SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 1, 2002
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 (I.R.S. Employer
of incorporation) Identification No.)
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 jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
75 Rockefeller Plaza, New York, New York 10019
(Address of principal executive offices) (zip code)
212 484-8000
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Item 2. Acquisition and Disposition of Assets
As of June 30, 2002, the TWE-Advance/Newhouse Partnership ("TWE-A/N")
was owned approximately 64.8% by Time Warner Entertainment Company, L.P.
("TWE"), the managing partner, 33.3% by the Advance/Newhouse Partnership
("Advance/Newhouse") and 1.9% indirectly by AOL Time Warner Inc. ("AOL Time
Warner"). TWE-A/N owns cable television systems (or interests therein) serving
approximately 7.0 million subscribers, of which 5.9 million subscribers are
served by consolidated, wholly owned cable television systems and 1.1 million
subscribers are served by unconsolidated, partially owned cable television
systems. Prior to the TWE-A/N restructuring discussed below, the financial
position and operating results of all of TWE-A/N's operations were consolidated
by TWE, and the partnership interest owned by Advance/Newhouse was reflected in
the consolidated financial statements of TWE as minority interest.
As of June 30, 2002, Road Runner, a high-speed cable modem Internet
service provider, was owned by TWI Cable Inc. (a wholly owned subsidiary of AOL
Time Warner), TWE and TWE-A/N, with TWE owning approximately 67% on a fully
attributed basis. TWE's interest in Road Runner was, prior to the TWE-A/N
restructuring, accounted for using the equity method of accounting because of
certain approval rights held by Advance/Newhouse.
On June 24, 2002, TWE and Advance/Newhouse agreed to restructure
TWE-A/N, which will result in Advance/Newhouse receiving effective ownership of
certain TWE-A/N cable systems serving approximately 2.1 million subscribers
located primarily in Florida (the "Advance/Newhouse Systems"). Specifically, on
August 1, 2002 (the "Debt Closing Date"), Advance/Newhouse and its affiliates
arranged for a new credit facility to support the Advance/Newhouse Systems and
approximately $775 million of TWE-A/N's senior indebtedness was repaid.
Additionally, as of the Debt Closing Date, Advance/Newhouse assumed management
responsibilities for the Advance/Newhouse Systems, to the extent permitted under
applicable government regulations, and its partnership interest began to track
only the performance of the Advance/Newhouse Systems, while TWE's and AOL Time
Warner's interests began to track the performance of the remaining TWE-A/N
assets and liabilities. Accordingly, effective the Debt Closing Date, TWE will
no longer consolidate the financial position and results of operations of the
Advance/Newhouse Systems.
In conjunction with the restructuring of TWE-A/N, on the Debt Closing
Date, a subsidiary of AOL Time Warner which is not consolidated by TWE, acquired
Advance/Newhouse's entire interest in Road Runner. Accordingly, AOL Time
Warner's ownership interest on a fully attributed basis increased from 65% to
82%, while TWE's ownership interest of approximately 67% remained unchanged. In
addition, in connection with this acquisition, certain approval rights held by
Advance/Newhouse expired. As a result, beginning on the Debt Closing Date, TWE
consolidated the financial position and results of operations of Road Runner
with the financial position and results of operations of TWE's Cable segment,
retroactive to the beginning of the year.
Item 7. Financial Statements and Exhibits
(b) Unaudited Pro Forma Consolidated Condensed Financial Statements:
(i) Time Warner Entertainment Company, L.P.:
(A) Pro Forma Consolidated Condensed Balance Sheet as of June 30,
2002;
(B) Notes to the Pro Forma Consolidated Condensed Balance Sheet;
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(C) Pro Forma Consolidated Condensed Statement of Operations for the
six months ended June 30, 2002;
(D) Pro Forma Consolidated Condensed Statement of Operations for the
year ended December 31, 2001; and
(E) Notes to the Pro Forma Consolidated Condensed Statements of
Operations.
The following unaudited pro forma consolidated condensed financial
statements are presented to illustrate the effects of the TWE-A/N restructuring,
including the deconsolidation of the Advance/Newhouse Systems and the
consolidation of Road Runner, on the historical financial position and operating
results of TWE. The unaudited pro forma consolidated condensed balance sheet of
TWE at June 30, 2002, gives effect to the restructuring as if the restructuring
had occurred on that date. The unaudited pro forma consolidated condensed
statements of operations of TWE for the six months ended June 30, 2002 and the
year ended December 31, 2001, give effect to the restructuring as if the
restructuring had occurred on January 1, 2001.
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TIME WARNER ENTERTAINMENT COMPANY, L.P.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 2002
(IN MILLIONS, UNAUDITED)
ADVANCE/ PRO
NEWHOUSE ROAD ADJUST- FORMA
TWE(a) SYSTEMS(b) RUNNER(c) MENTS(d) TWE
--- ------- ------ ----- ---
ASSETS
Cash and equivalents..................................... $ 249 $ - $ 13 $ 54 $ 316
Other current assets..................................... 4,357 57 64 (27) 4,337
------- ------ ----- ------ -------
Total current assets..................................... 4,606 57 77 27 4,653
Noncurrent inventories and film costs.................... 2,153 - - - 2,153
Investments, including available-for-sale securities..... 2,188 15 - 92 2,265
Property, plant and equipment............................ 8,830 1,678 98 - 7,250
Intangible assets subject to amortization................ 2,415 27 - - 2,388
Intangible assets not subject to amortization............ 22,352 704 - 1,188 22,836
Goodwill................................................. 12,412 216 - 69 12,265
Other assets............................................. 1,284 2 4 (224) 1,062
------- ------ ----- ------ -------
Total assets............................................. $56,240 $2,699 $ 179 $1,152 $54,872
======= ====== ===== ====== =======
LIABILITIES AND PARTNERS' CAPITAL
Total current liabilities................................ $ 6,422 $ 186 $ 106 $ 181 $ 6,523
Long-term debt and other obligations..................... 7,206 529 - (246) 6,431
Other long-term liabilities.............................. 2,486 33 261 (278) 2,436
Minority interests....................................... 2,278 1,951 - 358 685
Total partners' capital.................................. 37,848 - (188) 1,137 38,797
------- ------ ----- ------ -------
Total liabilities and partners' capital.................. $56,240 $2,699 $ 179 $1,152 $54,872
======= ====== ===== ====== =======
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TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(a) Reflects the historical financial position of TWE at June 30, 2002.
(b) Reflects the historical financial position of the Advance/Newhouse Systems
at June 30, 2002.
(c) Reflects the historical financial position of Road Runner at June 30, 2002.
(d) Pro Forma adjustments to record the TWE-A/N restructuring and Road Runner
acquisition as of June 30, 2002 are:
o The increase in cash of $54 million primarily relates to $40
million of cash received by TWE from Advance/Newhouse on the
Debt Closing Date, with respect to note receivables from
Advance/Newhouse and the repayment of excess cash distributions
made to Advance/Newhouse in prior periods. In addition,
$14 million of cash in transit between TWE and Road Runner has
been reflected in the consolidated cash account;
o The decrease in other current assets of $27 million primarily
relates to the elimination of intercompany receivables between
TWE, Advance/Newhouse and Road Runner;
o The increase in investments of $92 million reflects the
elimination of TWE's negative investment in Road Runner;
o The increase in intangibles not subject to amortization of $1.188
billion reflects the net franchise intangibles recognized in
connection with TWE's acquisition of Advance/Newhouse's former
interest in the remaining TWE-A/N businesses;
o The increase in goodwill of $69 million reflects the recognition
of goodwill in conjunction with the consolidation of Road Runner
by TWE;
o The decrease in other assets of $224 million relates to the
elimination of a TWE note receivable from Road Runner;
o The increase in current liabilities of $181 million reflects the
settlement of intercompany liabilities between TWE, other
subsidiaries of AOL Time Warner, Advance/Newhouse and Road Runner
in conjunction with the TWE-A/N restructuring and Road Runner
acquisition;
o The decrease in long-term debt relates to $246 million net
incremental debt assumed by Advance/Newhouse in the TWE-A/N
restructuring;
o The decrease in other long-term liabilities of $278 million
reflects the settlement of certain intercompany liabilities
between TWE, other subsidiaries of AOL Time Warner,
Advance/Newhouse and Road Runner in conjunction with the TWE-A/N
restructuring and Road Runner acquisition;
o The increase in minority interest of $358 million primarily
reflects the net impact of the removal of Advance/Newhouse's
minority interest in TWE-A/N; and
o The increase in total partners' capital of $1.137 billion
primarily reflects an increase associated with TWE's acquisition
of Advance/Newhouse's former interest in the remaining TWE-A/N
businesses and the elimination of Road Runner's negative equity
upon consolidation.
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TIME WARNER ENTERTAINMENT COMPANY, L.P.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002
(IN MILLIONS, UNAUDITED)
ADVANCE/ PRO
NEWHOUSE ROAD ADJUST- FORMA
TWE(e) SYSTEMS(f) RUNNER(g) MENTS(h) TWE
--- ------- ------ ----- ---
Revenues:
Subscriptions .................................... $ 4,285 $ 642 $ 141 $(57) $ 3,727
Advertising and commerce ......................... 628 73 1 - 556
Content and other ................................ 3,681 - - - 3,681
-------- ----- ----- ---- --------
Total revenues ........................................ 8,594 715 142 (57) 7,964
Cost of revenues ...................................... (5,659) (423) (194) 57 (5,373)
Selling, general and administrative ................... (1,399) (85) (27) - (1,341)
Amortization of goodwill and other intangible assets .. (75) (2) - - (73)
-------- ----- ----- ---- --------
Operating income (loss) ............................... 1,461 205 (79) - 1,177
Interest expense, net ................................. (210) (6) (3) - (207)
Other expense, net .................................... (82) (5) - 71 (6)
Minority interest expense ............................. (214) - - 201 (13)
-------- ----- ----- ---- --------
Income (loss) before income taxes and cumulative
effect of accounting change ...................... 955 194 (82) 272 951
Income tax provision .................................. (92) - - - (92)
-------- ----- ----- ---- --------
Income (loss) before cumulative effect of
accounting change ................................ 863 194 (82) 272 859
Cumulative effect of accounting change ................ (21,763) - - - (21,763)
-------- ----- ----- ---- --------
Net income (loss) ..................................... $(20,900) $ 194 $ (82) $272 $(20,904)
======== ===== ===== ==== ========
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TIME WARNER ENTERTAINMENT COMPANY, L.P.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(IN MILLIONS, UNAUDITED)
ADVANCE/ PRO
NEWHOUSE ROAD ADJUST- FORMA
TWE(e) SYSTEMS(f) RUNNER(g) MENTS(h) TWE
--- ------- ------ ----- ---
Revenues:
Subscriptions ................................. $ 7,675 $1,128 $ 214 $(70) $ 6,691
Advertising and commerce ...................... 1,307 119 3 - 1,191
Content and other ............................. 6,563 - - - 6,563
------- ------ ----- ---- -------
Total revenues ..................................... 15,545 1,247 217 (70) 14,445
Cost of revenues ................................... (9,997) (714) (397) 70 (9,610)
Selling, general and administrative ................ (2,558) (180) (49) - (2,427)
Amortization of goodwill and other intangible assets (2,709) (41) - - (2,668)
------- ------ ----- ---- -------
Operating income (loss) ............................ 281 312 (229) - (260)
Interest expense, net .............................. (548) (18) (1) - (531)
Other expense, net ................................. (318) (5) (124) 238 (199)
Minority interest income (expense) ................. (320) - - 471 151
------- ------ ----- ---- -------
Income (loss) before income taxes .................. (905) 289 (354) 709 (839)
Income tax provision ............................... (127) - - - (127)
------- ------ ----- ---- -------
Net income (loss) .................................. $(1,032) $ 289 $(354) $709 $ (966)
======= ====== ===== ==== =======
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TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
(UNAUDITED)
(e) Reflects the historical operations of TWE for the six months ended June 30,
2002 and the year ended December 31, 2001, which includes the impact of the
Emerging Issues Task Force ("EITF") Topic No. D-103, "Income Statement
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred" ("Topic No. D-103"). For additional information on EITF Topic No.
D-103, see Management's Discussion and Analysis of Results of Operations
and Financial Condition in TWE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002.
(f) Reflects the historical operations of the Advance/Newhouse Systems for the
six months ended June 30, 2002 and the year ended December 31, 2001, which
includes the impact of EITF Topic No. D-103.
(g) Reflects the historical operations of Road Runner for the six months ended
June 30, 2002 and the year ended December 31, 2001.
(h) Pro Forma adjustments to record the TWE-A/N restructuring and Road Runner
acquisition for the six months ended June 30, 2002 and the year ended
December 31, 2001 are:
o The decrease in Subscription revenues of $57 million for the six
months ended June 30, 2002, reflects the elimination of $83
million of Road Runner's revenue derived from transactions with
TWE Cable segment, partially offset by $26 million of revenue
that no longer needs to be eliminated in consolidation as it
relates to the sale of cable programming by the TWE Networks
segment to the Advance/Newhouse Systems. For the year ended
December 31, 2001, a decrease in Subscription revenues of $70
million reflects the elimination of $114 million of Road Runner's
revenue derived from transactions with TWE's Cable segment,
partially offset by $44 million of revenue that no longer needs
to be eliminated in consolidation as it relates to the sale of
cable programming by the TWE Networks segment to the
Advance/Newhouse Systems;
o The decrease in cost of revenues of $57 million for the six
months ended June 30, 2002 and $70 million for the year ended
December 31, 2001, reflects the impact of eliminating the TWE
Cable segment's expenses relating to transactions with Road
Runner, offset in part by expenses that no longer need to be
eliminated in consolidation as they relate to the purchase
of cable programming from the TWE Networks segment by the
Advance/Newhouse Systems;
o The decrease in other expense, net of $71 million for the six
months ended June 30, 2002 and $238 million for the year ended
December 31, 2001, reflects the elimination of TWE's share of
Road Runner's results which were previously reflected as a part
of other expense, net, under the equity method of accounting, as
well as the elimination of certain preferred dividend activity
between TWE and Road Runner; and
o The decrease in minority interest expense of $201 million for
the six months ended June 30, 2002 and $471 million for the year
ended December 31, 2001, reflects the elimination of the expense
related to Advance/Newhouse's ownership interest in TWE-A/N.
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SIGNATURE
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 hereunto duly authorized.
TIME WARNER ENTERTAINMENT
COMPANY, L.P.
By: WARNER COMMUNICATIONS INC.,
as General Partner
By: /s/ Wayne H. Pace
--------------------------------
Name: Wayne H. Pace
Title: Executive Vice President and
Chief Financial Officer
AMERICAN TELEVISION AND
COMMUNICATIONS CORPORATION
WARNER COMMUNICATIONS INC.
By: /s/ Wayne H. Pace
--------------------------------
Name: Wayne H. Pace
Title: Executive Vice President and
Chief Financial Officer
Date: August 16, 2002