed entertainment industry classifies its revenues and costs,
particularly relating to distribution arrangements for third-party and
co-financed joint venture product. As a result of these classification changes,
it is expected that both annual revenues and costs in TWE's filmed entertainment
businesses will be reduced by an equal amount of approximately $1.5-2 billion.
Similarly, it is expected that TWE's disclosure of the amount of backlog, which
represents the amount of future revenue not yet recorded from cash contracts for
the licensing of theatrical and television product, will be reduced by
approximately $500-700 million, depending upon the amount of third-party and
co-financed joint venture product being licensed. TWE is continuing to evaluate
the overall impact of SAB 101 on its consolidated financial statements; however,
other aspects of SAB 101 are not expected to have a significant effect on TWE's
consolidated financial statements.
15
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the 2000 presentation.
2. SIGNIFICANT TRANSACTIONS
America Online-Time Warner Merger
In January 2000, Time Warner and America Online, Inc. ("America Online")
announced that they had entered into an agreement to merge (the "Merger") by
forming a new holding company named AOL Time Warner Inc. ("AOL Time Warner").
The Merger will create a leading, fully integrated media and communications
company that will combine Time Warner's and TWE's collection of media,
entertainment and news brands and its technologically advanced cable
infrastructure with America Online's extensive Internet franchises and
technology. Management believes that the combined company will be well
positioned to expand the use of the Internet in consumers' everyday lives and,
accordingly, provide Time Warner's and TWE's content businesses with increased
access to consumers through a new and growing distribution medium. Management
further believes that the Merger will result in significant new business and
other value-creation opportunities, including additional opportunities for
e-commerce, growth in subscribers for each company's products and services, and
cost and operating efficiencies from cross-promotional and other opportunities.
As a result of the Merger, the former shareholders of America Online will
have an approximate 55% interest in AOL Time Warner and the former shareholders
of Time Warner will have an approximate 45% interest in the combined entity,
expressed on a fully diluted basis. The Merger is expected to be accounted for
by AOL Time Warner as an acquisition of Time Warner under the purchase method of
accounting for business combinations.
The Merger was approved by the shareholders of America Online and Time
Warner on June 23, 2000. The Merger is expected to close in the fall of 2000 and
is subject to customary closing conditions, including all necessary regulatory
approvals. There can be no assurance that such approvals will be obtained.
Six Flags
In 1998, TWE sold its remaining 49% interest in Six Flags Entertainment
Corporation ("Six Flags") to Premier Parks Inc. ("Premier," now known as Six
Flags Inc.), a regional theme park operator, for approximately $475 million. TWE
initially deferred a $400 million gain on the transaction principally as a
result of uncertainties surrounding its realization. Those uncertainties related
to litigation and TWE's guarantees of Premier's long-term obligations to make
minimum payments to the limited partners of the Six Flags Over Texas and Six
Flags Over Georgia theme parks (the "Co-Venture Guarantees").
TWE management periodically had evaluated its reasonably possible risk of
loss relating to the Six Flags litigation and Co-Venture Guarantees. Based on
the improving financial performance of Premier and the Six Flags Over Texas and
Six Flags Over Georgia theme parks, management believed that its aggregate
financial exposure had declined steadily. Accordingly, TWE periodically
recognized a portion of the deferred gain as its realization became more fully
assured. For each quarter of 1999 and in the first quarter of 2000, a $10
million pretax gain was recognized. These amounts have been included in business
segment operating income in the accompanying consolidated statement of
operations.
16
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
In December 1998, a jury returned an adverse verdict in the Six Flags
litigation in the amount of $454 million. TWE and its former 51% partner in Six
Flags are financially responsible for this judgment. TWE appealed the verdict,
but, in July 2000, an appellate court unexpectedly affirmed the jury's verdict.
As a result, TWE revised its estimate of its financial exposure and recorded a
one-time, pretax charge of $50 million in the second quarter of 2000 to cover
its additional financial exposure in excess of established reserves. These
reserves consisted of the unrecognized portion of the deferred gain and accrued
interest. The $50 million charge is classified in two components in TWE's
accompanying consolidated statement of operations: $26 million of the charge,
representing an accrual for additional interest, is included in interest and
other, net, and the remaining $24 million is included in business segment
operating income.
Gains (Losses) on Sale or Exchange of Cable Television Systems and Investments
In 2000 and 1999, largely in an effort to enhance their geographic
clustering of cable television properties, TWE sold or exchanged various cable
television systems and investments. In connection with these transactions, TWE's
cable segment recognized net pretax losses for the three and six months ended
June 30, 2000 of approximately $8 million and net pretax gains of approximately
$760 million for the three and six months ended June 30, 1999. Such amounts have
been included in business segment operating income in the accompanying
consolidated statement of operations.
1999 Gain on Termination of Video Distribution Agreement
In March 1999, Warner Bros. and Metro-Goldwyn-Mayer, Inc. ("MGM")
terminated a long-term distribution agreement under which Warner Bros. had
exclusive worldwide distribution rights for MGM/United Artists home video
product. In connection with the early termination and settlement of this
distribution agreement, Warner Bros. recognized a net pretax gain of
approximately $215 million, which has been included in 1999 business segment
operating income in the accompanying consolidated statement of operations.
17
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. INVENTORIES AND FILM COSTS
Inventories and film costs consist of:
June 30, December 31,
2000 1999
---------- ------------
(millions)
Programming costs, less amortization............................................ $ 799 $ 854
Film costs-Theatrical:
Released, less amortization................................................. 790 924
Completed and not released.................................................. 139 68
In production............................................................... 279 468
Development and pre-production.............................................. 35 59
Film costs-Television:
Released, less amortization................................................. 210 363
Completed and not released.................................................. 10 9
In production............................................................... 63 8
Development and pre-production.............................................. 6 5
Film costs-Library, less amortization........................................... 482 508
Merchandise..................................................................... 246 228
------ ------
Total inventories and film costs................................................ 3,059 3,494
Less current portion of inventory............................................... 581 639
------ ------
Total noncurrent inventories and film costs..................................... $2,478 $2,855
====== ======
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 June 30, 1992, the greater of the
exercise price or the $13.88 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, 2000, TWE accrued $284 million of
tax-related distributions and $225 million of stock option distributions, based
on closing prices of Time Warner Inc. common stock of $76 at June 30, 2000 and
$72.31 at December 31, 1999. During the six months ended June 30, 1999, TWE
accrued $138 million of tax-related distributions and $359 million of stock
option distributions as a result of an increase at that time in the market price
of Time Warner Inc. common stock. During the six months ended June 30, 2000, TWE
paid distributions to the Time Warner General Partners in the amount of $473
million, consisting of $284 million of tax-related distributions and $189
million of stock option related distributions. During the six months ended June
30, 1999, TWE paid distributions to the Time Warner General Partners in the
amount of $280 million, consisting of $138 million of tax-related distributions
and $142 million of stock option related distributions.
18
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
5. SEGMENT INFORMATION
TWE classifies its business interests into four fundamental areas: Cable
Networks, consisting principally of interests in cable television programming;
Filmed Entertainment, consisting principally of interests in filmed
entertainment, television production and television broadcasting; Cable,
consisting principally of interests in cable television systems; and Digital
Media, consisting principally of interests in Internet-related and digital media
businesses. TWE's Digital Media segment commenced operations in the fourth
quarter of 1999.
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 accounting policies of the business segments
are the same as those described in the summary of significant accounting
policies under Note 1 in TWE's 1999 Form 10-K. Intersegment sales are accounted
for at fair value as if the sales were to third parties.
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Revenues
Filmed Entertainment-Warner Bros............................... $1,452 $1,446 $3,019 $2,826
Broadcasting-The WB Network.................................... 109 83 211 162
Cable Networks-HBO............................................. 570 546 1,124 1,072
Cable.......................................................... 1,280 1,114 2,511 2,188
Digital Media.................................................. 2 - 3 -
Intersegment elimination....................................... (100) (129) (244) (254)
------ ------ ------ ------
Total.......................................................... $3,313 $3,060 $6,624 $5,994
====== ====== ====== ======
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
EBITA(a)
Filmed Entertainment-Warner Bros.(b)........................... $121 $ 132 $ 267 $ 478
Broadcasting-The WB Network.................................... (21) (30) (52) (71)
Cable Networks-HBO............................................. 150 131 294 256
Cable(c)....................................................... 385 1,099 778 1,436
Digital Media.................................................. (17) - (30) -
---- ------ ------ ------
Total.......................................................... $618 $1,332 $1,257 $2,099
==== ====== ====== ======
- ---------------
(a) EBITA represents business segment operating income before noncash
amortization of intangible assets. After deducting amortization of
intangible assets, TWE's business segment operating income for the second
quarter was $477 million in 2000 and $1.212 billion in 1999. TWE's
business segment operating income for the first six months of the year was
$976 million in 2000 and $1.863 billion in 1999.
(b) Includes a pretax charge of $24 million recognized in the second quarter
of 2000 in connection with the Six Flags litigation, a pretax gain of $10
million relating to the partial recognition of a deferred gain in
connection with the 1998 sale of Six Flags recognized in the first quarter
of 2000 and in each of the first and second quarters of 1999 and a pretax
gain of approximately $215 million recognized in the first quarter of 1999
relating to the early termination and settlement of a long-term, home
video distribution agreement.
(c) Includes net pretax losses relating to the sale or exchange of certain
cable television systems of approximately $8 million in the second quarter
of 2000 and net pretax gains of approximately $760 million in the second
quarter of 1999.
19
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Depreciation of Property, Plant and Equipment
Filmed Entertainment-Warner Bros............................... $ 22 $ 36 $ 43 $ 65
Broadcasting-The WB Network.................................... 1 1 1 1
Cable Networks-HBO............................................. 8 6 15 13
Cable.......................................................... 191 171 377 327
Digital Media.................................................. - - 1 -
---- ---- ---- ----
Total.......................................................... $222 $214 $437 $406
==== ==== ==== ====
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Amortization of Intangible Assets (a)
Filmed Entertainment-Warner Bros............................... $ 31 $ 31 $ 61 $ 61
Broadcasting-The WB Network.................................... 1 1 2 2
Cable Networks-HBO............................................. - - - -
Cable.......................................................... 109 88 218 173
Digital Media.................................................. - - - -
---- ---- ---- ----
Total.......................................................... $141 $120 $281 $236
==== ==== ==== ====
(a) Includes amortization relating to all business combinations accounted for
by the purchase method, including Time Warner's $14 billion acquisition of
WCI in 1989 and $1.3 billion acquisition of the minority interest in ATC
in 1992.
6. COMMITMENTS AND CONTINGENCIES
TWE is subject to certain litigation relating to Six Flags. In December
1998, a jury returned an adverse verdict in the Six Flags matter in the amount
of $454 million. TWE and its former 51% partner in Six Flags are financially
responsible for this judgment. As described in Note 2, TWE appealed the verdict,
but, in July 2000, an appellate court unexpectedly affirmed the jury's verdict.
As a result, TWE revised its estimate of its financial exposure and recorded a
one-time, pretax charge of $50 million in the second quarter of 2000 to cover
its additional financial exposure in excess of established reserves.
TWE is subject to numerous other legal proceedings. In management's opinion
and considering established reserves, the resolution of these matters will not
have a material effect, individually and in the aggregate, on TWE's consolidated
financial statements.
20
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
7. ADDITIONAL FINANCIAL INFORMATION
Cash Flows
Additional financial information with respect to cash flows is as follows:
Six Months
Ended June 30,
--------------------
2000 1999
---- ----
(millions)
Cash payments made for interest...................................... $263 $242
Cash payments made for income taxes, net............................. 51 49
Noncash capital distributions........................................ 225 359
Interest and Other, Net
Interest and other, net, consists of:
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Interest expense..................................................... $(169) $(136) $(313) $(273)
Other investment-related activity, principally net losses
on corporate-related equity investees.............................. (47) (21) (61) (87)
Corporate finance-related activity, including losses on
asset securitization programs...................................... (36) (9) (43) (18)
Miscellaneous........................................................ 6 (1) (9) (9)
----- ----- ----- -----
Total interest and other, net........................................ $(246) $(167) $(426) $(387)
===== ===== ===== =====
21
TWE GENERAL PARTNERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On June 30, 1992, thirteen direct or indirect subsidiaries of Time Warner
Companies, Inc. ("TW Companies") contributed the assets and liabilities or the
rights to the cash flows of substantially all of TW Companies's Filmed
Entertainment-Warner Bros., Cable Networks-HBO and Cable businesses to Time
Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), for
general partnership interests, and each general partner guaranteed a pro rata
portion of substantially all of TWE's debt and accrued interest based on the
relative fair value of the net assets each contributed to TWE (the "General
Partner Guarantees"). Since then, eleven of the thirteen original general
partners have been merged or dissolved into the other two. Warner Communications
Inc. ("WCI") and American Television and Communications Corporation ("ATC") are
the two remaining general partners of TWE (collectively, the "General
Partners"). They have succeeded to the general partnership interests and have
assumed the General Partner Guarantees of the eleven former general partners.
Set forth below is a discussion of the results of operations and financial
condition of WCI, the only General Partner with independent business operations.
WCI conducts substantially all of TW Companies's Music operations, which include
copyrighted music from many of the world's leading recording artists that is
produced and distributed by a family of established record labels such as Warner
Bros. Records, Atlantic Records, Elektra Entertainment and Warner Music
International. The financial position and results of operations of ATC are
principally derived from its investments in TWE, TW Companies, Turner
Broadcasting System, Inc. and Time Warner Telecom Inc. ("Time Warner Telecom"),
and its revolving credit agreement with TW Companies. Capitalized terms are as
defined and described in the accompanying consolidated financial statements, or
elsewhere herein.
Use of EBITA
WCI evaluates operating performance based on several factors, including its
primary financial measure of 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. The exclusion of noncash amortization charges is consistent
with management's belief that WCI's intangible assets, such as music catalogues
and copyrights and the goodwill associated with its brands, generally are
increasing in value and importance to WCI'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 WCI 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
WCI's operating results for 1999 reflect a change in the way management
evaluates its investment in the Columbia House Company Partnerships ("Columbia
House"), an equity investee. Effective on January 1, 2000, management
reclassified WCI's share of the operating results of Columbia House from
business segment operating income to interest and other, net, in the
accompanying consolidated statement of operations. This reclassification
resulted primarily from the planned restructuring of Columbia House's
traditional direct-marketing business and an increasing dependency on the sale
of video product.
22
TWE GENERAL PARTNERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Three Months Ended June 30, 2000 Compared to the Three Months Ended June 30,
1999
WCI had revenues of $956 million and net income of $41 million in 2000,
compared to revenues of $828 million and net income of $353 million in 1999.
EBITA increased to $109 million in 2000 from $98 million in 1999 after giving
effect to the Columbia House reclassification described earlier. Operating
income increased to $47 million in 2000 from $33 million in 1999 after giving
effect to the Columbia House reclassification. Revenues increased primarily due
to higher domestic and international recorded music sales and higher revenues
from DVD manufacturing operations. Revenues benefited principally from higher
compact disc sales of a broad range of popular releases, including the latest
releases from matchbox twenty, Kid Rock and the Red Hot Chili Peppers. EBITA and
operating income increased principally as a result of the revenue gains, offset
in part by higher marketing and artist royalty costs.
WCI's equity in the pretax income of TWE was $101 million in 2000, compared
to $470 million in 1999. TWE's pretax income decreased in 2000 as compared to
1999 because of the effect of certain significant nonrecurring items recognized
in each period, as described more fully in Note 3 to the accompanying
consolidated financial statements. These nonrecurring items aggregated
approximately $58 million of net pretax losses in 2000, compared to
approximately $770 million of net pretax gains in 1999. Excluding the
significant effect of these nonrecurring items, TWE's pretax income increased
principally as a result of an overall increase in TWE's business segment
operating income, offset in part by higher interest expense principally due to
higher market interest rates on variable-rate debt, higher losses associated
with TWE's asset securitization program and higher losses from certain
investments accounted for under the equity method of accounting.
Interest and other, net, was $26 million of expense in 2000, compared to
$76 million of income in 1999. Interest expense was $4 million in 2000, compared
to $3 million in 1999. There was other expense, net, of $22 million in 2000,
compared to other income, net, of $79 million in 1999. Other expense, net,
increased principally because of the absence in 2000 of an approximate $53
million pretax gain in 1999 in connection with the initial public offering of a
20% interest in Time Warner Telecom (the "Time Warner Telecom IPO"), an
integrated communications provider that provides a wide range of telephony and
data services to businesses.
The relationship between income before income taxes and income tax expense
for the General Partners 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 for each of the General Partners
includes all income taxes related to its allocable share of partnership income
and its equity in the income tax expense of corporate subsidiaries of TWE.
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999
WCI had revenues of $1.873 billion, income of $40 million before the
cumulative effect of an accounting change and net loss of $162 million in 2000,
compared to revenues of $1.764 billion and net income of $471 million in 1999.
EBITA increased to $189 million in 2000 from $187 million in 1999 after giving
effect to the Columbia House reclassification described earlier. Operating
income increased to $68 million in 2000 from $60 million in 1999 after giving
effect to the Columbia House reclassification. Revenues increased primarily due
to higher domestic and international recorded music sales and higher revenues
from DVD manufacturing operations. Revenues benefited principally from higher
compact disc sales of a broad range of popular releases, including the latest
releases from matchbox twenty, Kid Rock and the Red Hot Chili Peppers. EBITA and
operating income increased principally as a result of the revenue gains, offset
in part by higher marketing and artist royalty costs.
23
TWE GENERAL PARTNERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
WCI's equity in the pretax income of TWE was $255 million in 2000, compared
to $672 million in 1999. TWE's pretax income decreased in 2000 as compared to
1999 because of the effect of certain significant nonrecurring items recognized
in each period, as described more fully in Note 3 to the accompanying
consolidated financial statements. These nonrecurring items aggregated
approximately $48 million of net pretax losses in 2000, compared to
approximately $995 million of pretax gains in 1999. Excluding the significant
effect of these nonrecurring items, TWE's pretax income increased principally as
a result of an overall increase in TWE's business segment operating income and
lower losses from certain investments accounted for under the equity method
of accounting, offset in part by higher interest expense principally due to
higher market interest rates on variable-rate debt and higher losses
associated with TWE's asset securitization program.
Interest and other, net, was $170 million of expense in 2000, compared to
$84 million of income in 1999. Interest expense was $6 million in 2000, compared
to $5 million in 1999. There was other expense, net, of $164 million in 2000,
compared to other income, net, of $89 million in 1999. Other expense, net,
increased principally because of an approximate $115 million noncash pretax
charge in 2000 to reduce the carrying value of WCI's investment in Columbia
House, higher losses from certain investments accounted for under the equity
method of accounting and the absence in 2000 of an approximate $53 million
pretax gain recognized in 1999 in connection with the Time Warner Telecom IPO.
The relationship between income before income taxes and income tax expense
for the General Partners 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 for each of the General Partners
includes all income taxes related to its allocable share of partnership income
and its equity in the income tax expense of corporate subsidiaries of TWE.
FINANCIAL CONDITION AND LIQUIDITY
June 30, 2000
Financial Condition
WCI had $8.4 billion of equity at June 30, 2000, compared to $8.7 billion
of equity at December 31, 1999. Cash and equivalents decreased to $52 million at
June 30, 2000, compared to $107 million at December 31, 1999. WCI had no
long-term debt due to TW Companies under its revolving credit agreement at the
end of either period.
ATC had $1.9 billion of equity at June 30, 2000, compared to $2.1 billion
of equity at December 31, 1999.
Cash Flows
During the first six months of 2000, WCI's cash provided by operations
amounted to $157 million and reflected $189 million of EBITA, $41 million of
noncash depreciation expense, $280 million of distributions from TWE, less $20
million of proceeds repaid under WCI's asset securitization program, $5 million
of interest payments, $36 million of income taxes ($37 million of which was paid
to TW Companies under a tax sharing agreement) and $292 million related to an
aggregate increase in working capital requirements, other balance sheet accounts
and noncash items. In the first six months of 1999, WCI's cash provided by
operations of $15 million reflected $187 million of EBITA, $35 million of
noncash depreciation expense, $166 million of distributions from TWE, $42
million of proceeds received under WCI's asset securitization program, less $6
million of interest payments, $352 million of income taxes ($284 million of
which was paid to TW Companies under a tax sharing agreement), and $57 million
related to an aggregate increase in working capital requirements, other balance
sheet accounts and noncash items.
24
TWE GENERAL PARTNERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued)
Cash used by investing activities was $75 million in the first six months
of 2000, compared to $55 million in 1999, principally as a result of a decrease
in investment proceeds and an increase in capital spending.
Cash used by financing activities was $137 million in the first six months
of 2000, compared to $7 million in the first six months of 1999, principally as
a result of increased advances to TW Companies and increased dividend payments.
The assets and cash flows of TWE are restricted by certain borrowing and
partnership agreements and are unavailable to the General Partners except
through the payment of certain fees, reimbursements, cash distributions and
loans, which are subject to limitations. Under its bank credit agreement, TWE is
permitted to incur additional indebtedness to make distributions and other cash
payments to the General Partners subject to its individual compliance with the
cash flow coverage and leverage ratio covenants contained therein.
Management believes that WCI's operating cash flow, cash and equivalents
and additional borrowing capacity under its revolving credit agreement with TW
Companies are sufficient to fund its capital and liquidity needs for the
foreseeable future without distributions from TWE above those permitted by
existing agreements. Although ATC has no independent operations, it is expected
that additional tax-related and other distributions from TWE, as well as
availability under ATC's revolving credit agreement with TW Companies, will
continue to be sufficient to satisfy ATC's obligations with respect to its tax
sharing agreement with TW Companies for the foreseeable future.
25
TWE GENERAL PARTNERS
CONSOLIDATED BALANCE SHEETS
(Unaudited)
WCI ATC
------------------------- ---------------------------
June 30, December 31, June 30, December 31,
2000 1999 2000 1999
--------- ------------ ------- -------------
(millions)
Assets
Current assets
Cash and equivalents............................................$ 52 $ 107 $ - $ -
Receivables, less allowances of $264 and $290 million........... 1,198 1,528 - -
Inventories..................................................... 164 155 - -
Prepaid expenses................................................ 860 727 - -
----- ------- ------- -------
Total current assets............................................ 2,274 2,517 - -
Investments in and amounts due to and from TWE.................. 2,392 2,476 1,912 2,170
Investments in TW Companies..................................... 103 103 60 60
Other investments............................................... 1,330 1,497 451 449
Music catalogues, contracts and copyrights...................... 724 779 - -
Goodwill........................................................ 3,542 3,612 - -
Other assets, primarily property, plant and equipment........... 512 497 - -
------- ------- ------ ------
Total assets....................................................$10,877 $11,481 $2,423 $2,679
======= ======= ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts and royalties payable..................................$ 1,028 $ 1,115 $ - $ -
Other current liabilities....................................... 414 534 - -
------ ------ ------ ------
Total current liabilities....................................... 1,442 1,649 - -
Long-term liabilities, including $787, $766, $557 and
$542 million due to TW Companies............................. 1,038 1,095 557 542
Shareholders' equity
Common stock.................................................... 1 1 1 1
Preferred stock of WCI, $.01 par value, 90,000 shares
outstanding, $90 million liquidation preference.............. - - - -
Paid-in capital................................................. 9,931 9,926 2,341 2,338
Retained earnings (accumulated deficit)......................... (185) 833 35 172
------- ------- ------- -------
9,747 10,760 2,377 2,511
Due from TW Companies, net...................................... (764) (1,437) (175) (38)
Reciprocal interest in TW Companies stock....................... (586) (586) (336) (336)
------- -------- ------ ------
Total shareholders' equity...................................... 8,397 8,737 1,866 2,137
------- ------- ------ ------
Total liabilities and shareholders' equity......................$10,877 $11,481 $2,423 $2,679
======= ======= ====== ======
See accompanying notes.
26
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30,
(Unaudited)
WCI ATC
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Revenues(a)..................................................... $956 $828 $ - $ -
---- ---- ------ -----
Cost of revenues(a)(b).......................................... (475) (426) - -
Selling, general and administrative(a)(b)....................... (372) (304) - -
Amortization of goodwill and other intangibles.................. (62) (65) - -
---- ----- ----- -----
Business segment operating income............................... 47 33 - -
Equity in pretax income of TWE(a)............................... 101 470 69 324
Interest and other, net(a)(c)................................... (26) 76 12 44
----- ---- ---- ----
Income before income taxes...................................... 122 579 81 368
Income taxes(a)................................................. (81) (226) (45) (144)
----- ---- ----- -----
Net income...................................................... $ 41 $353 $ 36 $224
===== ==== ===== ====
- ------------------
(a) Includes the following income (expenses) resulting from transactions
with Time Warner, TW Companies, TWE or equity investees of the General
Partners:
Revenues................................................ $ 68 $ 49 $ - $ -
Cost of revenues........................................ (2) (7) - -
Selling, general and administrative..................... (11) (9) - -
Equity in pretax income of TWE.......................... (25) (9) - -
Interest and other, net................................. (4) 35 - -
Income taxes............................................ (50) (199) (35) (133)
(b) Includes depreciation expense of:....................... $ 21 $ 18 $ - $ -
===== ===== ====== =====
(c) Includes an approximate $53 million pretax gain recognized by WCI and
$36 million recognized by ATC in the second quarter of 1999 in
connection with the initial public offering of a 20% interest in Time
Warner Telecom, Inc.
See accompanying notes.
27
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended June 30,
(Unaudited)
WCI ATC
-------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Revenues(a)..................................................... $1,873 $1,764 $ - $ -
------ ------ ------ -------
Cost of revenues(a)(b).......................................... (936) (911) - -
Selling, general and administrative(a)(b)....................... (748) (666) - -
Amortization of goodwill and other intangibles.................. (121) (127) - -
----- ------- ------ ------
Business segment operating income............................... 68 60 - -
Equity in pretax income of TWE(a)............................... 255 672 175 462
Interest and other, net(a)(c)................................... (170) 84 21 48
----- ----- ----- -----
Income before income taxes and cumulative effect of accounting
change.................................................. 153 816 196 510
Income taxes(a)................................................. (113) (345) (93) (205)
----- ----- ----- -----
Income before cumulative effect of accounting change............ 40 471 103 305
Cumulative effect of accounting change, net of $135 million income
tax benefit for WCI and $91 million income tax benefit
for ATC................................................. (202) - (136) -
----- ------- ----- ------
Net income (loss)............................................... $ (162) $ 471 $ (33) $ 305
======= ======= ===== =====
- ------------------
(a) Includes the following income (expenses) resulting from transactions
with Time Warner, TW Companies, TWE or equity investees of the General
Partners:
Revenues........................................... $ 143 $ 113 $ - $ -
Cost of revenues................................... (5) (6) - -
Selling, general and administrative................ (5) (10) - -
Equity in pretax income of TWE..................... (58) (25) - -
Interest and other, net............................ 2 59 - -
Income taxes....................................... (37) (284) (68) (183)
(b) Includes depreciation expense of:....................... $ 41 $ 35 $ - $ -
======= ====== ====== =======
(c) Includes an approximate $53 million pretax gain recognized by WCI and
$36 million recognized by ATC in the second quarter of 1999 in
connection with the initial public offering of a 20% interest in Time
Warner Telecom, Inc.
28
See accompanying notes.
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
(Unaudited)
WCI ATC
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
OPERATIONS
Net income (loss)............................................... $(162) $471 $ (33) $305
Adjustments for noncash and nonoperating items:
Cumulative effect of accounting change.................... 202 - 136 -
Depreciation and amortization............................. 162 162 - -
Excess (deficiency) of distributions over equity in pretax
income of TWE........................................... 25 (506) 18 (348)
Equity in losses (income) of other investee companies after
distributions........................................... 37 - (10) (2)
Changes in operating assets and liabilities..................... (107) (112) 103 (34)
----- ---- ---- ----
Cash provided (used) by operations.............................. 157 15 214 (79)
---- ---- ---- ----
INVESTING ACTIVITIES
Investments and acquisitions.................................... (10) (20) - -
Capital expenditures............................................ (65) (60) - -
Investment proceeds............................................. - 25 - -
------ ---- ------ -----
Cash used by investing activities............................... (75) (55) - -
----- ---- ------ -----
FINANCING ACTIVITIES
Dividends....................................................... (115) (87) (77) (58)
Decrease (increase) in amounts due from TW Companies, net....... (22) 80 (137) 137
----- ---- ---- ----
Cash provided (used) by financing activities.................... (137) (7) (214) 79
---- ----- ---- -----
DECREASE IN CASH AND EQUIVALENTS................................ (55) (47) - -
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD..................... 107 160 - -
---- ---- ------ -----
CASH AND EQUIVALENTS AT END OF PERIOD........................... $ 52 $113 $ - $ -
====== ==== ====== =====
See accompanying notes.
29
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Six Months Ended June 30,
(Unaudited)
WCI ATC
---------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
BALANCE AT BEGINNING OF PERIOD.................................. $8,737 $7,701 $2,137 $1,482
Net income (loss)............................................... (162) 471 (33) 305
Other comprehensive income (loss)............................... (25) (6) (15) 9
------ ------ ------ ------
Comprehensive income (loss)(a).................................. (187) 465 (48) 314
Increase in stock option distribution liability to
TW Companies(b)............................................. (133) (213) (92) (146)
Dividends....................................................... (698) (3) - -
Transfers to TW Companies, net.................................. 673 80 (137) 137
Other........................................................... 5 1 6 -
------ ----- ------ ------
BALANCE AT END OF PERIOD........................................ $8,397 $8,031 $1,866 $1,787
====== ====== ====== ======
- ------------------
(a) Comprehensive income (loss) for WCI was $(1) million for the three months
ended June 30, 2000 and $354 million for the three months ended June 30,
1999. Comprehensive income for ATC was $24 million for the three
months ended June 30, 2000 and $225 million for the three months ended
June 30, 1999.
(b) The General Partners record distributions to TW Companies and a
corresponding receivable from TWE as a result of the stock option related
distribution provisions of the TWE partnership agreement. Stock option
distributions of $133 million for WCI and $92 million for ATC were accrued
in the first six months of 2000. For the first six months of 1999, stock
option distributions accrued were $213 million for WCI and $146 million
for ATC. These amounts were accrued because of an increase in the market
price of Time Warner common stock (Note 3).
See accompanying notes.
30
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
On June 30, 1992, thirteen direct or indirect subsidiaries of Time Warner
Companies, Inc. ("TW Companies") contributed the assets and liabilities or the
rights to the cash flows of substantially all of TW Companies's Filmed
Entertainment-Warner Bros., Cable Networks-HBO and Cable businesses to Time
Warner Entertainment Company, L.P., a Delaware limited partnership ("TWE"), for
general partnership interests, and each general partner guaranteed a pro rata
portion of substantially all of TWE's debt and accrued interest based on the
relative fair value of the net assets each contributed to TWE (the "General
Partner Guarantees," see Note 5). Since then, eleven of the thirteen original
general partners have been merged or dissolved into the other two. Warner
Communications Inc. ("WCI") and American Television and Communications
Corporation ("ATC") are the two remaining general partners of TWE. They have
succeeded to the general partnership interests and have assumed the General
Partner Guarantees of the eleven former general partners. WCI, ATC and, where
appropriate, the former general partners are referred to herein as the "General
Partners."
WCI conducts substantially all of TW Companies's Music operations, which
include copyrighted music from many of the world's leading recording artists
that is produced and distributed by a family of established record labels such
as Warner Bros. Records, Atlantic Records, Elektra Entertainment and Warner
Music International. ATC does not conduct operations independent of its
ownership interests in TWE and certain other investments.
Basis of Presentation
Interim Financial Statements
The accompanying consolidated 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 consolidated financial statements should be
read in conjunction with the audited consolidated financial statements of the
General Partners included in TWE's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "1999 Form 10-K").
Cumulative Effect of Change in Film Accounting Principle
In June 2000, Time Warner Inc. ("Time Warner") and TWE adopted Statement of
Position 00-2, "Accounting by Producers and Distributors of Films" ("SOP 00-2").
SOP 00-2 established new film accounting standards, including changes in revenue
recognition and accounting for advertising, development and overhead costs.
Specifically, SOP 00-2 requires advertising costs for theatrical and television
product to be expensed as incurred. This compares to Time Warner's and TWE's
previous policy of first capitalizing and then expensing advertising costs for
theatrical product over the related revenue streams. In addition, SOP 00-2
requires development costs for abandoned projects and certain indirect overhead
costs to be charged directly to expense, instead of those costs being
capitalized to film costs, which was required under the previous accounting
model. SOP 00-2 also requires all film costs to be classified in the balance
31
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
sheet as noncurrent assets. Provisions of SOP 00-2 in other areas, such as
revenue recognition, generally are consistent with Time Warner's and TWE's
existing accounting policies.
Time Warner and TWE have adopted the provisions of SOP 00-2 retroactively
to the beginning of 2000. Because WCI and ATC have investments in TWE and other
Time Warner consolidated subsidiaries, which are accounted for under the equity
method, net income for the six months ended June 30, 2000 includes a one-time,
noncash, after-tax charge of $202 million for WCI and $136 million for ATC.
These charges have been reflected as a cumulative effect of an accounting change
in the accompanying consolidated statement of operations.
As a result of Time Warner and TWE adopting the provisions of SOP 00-2
retroactively to the beginning of 2000, WCI and ATC have restated their
operating results for the three months ended March 31, 2000, as follows:
As Reported As Restated
----------------------- -------------------
WCI ATC WCI ATC
--- --- --- ---
(millions)
Equity in pretax income of TWE.................................. $ 153 $ 105 $ 154 $ 106
Interest and other, net......................................... (143) 10 (144) 9
Income (loss) before cumulative effect of accounting change..... (1) 67 (1) 67
Net income (loss)............................................... (1) 67 (203) (69)
Reclassifications
Certain reclassifications have been made to the prior year's financial
information to conform to the 2000 presentation, including a reclassification of
WCI's operating results for 1999 to reflect a change in how management
classifies WCI's share of the operating results of the Columbia House Company
Partnerships ("Columbia House"), an equity investee. Effective on January 1,
2000, management reclassified WCI's share of the operating results of Columbia
House from business segment operating income to interest and other, net. This
reclassification resulted primarily from the planned restructuring of Columbia
House's traditional direct-marketing business and an increasing dependency on
the sale of video product.
2. SIGNIFICANT TRANSACTIONS
America Online-Time Warner Merger
In January 2000, Time Warner and America Online, Inc. ("America Online")
announced that they had entered into an agreement to merge (the "Merger") by
forming a new holding company named AOL Time Warner Inc. ("AOL Time Warner"). As
part of the Merger, each issued and outstanding share of each class of common
stock of Time Warner will be converted into 1.5 shares of an identical series of
common stock of AOL Time Warner. In addition, each issued and outstanding share
of each class of preferred stock of Time Warner will be converted into one share
of preferred stock of AOL Time Warner, which will have substantially identical
terms except that such shares will be convertible into approximately 6.25 shares
of AOL Time Warner common stock. Lastly, each issued and outstanding share of
common stock of America Online will be converted into one share of common stock
of AOL Time Warner.
As a result of the Merger, the former shareholders of America Online will
have an approximate 55% interest in AOL Time Warner and the former shareholders
of Time Warner will have an approximate 45% interest in the combined entity,
expressed on a fully diluted basis. The Merger is expected to be accounted for
by AOL Time Warner as an acquisition of Time Warner under the purchase method of
accounting for business combinations.
32
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
The Merger was approved by the shareholders of America Online and Time
Warner on June 23, 2000. The Merger is expected to close in the fall of 2000 and
is subject to customary closing conditions, including all necessary regulatory
approvals. There can be no assurance that such approvals will be obtained.
Warner-EMI Music Merger
In January 2000, Time Warner and EMI Group plc ("EMI") announced they had
entered into an agreement to combine their global music operations into two
50-50 joint ventures, to be referred to collectively as Warner EMI Music. WCI
will control the ventures through majority board representation, among other
factors, and will account for the transaction under the purchase method of
accounting for business combinations.
As part of the transaction, each company will contribute its music
operations to the ventures, subject to a comparable amount of debt. As of March
31, 2000, EMI had approximately $1.5 billion of net debt. EMI shareholders also
will receive an aggregate, special cash dividend of approximately $1.3 billion.
This dividend is expected to be financed through a combination of proceeds from
debt incurred or assumed by the ventures and consideration to be paid by Time
Warner directly to EMI for a new class of EMI equity securities. The new class
of EMI equity securities to be held by Time Warner will convert automatically
into an 8% common equity interest in EMI, on a fully diluted basis, if EMI's
share price reaches (pound)9 for a short period of time within the first
three-and-a-half years after closing.
The transaction was approved by the shareholders of EMI on June 26, 2000.
The transaction is expected to close by the end of 2000, subject to customary
closing conditions, including all necessary regulatory approvals. There can be
no assurance that such approvals will be obtained.
Columbia House Investment Write-Down
In July 1999, Time Warner announced an agreement with Sony Corporation of
America ("Sony") to merge their jointly owned music and video club operations of
Columbia House with CDNOW, Inc. ("CDNOW"), a music and video e-commerce company.
While awaiting the receipt of regulatory approvals, the March 13, 2000
termination date in the merger agreement was reached, and the parties terminated
the agreement. Accordingly, the merger will not occur.
Time Warner and WCI are continuing to evaluate strategic alternatives for
Columbia House's operations. Those alternatives are focused primarily on ways to
improve Columbia House's declining operating performance, including online
initiatives, joint ventures and other strategic actions. Management believes
that such strategies are important to achieve a turnaround in Columbia House's
operating performance and to position it for long-term growth in a highly
competitive and rapidly changing business environment.
With the termination of the CDNOW merger in March 2000, the risk associated
with the timely execution of these strategies and the transformation of Columbia
House's traditional business model to an online one has increased. As a result,
management has concluded that the decline in Columbia House's business is going
to continue through the near term. As such, WCI recorded a $115 million noncash
pretax charge during the first quarter of 2000 to reduce the carrying value of
its investment in Columbia House to an estimate of its fair value. The charge
has been included in interest and other, net, in the accompanying consolidated
statement of operations.
33
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
3. TWE
The General Partners' investment in and amounts due to and from TWE at June
30, 2000 and December 31, 1999 consists of the following:
June 30, 2000 WCI ATC
- ------------- --- ---
(millions)
Investment in TWE............................................................... $1,946 $1,371
Stock option related distributions due from TWE................................. 787 541
Other net liabilities due to TWE, principally related to home video distribution (341) -
------ ------
Total........................................................................... $2,392 $1,912
====== ======
December 31, 1999 WCI ATC
- ----------------- ---- ---
(millions)
Investment in TWE............................................................... $2,342 $1,644
Stock option related distributions due from TWE................................. 766 526
Other net liabilities due to TWE, principally related to home video distribution (632) -
------ ------
Total........................................................................... $2,476 $2,170
====== ======
Partnership Structure and Allocation of Income
TWE is a Delaware limited partnership that was capitalized in 1992 to own
and operate substantially all of the Filmed Entertainment-Warner Bros., Cable
Networks-HBO and Cable businesses previously owned by the General Partners. The
General Partners in the aggregate hold, directly or indirectly, 63.27% of the
pro rata priority capital and residual equity capital of TWE and 100% of the
junior priority capital of TWE. TW Companies holds 11.22% of the pro rata
priority capital and residual equity capital limited partnership interests. The
remaining 25.51% limited partnership interests in the pro rata priority capital
and residual equity capital of TWE are held by a subsidiary of MediaOne Group,
Inc., which was acquired by AT&T Corp. on June 15, 2000.
The TWE partnership agreement provides for special allocations of income,
loss and distributions of partnership capital, including priority distributions
in the event of liquidation. No portion of TWE's net income or losses has been
allocated to the limited partnership interests.
34
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
Summarized Financial Information of TWE
Set forth below is summarized financial information of TWE.
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- --------------------
2000 1999 2000 1999
---- ---- ---- ----
(millions)
Operating Statement Information
Revenues................................................................. $3,313 $3,060 $6,624 $5,994
Depreciation and amortization............................................ (363) (334) (718) (642)
Business segment operating income(a)..................................... 477 1,212 976 1,863
Interest and other, net(b)............................................... (246) (167) (426) (387)
Minority interest........................................................ (43) (233) (83) (306)
Income before income taxes and cumulative effect of accounting
change............................................................. 170 794 430 1,134
Cumulative effect of accounting change................................... - - (524) -
Net income (loss)........................................................ 145 767 (155) 1,079
- ------------------
(a) Includes a pretax charge of $24 million recognized in the second quarter
of 2000 in connection with the Six Flags Entertainment Corporation ("Six
Flags") litigation, a pretax gain of $10 million related to the partial
recognition of a deferred gain on the 1998 sale of Six Flags recognized in
the first quarter of 2000 and in each of the first and second quarters of
1999 and a pretax gain of approximately $215 million recognized in the
first quarter of 1999 relating to the early termination and settlement of
a long-term, home video distribution agreement. In addition, includes net
pretax losses related to the sale or exchange of certain cable television
systems and investments of approximately $8 million in the second quarter
of 2000 and net pretax gains of approximately $760 million in the second
quarter of 1999.
(b) Includes $26 million of additional interest expense recognized in the
second quarter of 2000 in connection with the Six Flags litigation.
Six Months
Ended June 30,
2000 1999
---- ----
(millions)
Cash Flow Information
Cash provided by operations..................................................... $1,675 $1,519
Investments and acquisitions.................................................... (231) (223)
Capital expenditures............................................................ (894) (649)
Investment proceeds............................................................. 74 210
Borrowings...................................................................... 94 1,310
Debt repayments................................................................. (1,317) (1,539)
Redemption of preferred stock of subsidiary..................................... - (217)
Capital distributions........................................................... (473) (280)
Other .......................................................................... (66) (101)
Increase (decrease) in cash and equivalents..................................... (338) 30
June 30, December 31,
2000 1999
--------- ------------
(millions)
Balance Sheet Information
Cash and equivalents........................................................... $ 179 $ 517
Total current assets........................................................... 3,617 4,730
Total assets................................................................... 23,568 24,843
Total current liabilities...................................................... 5,669 5,723
Long-term debt ................................................................ 6,231 6,655
Minority interests............................................................. 1,802 1,815
Partners' capital.............................................................. 6,453 7,149
35
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
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, 2000 and December 31, 1999, the General
Partners had recorded $1.328 billion and $1.292 billion, respectively, of stock
option related distributions due from TWE, based on closing prices of Time
Warner common stock of $76 and $72.31, respectively. The General Partners are
paid when the options are exercised. The General Partners also receive
tax-related distributions from TWE on a current basis. During the six months
ended June 30, 2000, the General Partners received distributions from TWE in the
amount of $473 million, consisting of $284 million of tax-related distributions
and $189 million of stock option related distributions. During the six months
ended June 30, 1999, the General Partners received distributions from TWE in the
amount of $280 million, consisting of $138 million of tax-related distributions
and $142 million of stock option related distributions. Of such aggregate
distributions in 2000 and 1999, WCI received $280 million and $166 million,
respectively, and ATC received $193 million and $114 million, respectively.
Significant Items and Transactions
The comparability of TWE's summarized financial information has been
affected by a number of significant items and transactions occurring in all
periods. These transactions are summarized below. For a more comprehensive
description of these transactions, see Note 2 to the accompanying TWE
consolidated financial statements.
For 2000, the significant, nonrecurring items included (i) net pretax
losses of approximately $8 million recognized in the second quarter relating to
the sale or exchange of various cable television systems and investments, (ii) a
$50 million pretax charge in the second quarter related to the Six Flags
litigation, (iii) a pretax gain of $10 million in the first quarter relating to
the partial recognition of a deferred gain on the 1998 sale of Six Flags and
(iv) a noncash charge of $524 million in the first quarter reflecting the
cumulative effect of an accounting change in connection with the adoption of a
new film accounting standard.
For 1999, the significant, nonrecurring items included (i) net pretax gains
of approximately $760 million recognized in the second quarter relating to the
sale or exchange of various cable television systems and investments, (ii) a
pretax gain of $10 million recognized in each of the first and second quarters
relating to the partial recognition of a deferred gain on the 1998 sale of Six
Flags and (iii) an approximate $215 million pretax gain recognized in the first
quarter in connection with the early termination and settlement of a long-term,
home video distribution agreement.
4. GAIN ON TIME WARNER TELECOM'S INITIAL PUBLIC OFFERING
In May 1999, Time Warner Telecom Inc. ("Time Warner Telecom"), an
integrated communications provider that provides a wide range of telephony and
data services to businesses, completed an initial public offering of 20% of its
common stock (the "Time Warner Telecom IPO"). In connection with the Time Warner
Telecom IPO and certain related transactions, WCI's ownership interest in Time
Warner Telecom was diluted from 28% to 22% and ATC's ownership interest in Time
Warner Telecom was diluted from 19% to 15%. As a result, WCI and ATC recognized
pretax gains of approximately $53 million and $36 million, respectively. These
gains have been included in interest and other, net, in the accompanying
consolidated statements of operations for the three and six months ended June
30, 1999.
36
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Unaudited)
5. GENERAL PARTNER GUARANTEES
Each General Partner has guaranteed a pro rata portion of approximately
$4.9 billion of TWE's debt and accrued interest at June 30, 2000, based on the
relative fair value of the net assets each General Partner (or its predecessor)
contributed to TWE. Such indebtedness is recourse to each General Partner only
to the extent of its guarantee. There are no restrictions on the ability of the
General Partner guarantors to transfer assets, other than TWE assets, to parties
that are not guarantors.
The portion of TWE debt and accrued interest at June 30, 2000 that
was guaranteed by each General Partner is set forth below (dollars in millions):
Total Guaranteed by
Each General Partner
--------------------
General Partner % Amount
- --------------- ------- ------
WCI ................................................................... 59.27 $2,917
ATC ................................................................... 40.73 2,005
------ ------
Total ................................................................... 100.00 $4,922
====== ======
6. COMMITMENTS AND CONTINGENCIES
WCI is subject to various class action lawsuits as well as actions, that
have been brought by various state attorneys general alleging collusive and
other illegal pricing practices by the major record companies in their capacity
as distributors of compact discs. Although management believes these cases are
without merit, adverse jury verdicts could result in a material loss to WCI. Due
to the lack of specificity to plaintiffs' claims, a range of loss is not
determinable at this time.
TWE is also subject to certain litigation relating to Six Flags. In
December 1998, a jury returned an adverse verdict in the Six Flags matter in the
amount of $454 million. TWE and its former 51% partner in Six Flags are
financially responsible for this judgment. As described in Note 2 to the
accompanying TWE consolidated financial statements, TWE appealed the verdict,
but, in July 2000, an appellate court unexpectedly affirmed the jury's verdict.
As a result, TWE revised its estimate of its financial exposure and recorded a
one-time, pretax charge of $50 million in the second quarter of 2000 to cover
its additional financial exposure in excess of established reserves.
The General Partners and TWE are also subject to numerous legal
proceedings. In management's opinion and considering established reserves, the
resolution of these matters will not have a material effect, individually and in
the aggregate, on the General Partners' financial statements.
7. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash flows is as
follows:
Six Months Ended June 30,
------------------------------------------
2000 1999
---------------- --------------
WCI ATC WCI ATC
----- ----- --- ---
(millions)
Cash payments made for interest...................... $ 5 $ - $ 6 $ -
Cash payments made for income taxes, net............. 36 68 352 183
Tax-related distributions received from TWE.......... 168 116 82 56
Noncash capital distributions, net................... 133 92 213 146
37
Noncash financing activities in 2000 included the settlement of WCI's note
receivable from TW Companies through a WCI dividend in the amount of $695
million to TW Companies.
38
Part II. Other Information
Item 1. Legal Proceedings.
Reference is made to Six Flags Over Georgia LLC et al. v. Time Warner
Entertainment Company, L.P., described on page I-24 of TWE's Annual Report on
Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K"). On July
13, 2000, the Georgia Court of Appeals affirmed the trial court's judgment. TWE
filed a motion for reconsideration with the Court of Appeals, which the Court of
Appeals denied on July 27, 2000. Defendants will seek certiorari from the
Supreme Court of Georgia.
Reference is made to Ottinger & Silvey et al. v. EMI Music Distribution,
Inc., described on page I-25 of the 1999 Form 10-K. The defendants' motion to
dismiss has been briefed and is pending before the Court.
Reference is made to Digital Distribution Inc. d/b/a Compact Disc Warehouse
v. CEMA Distribution et al., and the related suits described on pages I-24 and
I-25 of the 1999 Form 10-K. On June 15, 2000, the Court denied plaintiffs'
motion for class certification. On June 28, 2000, plaintiffs applied for
interlocutory review by the United States Court of Appeals for the Ninth
Circuit. On July 17, 2000, the Ninth Circuit issued an order directing
plaintiffs to move for voluntary dismissal of their application or to show cause
why the application should not be dismissed, on the ground that the application
was untimely filed. Plaintiffs have filed their response to the Ninth Circuit's
Order to Show Cause.
Bauman v. EMI Music Distribution et al., filed in Supreme Court of the
State of New York, County of New York on May 12, 2000 and numerous other
lawsuits have been brought in various state and federal courts by purported
classes of direct and/or indirect purchasers of compact discs, including
consumers, alleging vertical and/or horizontal conspiracies by distributors of
compact discs, including Warner-Elektra-Atlantic Corp. ("WEA Corp."), to engage
in price fixing in violation of state and federal law. Many of these lawsuits
focus on the Consent Order signed by the major record companies with the Federal
Trade Commission ("FTC") with respect to the FTC's investigation of minimum
advertised price ("MAP") programs described on pages I-20 and I-24 of TWE's 1999
Form 10-K. The Consent Order was on public notice for comment until June 3 and
is now before the FTC for final approval.
On August 8, 2000, attorneys general of 30 states filed an action titled
State of Florida et al. v. BMG Music et al., in the United States District Court
for the Southern District of New York, alleging that a number of record
distributors, including WEA Corp., and several record retailers had violated
state and federal antitrust laws through the adoption and implementation of MAP
programs.
On April 12, 2000, Chambers et al. v. Time Warner Inc. et al., was filed in
the United States District Court for the Southern District of New York. The
plaintiffs, purportedly representing a class of recording artists, challenge
whether defendants, including record companies within Warner Music Group, have a
federal copyright in certain sound recordings created and published prior to
1972. Defendants have filed a motion to dismiss, as well as an opposition to
plaintiffs' motion for class certification. Both motions are pending.
39
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 TWE during the quarter
ended June 30, 2000.
40
TIME WARNER ENTERTAINMENT COMPANY, L.P.
AND TWE GENERAL PARTNERS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each of the registrants has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
By: Warner Communications Inc.,
as General Partner
By: /s/ Joseph A. Ripp
Name: Joseph A. Ripp
Title: Executive Vice President and
Chief Financial Officer
AMERICAN TELEVISION AND COMMUNICATIONS CORPORATION
WARNER COMMUNICATIONS INC.
By: /s/ Joseph A. Ripp
Name: Joseph A. Ripp
Title: Executive Vice President and
Chief Financial Officer
Dated: August 14, 2000
EXHIBIT INDEX
Pursuant to Item 601 of Regulations S-K
Exhibit No. Description of Exhibit
10.1 Amendment No. 1 dated as of June 30, 2000 to the Credit
Agreement dated as of November 10, 1997 among Time Warner Inc.,
Time Warner Companies, Inc., Time Warner Entertainment Company,
L.P., Turner Broadcasting System, Inc., Time Warner Entertain-
ment-Advance/Newhouse Partnership and TWI Cable Inc., as Credit
Parties, The Chase Manhattan Bank, as Administrative Agent,
Bank of America National Trust and Savings Association, The
Bank of New York and Morgan Guaranty Trust Company of New York,
as Documentation and Syndication Agents, Chase Securities,
as Arranger, and the lenders party thereto from time to time
(which is incorporated herein by reference to Exhibit 10.1 to
Time Warner Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 (File No. 1-12259)).
10.2 Transaction Agreement No. 4, dated as of July 12, 2000, among
Advance Publications, Inc., Newhouse Broadcasting Corporation,
Advance/Newhouse Partnership, Time Warner Entertainment
Company, L.P., Paragon Communications and Time Warner
Entertainment-Advance/Newhouse Partnership and Related Side
Letter (which is incorporated herein by reference to Exhibit
10.4 to Time Warner Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 (File No. 1-12259)).
27.1 Financial Data Schedule with respect to the period ending
June 30, 2000.
27.2 Restated Financial Data Schedule with respect to the period
ending March 31, 2000.