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 3, 1999
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 1-12259 13-3527249
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
75 Rockefeller Plaza, New York, NY 10019
(Address of principal executive offices) (zip code)
(212) 484-8000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report)
Item 5. Other Events
Time Warner Inc. ("Time Warner" or the "Company") classifies its
business interests into four fundamental areas: CABLE NETWORKS, consisting
principally of interests in cable television programming; PUBLISHING, consisting
principally of interests in magazine publishing, book publishing and direct
marketing; ENTERTAINMENT, consisting principally of interests in recorded music
and music publishing, filmed entertainment, television production and television
broadcasting; and CABLE, consisting principally of interests in cable television
systems. A majority of Time Warner's interests in filmed entertainment,
television production, television broadcasting and cable television systems, and
a portion of its interests in cable television programming, are held through
Time Warner Entertainment Company, L.P. ("TWE").
Time Warner owns general and limited partnership interests in TWE
consisting of 74.49% of the pro rata priority capital ("Series A Capital") and
residual equity capital ("Residual Capital"), and 100% of the junior priority
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"). Since 1993, when MediaOne was admitted as a limited partner
of TWE, Time Warner has not consolidated TWE and certain related companies (the
"Entertainment Group") for financial reporting purposes because of certain
rights held by MediaOne that allowed it to participate in the management of
TWE's businesses.
As previously reported in TWE's Current Report on Form 8-K dated August
3, 1999, TWE received a notice (the "Termination Notice") from MediaOne
concerning the termination of MediaOne's covenant not to compete with TWE. The
termination of that covenant is necessary for MediaOne to complete its merger
with AT&T Corp. As a result of the Termination Notice and the operation of the
partnership agreement governing TWE, MediaOne's governance and management rights
over TWE have terminated immediately and irrevocably to the fullest extent
permitted by Section 5.5(f) of the TWE partnership agreement. As a result,
MediaOne no longer has a vote on, or any right to participate in, the Cable
Management Committee described on page I-34 of Time Warner's Annual Report on
Form 10-K for the year ended December 31, 1998, as amended ("Time Warner's Form
10-K") and its representatives serving on TWE's Board of Representatives no
longer have the right to vote on any matter pertaining to any of TWE's
businesses. MediaOne retains certain protective governance rights on the TWE
Board of Representatives pertaining to certain limited matters affecting TWE as
a whole.
Because of this significant reduction in MediaOne's rights, for
accounting purposes, Time Warner will consolidate the Entertainment Group, which
substantially consists of TWE, retroactive to the beginning of 1999. As such,
set forth herein are restated consolidated condensed financial statements of
Time Warner and restated supplementary financial information of Time Warner's
business segments as of and for the six months ended June 30, 1999, which gives
effect to the consolidation of the Entertainment Group, effective as of January
1, 1999. In order to facilitate comparative analysis, also set forth herein are
a pro forma consolidated condensed statement of operations of Time Warner and
pro forma supplementary financial information of Time Warner's business segments
for the year ended December 31, 1998 that each similarly gives effect to Time
Warner's consolidation of the Entertainment Group as of the beginning of 1998.
The restated and pro forma consolidated condensed financial statements
and supplementary financial information should be read in conjunction with the
historical financial statements of Time Warner and TWE, including the notes
thereto, which are contained in Time Warner's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and Time Warner's Form 10-K.
TIME WARNER INC.
Restated Consolidated Condensed Balance Sheet
June 30, 1999
(millions, unaudited)
Intercompany
Time Entertainment Eliminations Time
Warner Group and Consolidating Warner
Historical(a) Historical(a) Adjustments(b) Restated
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ASSETS
Current Assets
Cash and equivalents.................................... $ 304 $ 117 $ - $ 421
Receivables, net........................................ 2,397 2,639 (821) 4,215
Inventories............................................. 923 1,247 - 2,170
Prepaid expenses........................................ 1,279 220 - 1,499
------- ------- ------- --------
Total current assets.................................... 4,903 4,223 (821) 8,305
Noncurrent inventories.................................. 1,838 2,114 (9) 3,943
Loan receivable from Time Warner........................ - 400 (400) -
Investments in and amounts due to and from
Entertainment Group.................................. 6,252 - (6,252) -
Other investments....................................... 924 903 (19) 1,808
Property, plant and equipment, net...................... 2,027 6,302 - 8,329
Music catalogues, contracts and copyrights.............. 824 - - 824
Cable television and sports franchises.................. 2,662 4,527 295 7,484
Goodwill................................................ 11,647 3,795 57 15,499
Other assets............................................ 816 625 - 1,441
------- ------ -------- --------
Total assets............................................ $31,893 $22,889 $(7,149) $ 47,633
======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities............................... $ 4,136 $ 4,745 $ (716) $ 8,165
Long-term debt.......................................... 10,765 6,535 - 17,300
Borrowings against future stock option proceeds......... 1,219 - - 1,219
Deferred income taxes................................... 3,704 - - 3,704
Unearned portion of paid subscriptions.................. 755 - - 755
Other long-term liabilities............................. 1,647 3,527 (1,451) 3,723
Minority interests...................................... - 1,744 1,356 3,100
Company-obligated mandatorily redeemable
preferred securities of a subsidiary
holding solely subordinated debentures
of a subsidiary of the Company....................... 575 - - 575
Time Warner General Partners' Senior Capital............ - 627 (627) -
Shareholders' equity.................................... 9,092 5,711 (5,711) 9,092
------- ------- -------- --------
Total liabilities and shareholders' equity.............. $31,893 $22,889 $(7,149) $ 47,633
======= ======= ======== ========
See accompanying notes.
TIME WARNER INC.
Restated Consolidated Condensed Statement of Operations
For the Six Months Ended June 30, 1999
(millions, except per share amounts; unaudited)
Intercompany
Time Entertainment Eliminations Time
Warner Group and Consolidating Warner
Historical(a) Historical(a) Adjustments(b) Restated
------------ ------------ -------------- --------
Revenues.............................................. $ 6,840 $5,994 $ (212) $12,622
Cost of revenues(1)................................... (3,696) (3,904) 203 (7,397)
Selling, general and administrative(1)................ (2,365) (1,202) - (3,567)
Gain on sale or exchange of
cable systems and investments.................... 11 760 - 771
Gain on early termination of video
distribution agreement........................... - 215 - 215
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Business segment operating income..................... 790 1,863 (9) 2,644
Equity in pretax income of Entertainment Group........ 1,135 - (1,135) -
Interest and other, net(2)............................ (513) (392) 8 (897)
Minority interest..................................... - (301) 2 (299)
Corporate expenses.................................... (44) (36) - (80)
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Income before income taxes............................ 1,368 1,134 (1,134) 1,368
Income tax provision.................................. (637) (55) 55 (637)
------- ------ ------- -------
Net income............................................ 731 1,079 (1,079) 731
Preferred dividend requirements....................... (36) - - (36)
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Net income applicable to common shares................ $ 695 $1,079 $(1,079) $ 695
======= ====== ======= =======
Net income per common share:
Basic.............................................. $ 0.56 $ - $ - $ 0.56
======= ====== ======= =======
Diluted............................................ $ 0.54 $ - $ - $ 0.54
======= ====== ======= =======
Average common shares:
Basic.............................................. 1,246.2 - - 1,246.2
======= ====== ======= =======
Diluted............................................ 1,401.6 - - 1,401.6
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(1) Includes depreciation and amortization
expense of:...................................... $ 560 $ 642 $ 10 $ 1,212
======= ====== ======= =======
(2) Includes an approximate $115 million
pretax gain recognized by Time Warner
in connection with the initial public
offering of a 20% interest in Time
Warner Telecom Inc.
See accompanying notes.
TIME WARNER INC.
Pro Forma Consolidated Condensed Statement of Operations
For the Year Ended December 31, 1998
(millions, except per share amounts; unaudited)
Intercompany
Time Entertainment Eliminations Time
Warner Group and Consolidating Warner
Historical(a) Historical(a) Adjustments(b) Pro Forma
------------ ------------ ------------- ---------
Revenues.............................................. $14,582 $12,256 $ (594) $26,244
Cost of revenues(1)................................... (8,228) (8,289) 506 (16,011)
Selling, general and administrative(1)................ (4,876) (2,333) - (7,209)
Gain on sale or exchange of cable systems
and investments.................................... 18 90 - 108
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Business segment operating income..................... 1,496 1,724 (88) 3,132
Equity in pretax income of Entertainment Group........ 356 - (356) -
Interest and other, net(2)............................ (1,180) (965) 23 (2,122)
Minority interest..................................... - (264) (2) (266)
Corporate expenses.................................... (86) (72) - (158)
------- ------- ------- -------
Income before income taxes............................ 586 423 (423) 586
Income tax provision.................................. (418) (92) 92 (418)
------- ------- ------- -------
Net income............................................ 168 331 (331) 168
Preferred dividend requirements(3).................... (540) - - (540)
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Net income (loss) applicable to common shares......... $ (372) $ 331 $ (331) $ (372)
======= ======= ======= =======
Net loss per common shares:
Basic.............................................. $ (0.31) $ - $ - $ (0.31)
======= ======= ======= =======
Diluted............................................ $ (0.31) $ - $ - $ (0.31)
======= ======= ======= =======
Average common shares:
Basic.............................................. 1,194.7 - - 1,194.7
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Diluted............................................ 1,194.7 - - 1,194.7
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- ---------------
(1) Includes depreciation and amortization
expense of:..................................... $ 1,178 $ 1,436 $ 21 $ 2,635
======= ======= ======= =======
(2) Includes a charge of approximately $210 million recognized
by TWE principally to reduce the carrying value of an
interest in Primestar, Inc.
(3) Preferred dividend requirements include a one-time effect of
$234 million ($.19 loss per common share) relating to the
premium paid in connection with Time Warner's redemption of
its Series M exchangeable preferred stock.
See accompanying notes.
TIME WARNER INC.
NOTES TO THE RESTATED AND PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(a) Reflects the historical financial position and operating results of Time
Warner and the Entertainment Group, which substantially consists of TWE,
as of and for the six months ended June 30, 1999 and the year ended
December 31, 1998. Certain reclassifications have been made to conform to
the new, consolidated presentation.
(b) Adjustments reflect the elimination of all significant intercompany
accounts and transactions between Time Warner and the Entertainment Group
and other consolidating adjustments necessary to prepare a consolidated
set of financial statements. These adjustments primarily include the
elimination of (i) intercompany revenues and expenses, (ii) intercompany
receivables and payables and (iii) the Entertainment Group's partnership
capital and Time Warner's investment in the Entertainment Group.
Time Warner Inc.
Supplementary Financial Information
By Business Segment
(In millions)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
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MARCH 31, JUNE 30, SEPT 30, DECEMBER 31, JUNE 30, DECEMBER 31,
------------------- ------------------- ---------- --------- -------------------- -----------
Restated Pro Forma Restated Pro Forma Pro Forma Pro Forma Restated Pro Forma Pro Forma
1999 (4) 1998 (4) 1999 (4) 1998 (4) 1998 (4) 1998 (4) 1999 (4) 1998 (4) 1998 (4)
--------- --------- --------- --------- ---------- --------- -------- ---------- -----------
Revenues
Cable Networks $1,364 $1,240 $1,611 $1,415 $1,330 $1,392 $ 2,975 $ 2,655 $ 5,377
Publishing 974 948 1,153 1,136 1,076 1,336 2,127 2,084 4,496
Music 936 888 828 905 938 1,294 1,764 1,793 4,025
Filmed Entertainment 1,697 1,684 1,783 1,834 2,272 2,188 3,480 3,518 7,978
Broadcasting-
The WB Network 79 45 83 61 64 90 162 106 260
Cable 1,296 1,401 1,330 1,326 1,288 1,327 2,626 2,727 5,342
Intersegment
elimination (255) (258) (257) (241) (375) (360) (512) (499) (1,234)
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
Total $6,091 $5,948 $6,531 $6,436 $6,593 $7,267 $12,622 $12,384 $26,244
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
EBITA (1)
Cable Networks $ 309 $ 262 $ 366 $ 311 $ 271 $ 316 $ 675 $ 573 $ 1,160
Publishing 94 85 196 176 112 234 290 261 607
Music 102 93 101 96 99 205 203 189 493
Filmed
Entertainment (2) 375 104 203 160 233 198 578 264 695
Broadcasting-
The WB Network (41) (38) (30) (23) (17) (15) (71) (61) (93)
Cable (3) 403 381 1,180 448 417 448 1,583 829 1,694
Intercompany
elimination 12 (35) 1 (8) (33) (18) 13 (43) (94)
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
Total $1,254 $ 852 $2,017 $1,160 $1,082 $1,368 $ 3,271 $ 2,012 $ 4,462
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
Depreciation of Property, Plant
and Equipment
Cable Networks $ 31 $ 27 $ 32 $ 30 $ 31 $ 28 $ 63 $ 57 $ 116
Publishing 19 19 19 19 20 22 38 38 80
Music 17 19 18 19 16 18 35 38 72
Filmed
Entertainment 30 42 38 39 49 42 68 81 172
Broadcasting-
The WB Network - - 1 - 1 - 1 - 1
Cable 182 231 198 215 206 212 380 446 864
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
Total $ 279 $ 338 $ 306 $ 322 $ 323 $ 322 $ 585 $ 660 $ 1,305
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
THREE MONTHS ENDED SIX MONTHS ENDED YEAR ENDED
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MARCH 31, JUNE 30, SEPT 30, DECEMBER 31, JUNE 30, DECEMBER 31,
------------------- ------------------- ---------- --------- -------------------- -----------
Restated Pro Forma Restated Pro Forma Pro Forma Pro Forma Restated Pro Forma Pro Forma
1999 (4) 1998 (4) 1999 (4) 1998 (4) 1998 (4) 1998 (4) 1999 (4) 1998 (4) 1998 (4)
--------- --------- --------- --------- ---------- --------- -------- ---------- -----------
Amortization of Intangible
Assets
Cable Networks $ 50 $ 50 $ 51 $ 50 $ 50 $ 50 $ 101 $ 100 $ 200
Publishing 10 9 10 8 10 11 20 17 38
Music 67 68 70 71 69 72 137 139 280
Filmed
Entertainment 50 54 50 54 58 50 100 108 216
Broadcasting-
The WB Network 1 1 1 1 - 1 2 2 3
Cable 133 152 134 148 148 145 267 300 593
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
Total $ 311 $ 334 $ 316 $ 332 $ 335 $ 329 $ 627 $ 666 $ 1,330
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
--------------------------------
(1) EBITA represents
business segment
operating income
before noncash
amortization of
intangible assets,
Time Warner's
business segment
operating income was: $ 943 $ 518 $1,701 $ 828 $ 747 $1,039 $ 2,644 $ 1,346 $ 3,132
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
--------- -------- -------- -------- -------- -------- -------- ---------- ----------
(2) Includes a net
pretax gain of
approximately $215
million recognized
in the first
quarter of 1999 in
connection with
the early termination
and settlement of a
long-term home video
distribution agreement.
(3) Includes net pretax
gains relating to the
sale or exchange of
certain cable television
systems and investments
of $771 million in
the second quarter
of 1999, $14 million
in the first quarter of
1998 and $70 million in
the second quarter of 1998.
(4) Restated and pro
forma amounts reflect
the consolidation of
the Entertainment
Group, substantially
all TWE, retroactive
to the beginning
of each period.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on September 16, 1999.
TIME WARNER INC.
By: /s/ Joseph A. Ripp
Name: Joseph A. Ripp
Title: Executive Vice President
and Chief Financial Officer