-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, UHzeNZRxDgcadum5GFZGzYrJXhELsyUxttdzcOocJ5+7oZFjbZYytdkMu+bchYK1 FoXue8sUmDWtVMnD/BRv3Q== 0000950144-94-000832.txt : 19940408 0000950144-94-000832.hdr.sgml : 19940408 ACCESSION NUMBER: 0000950144-94-000832 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940128 ITEM INFORMATION: 7 FILED AS OF DATE: 19940407 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TURNER BROADCASTING SYSTEM INC CENTRAL INDEX KEY: 0000100240 STANDARD INDUSTRIAL CLASSIFICATION: 4833 IRS NUMBER: 580950695 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 34 SEC FILE NUMBER: 001-08911 FILM NUMBER: 94520865 BUSINESS ADDRESS: STREET 1: ONE CNN CENTER STREET 2: 100 INTERNATIONAL BLVD CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4048271700 MAIL ADDRESS: STREET 1: P O BOX 105366 CITY: ATLANTA STATE: GA ZIP: 30348-5366 FORMER COMPANY: FORMER CONFORMED NAME: TURNER COMMUNICATIONS CORP DATE OF NAME CHANGE: 19791016 FORMER COMPANY: FORMER CONFORMED NAME: RICE BROADCASTING CO INC DATE OF NAME CHANGE: 19700909 8-K/A 1 TBS FORM 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): January 28, 1994 TURNER BROADCASTING SYSTEM, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 0-9334 58-0950695 - --------------------------------------------------------------------------------------------- (State or other jurisdiction of (Commission (IRS Employer incorporation) File Number) Identification No.) One CNN Center, Atlanta, Georgia 30303 - --------------------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 827-1700 Not Applicable (Former name or former address, if changed since last report) 2 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. 99.1 Audited New Line Cinema Corporation consolidated balance sheets as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for the three years ended December 31, 1993. 99.2 TBS Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 1993 and Unaudited Pro Forma Condensed Combined Statement of Operations for the years ended December 31, 1993 and December 31, 1992. 3 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, thereto duly authorized. TURNER BROADCASTING SYSTEM, INC. (Registrant) By: /s/ WILLIAM S. GHEGAN -------------------------------------- Name: William S. Ghegan Title: Vice President and Controller and Chief Accounting Officer Date: April 7, 1994 4 EXHIBIT INDEX
EXHIBIT - -------- 99.1 Audited New Line Cinema Corporation consolidated balance sheets as of December 31, 1993 and 1992, and the related consolidated statements of operations, stockholders' equity and cash flows for the three years ended December 31, 1993. 99.2 TBS Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 1993 and Unaudited Pro Forma Condensed Combined Statement of Operations for the years ended December 31, 1993 and December 31, 1992.
EX-99.1 2 TBS AUDITED NEW LINE CINEMA CORP CONSOL. BAL SHEET 1 EXHIBIT 99.1 CONSOLIDATED FINANCIAL STATEMENTS NEW LINE CINEMA CORPORATION AND SUBSIDIARIES Years ended December 31, 1993 and 1992 with Report of Independent Auditors 2 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1993 AND 1992 CONTENTS Report of Independent Auditors........................................................... 1 Consolidated Balance Sheets.............................................................. 2 Consolidated Statements of Income........................................................ 3 Consolidated Statements of Stockholders' Equity.......................................... 4 Consolidated Statements of Cash Flows.................................................... 5 Notes to Consolidated Financial Statements............................................... 6
3 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders New Line Cinema Corporation We have audited the accompanying consolidated balance sheets of New Line Cinema Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of New Line Cinema Corporation and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. ERNST & YOUNG February 25, 1994 1 4 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ---------------------------- 1993 1992 ------------ ------------ ASSETS Cash and cash equivalents $ 4,399,632 $ 1,849,698 Accounts receivable, less allowance for doubtful accounts of approximately $945,000 in 1993 and $640,000 in 1992 72,455,218 35,968,253 Film inventories 221,449,926 147,775,148 Property and equipment, less accumulated depreciation and amortization of approximately $7,491,000 in 1993 and $5,425,000 in 1992 10,333,511 10,309,209 Notes receivable from officers 2,010,000 1,965,000 Other assets 10,060,609 6,540,881 Investment in affiliated company 21,833,997 17,937,997 ------------ ------------ Total assets $342,542,893 $222,346,186 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Note payable to bank $126,800,000 $ 58,500,000 Accounts payable and accrued expenses 23,061,943 8,218,481 Third-party participations payable 24,271,197 23,834,301 Long-term debt 29,125,000 30,000,000 Deferred income 8,399,517 21,702,987 Deferred income taxes 5,954,000 7,800,121 ------------ ------------ Total liabilities 217,611,657 150,055,890 ------------ ------------ Stockholders' equity: Preferred stock, par value $.01 per share; 300,000 shares authorized; none outstanding -- -- Common stock, par value $.01 per share; 50,000,000 shares authorized; issued and outstanding: 16,775,733 in 1993 and 12,728,560 in 1992 167,757 127,285 Capital in excess of par value 79,894,787 37,825,947 Retained earnings 45,077,319 34,552,348 ------------ ------------ 125,139,863 72,505,580 Treasury shares, 62,677 in 1993 and 64,677 in 1992, at cost (208,627) (215,284) ------------ ------------ Total stockholders' equity 124,931,236 72,290,296 ------------ ------------ Total liabilities and stockholders' equity $342,542,893 $222,346,186 ------------ ------------ ------------ ------------
See accompanying notes. 2 5 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31 ------------------------------------------ 1993 1992 1991 ------------ ------------ ------------ Revenue $306,335,494 $227,001,696 $225,686,168 Costs relating to revenue 258,590,878 194,653,113 192,190,621 ------------ ------------ ------------ Gross income 47,744,616 32,348,583 33,495,547 Operating expenses; General and administrative 27,408,560 21,980,853 17,510,275 Selling 1,536,355 1,406,224 912,367 Depreciation and amortization 3,819,000 2,809,025 1,820,875 ------------ ------------ ------------ 32,763,915 26,196,102 20,243,517 ------------ ------------ ------------ Income from operations 14,980,701 6,152,481 13,252,030 Interest expense (3,071,474) (3,685,197) (227,397) Other charges (562,309) (248,771) (323,841) ------------ ------------ ------------ Income before equity in income of, and gain on issuance of stock by, affiliated company and provision for income taxes 11,346,918 2,218,513 12,700,792 Equity in income of affiliated company 3,896,000 2,355,000 1,065,000 Gain on issuance of stock by affiliated company -- 4,334,864 -- ------------ ------------ ------------ Income before provision for income taxes 15,242,918 8,908,377 13,765,792 Provision for income taxes 4,717,947 2,490,162 4,824,000 ------------ ------------ ------------ Net income $ 10,524,971 $ 6,418,215 $ 8,941,792 ------------ ------------ ------------ ------------ ------------ ------------ Primary net income per share of common stock $ 0.60 $ 0.45 $ 0.66 ------------ ------------ ------------ ------------ ------------ ------------ Fully diluted net income per share of common stock $ 0.58 $ 0.45 $ 0.64 ------------ ------------ ------------ ------------ ------------ ------------ Primary weighted average number of shares of common stock outstanding 17,403,370 14,282,039 13,592,804 ------------ ------------ ------------ ------------ ------------ ------------ Fully diluted weighted average number of shares of common stock outstanding 18,108,792 14,326,653 13,880,687 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes. 3 6 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
CAPITAL IN COMMON COMMON EXCESS OF RETAINED STOCK HELD STOCK PAR VALUE EARNINGS IN TREASURY TOTAL -------- ----------- ----------- ----------- ------------ Balance, January 1, 1991 $104,055 $15,869,138 $19,192,341 $(226,081) $ 34,939,453 Issuance of 165,670 shares of common stock upon exercise of options 1,656 1,010,954 -- -- 1,012,610 Sale of 1,910,000 shares of common stock 19,100 18,744,489 -- -- 18,763,589 Issuance of 190,500 shares of common stock 1,905 1,953,720 -- -- 1,955,625 Issuance of 2,226 shares of common stock held in treasury to Employee Stock Ownership Plan -- 14,536 -- 10,797 25,333 Net income -- -- 8,941,792 -- 8,941,792 -------- ----------- ----------- ----------- ------------ Balance, December 31, 1991 126,716 37,592,837 28,134,133 (215,284) 65,638,402 Issuance of 56,909 shares of common stock upon exercise of options 569 233,110 -- -- 233,679 Net income -- -- 6,418,215 -- 6,418,215 -------- ----------- ----------- ----------- ------------ Balance, December 31, 1992 127,285 37,825,947 34,552,348 (215,284) 72,290,296 Issuance of 1,099,232 shares of common stock upon exercise of options 10,992 2,427,955 -- -- 2,438,947 Sale of 2,875,000 shares of common stock 28,750 31,821,079 -- -- 31,849,829 Issuance of 21,090 shares of common stock 211 318,998 -- -- 319,209 Sale of 2,000 shares of treasury stock -- -- -- 6,657 6,657 Issuance of 51,851 shares of common stock upon conversion of long-term debt 519 874,481 -- -- 875,000 Tax benefit of stock option exercises of 968,937 options -- 6,626,327 -- -- 6,626,327 Net income -- -- 10,524,971 -- 10,524,971 -------- ----------- ----------- ----------- ------------ Balance, December 31, 1993 $167,757 $79,894,787 $45,077,319 $(208,627) $124,931,236 -------- ----------- ----------- ----------- ------------ -------- ----------- ----------- ----------- ------------
See accompanying notes. 4 7 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ---------------------------------------------- 1993 1992 1991 ------------ ------------ ------------ OPERATING ACTIVITIES Net income $ 10,524,971 $ 6,418,215 $ 8,941,792 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Increase in allowance for doubtful accounts 305,000 124,655 68,968 Amortization of film inventories 152,502,400 131,678,221 93,588,978 Depreciation and other amortization 3,819,000 2,809,025 1,820,875 Shares of common stock issued to employee stock ownership plan -- -- 25,333 Undistributed earnings from affiliated company (3,896,000) (2,355,000) (1,065,000) Gain on issuance of stock by affiliated company -- (4,897,476) -- Deferred income taxes (1,846,121) 1,181,918 1,931,000 Changes in other assets and liabilities: (Increase) decrease in: Accounts receivable (36,791,965) 943,783 (14,452,030) Gross film inventories (226,177,178) (143,015,737) (154,848,255) Other assets (2,307,782) (3,338,290) 520,016 Increase (decrease) in: Accounts payable and accrued expenses 14,843,462 (9,510,218) 12,921,129 Third party participations payable 436,896 (5,694,246) 524,600 Deferred income (13,303,470) (28,122,715) 40,239,776 ------------ ------------ ------------ Total adjustments (112,415,758) (60,196,080) (18,724,610) ------------ ------------ ------------ Cash used in operating activities (101,890,787) (53,777,865) (9,782,818) ------------ ------------ ------------ INVESTING ACTIVITIES Purchase of property and equipment (2,090,302) (6,996,958) (3,684,956) Investment in affiliated company -- -- (119,437) Notes receivable from officers (45,000) (70,000) (745,000) ------------ ------------ ------------ Cash used in investing activities (2,135,302) (7,066,958) (4,549,393) ------------ ------------ ------------ FINANCING ACTIVITIES Net proceeds from borrowings on note payable 142,835,054 62,127,357 43,308,301 Repayment of note payable (77,500,000) (4,000,000) (76,200,000) Net proceeds from issuance of long-term debt -- -- 28,840,171 Proceeds from issuance of shares of common stock 41,240,969 233,679 21,731,824 ------------ ------------ ------------ Cash provided by financing activities 106,576,023 58,361,036 17,680,296 ------------ ------------ ------------ Increase (decrease) in cash and cash equivalents 2,549,934 (2,483,787) 3,348,085 Cash and cash equivalents at beginning of period 1,849,698 4,333,485 985,400 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 4,399,632 $ 1,849,698 $ 4,333,485 ------------ ------------ ------------ ------------ ------------ ------------
See accompanying notes. 5 8 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND PRINCIPLES OF CONSOLIDATION New Line Cinema Corporation (the "Company") is a motion picture production and distribution company. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. FILM INVENTORIES Film inventories consist of the cost of the Company's productions, acquired films, prints and certain exploitation costs including advertising costs expected to benefit the films in future markets, the cost of acquiring certain rights for domestic home video and foreign distribution of certain films and capitalized interest and overhead related to production of films and acquisition of film rights. Such inventories are stated at the lower of unamortized costs or net realizable value generally on a film-by-film basis. The costs of films released are amortized using the individual-film-forecast-computation method which amortizes costs in the same ratio that current gross revenues bear to anticipated total gross revenues. The costs of distribution rights are amortized in the same ratio that fees earned in the current period from the rights bear to anticipated total fees. Such anticipated total gross revenues and fees are estimated by management. The anticipated total gross revenue and fees are reviewed periodically, which may result in revised amortization rates and, when applicable, write-downs to net realizable value. Film inventories, net of accumulated amortization, approximated the following:
DECEMBER 31, --------------------------- 1993 1992 ------------ ------------ Films released $104,269,000 $ 62,784,000 Films completed but not released 18,712,000 41,519,000 Films in process 88,813,000 30,557,000 Distribution rights 9,656,000 12,915,000 ------------ ------------ $221,450,000 $147,775,000 ------------ ------------ ------------ ------------
Based on the Company's anticipated total gross revenue estimates, over 95% of released film inventories at December 31, 1993 will be amortized within the three-year period ending December 31, 1996. PROPERTY AND EQUIPMENT; DEPRECIATION AND AMORTIZATION Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life used for property and equipment is ten years, while the life used for computer hardware and software is three years. Leasehold improvements are amortized over the estimated useful lives of the related assets or the remaining term of the lease, whichever is shorter. REVENUE RECOGNITION Revenue from theatrical exhibition of films is reflected in the accompanying consolidated financial statements when the film is exhibited. Revenue from the sale of film rights, principally for the home video, domestic and 6 9 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) foreign syndicated television and domestic pay cable television markets is recognized when the film is available for showing or exploitation. Amounts received prior to the film's availability are classified as deferred income. Films with theatrical releases (which generally may continue for up to six months) are generally made available for release in other media as follows:
MONTHS AFTER INITIAL APPROXIMATE MARKET RELEASE RELEASE PERIOD ------------------------------------------------------- -------------- -------------- Domestic home video 4-6 months -- Domestic pay-per view 6-9 months 3 months Domestic pay television 10-18 months 12-21 months Domestic network or basic cable 30-36 months 18-36 months Domestic syndication 30-36 months 3-15 years Foreign theatrical -- 4-6 months Foreign home video 6-12 months -- Foreign television 18-24 months 18-30 months
For the years ended December 31, 1993, 1992 and 1991, approximately 39%, 44% and 63%, respectively, of the Company's total revenue was attributable to four films, six films and four films, respectively. Foreign revenue related to the Company's films approximated 19%, 24% and 11% of total revenue for the years ended December 31, 1993, 1992 and 1991, respectively. THIRD-PARTY PARTICIPATIONS Total expected third-party participations are charged to expense in the same ratio as current gross revenues bear to anticipated total gross revenues. At December 31, 1993, the portion of third-party participations payable within one year was approximately $13 million. CONCENTRATION OF CREDIT RISKS The Company licenses various rights in its motion pictures to distributors throughout the world. Generally, payment is received in full or in part, or letters of credit are obtained, prior to the Company's release of the films to its distributors. INCOME TAXES Deferred income taxes result from timing differences between the amounts reported for financial reporting and income tax purposes. These differences relate primarily to the gain on issuance of stock by an affiliated company, advertising and print expenditures, third-party participations, and film amortization. COMMON STOCK DATA Primary and fully diluted net income per share of common stock and common stock equivalents are based on the weighted average number of shares of common stock and common stock equivalents outstanding. TRANSACTIONS IN SHARES OF AFFILIATED COMPANIES The Company recognizes as separate nonoperating income, gains and losses arising from sales of previously unissued stock by a subsidiary or affiliate to outside investors when such sales change the Company's percentage of ownership in such companies. 7 10 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS Long-Term Debt: The fair values of the Company's long-term debt is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The Company believes the carrying amounts reported in the balance sheet for these instruments is approximately equal to their fair value. RECLASSIFICATION Certain amounts in 1991 and 1992 have been reclassified to conform to the 1993 presentation. 2. INVESTMENT IN AFFILIATED COMPANY On October 26, 1990, the Company acquired from RHI Entertainment, Inc. ("RHI") 52.6% of RHI's outstanding capital stock for $8,700,000. A portion of the excess of cost over the Company's equity in RHI, consists of goodwill of $850,000 which is being amortized over a 20-year period and an option valued at $1,270,000 to acquire additional shares of RHI capital stock. The investment is accounted for under the equity method, as the Company does not have majority voting control of RHI. The Company has the right to designate two of the five members of RHI's board of directors and all major decisions as to the financing and operations of RHI require a super majority vote of the board of directors of RHI. RHI is a leading producer of movies-of-the-week, mini-series and other programming for the United States television market. RHI has acquired the worldwide televisions rights of Qintex Entertainment Inc., including Hal Roach and Robert Halmi titles. In April 1992, in exchange for $561,000 paid by the Company to one of the principals of RHI, such principal cancelled an option to acquire shares of common stock of RHI owned by the Company. On July 29, 1992, RHI issued 2,315,000 shares of common stock at $10 per share, in an initial public offering, resulting in aggregate gross proceeds of $23,150,000. This issuance reduced the Company's interest in the capital stock of RHI to 37.4%. As a result, the Company recognized a gain of $4,335,000 (before provision for income taxes of $1,647,000) which reflects a reduction by $3,512,000 in the carried amount of its investment which was deemed sold. Income taxes provided on the gain are not payable until the gain is recognized for tax purposes, such as from an actual sale of RHI stock by the Company. Summary financial information for RHI as of and for the years ended December 31, 1993, 1992 and 1991 is as follows:
1993 1992 1991 ------------ ----------- ----------- Cash $ 1,283,000 $ 241,000 $ 752,000 Accounts receivable 54,494,000 29,654,000 8,607,000 Film production costs 119,031,000 55,681,000 41,853,000 Total assets 181,352,000 90,049,000 55,337,000 Notes payable to bank 36,050,000 17,384,000 21,234,000 Deferred revenue 22,970,000 17,796,000 12,667,000 Shareholders' equity 52,456,000 42,367,000 15,902,000 Revenue 119,625,000 56,472,000 33,252,000 Film costs 95,508,000 42,037,000 22,285,000 Net income 10,089,000 5,646,000 2,498,000
The Company's consolidated retained earnings at December 31, 1993 includes $8,016,000 related to the equity income of RHI. 8 11 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. NOTE PAYABLE TO BANK On March 26, 1993, the Company entered into a new credit facility (the "Credit Facility") providing a revolving credit facility of $150,000,000 for a period of three years. Except for the increase in principal amount and a restriction on the amounts of permitted increases in selling, general and administrative expenses, the terms of the Credit Facility do not materially differ from the Company's previous credit facility. The Credit Facility contains various covenants which, among other things, (i) provide that minimum consolidated tangible net worth, as defined, must be maintained by the Company, (ii) limit the incurrence of additional indebtedness, (iii) prohibit the payment of cash dividends as long as an outstanding loan balance exists, (iv) limit the amount of certain capital expenditures, (v) limit the amount of certain production and preproduction costs per film in active production or preproduction, for a maximum of eight such films at any one time and no more than three such films to be in principal photography at any one time, (vi) restrict the amount to be paid to acquire rights in films produced by others, and (vii) require that the Company's Chief Executive Officer maintain his ownership of the Company, as defined, and remain as its Chief Executive Officer. Other information relating to the note payable under the existing and prior credit facilities during the three year period ended December 31, 1993 is summarized as follows:
1993 1992 1991 ------------ ----------- ----------- Maximum amount of borrowings outstanding $126,800,000 $62,500,000 $39,000,000 Daily average amount of borrowings outstanding each year $ 69,606,000 $38,273,000 $14,533,000 Weighted average interest rate for year 5.6% 6.4% 9.5% Interest rate at December 31 6.0% 7.0% 7.5% Interest expense, net of capitalized amounts $ 1,181,683 $ 558,000 $ 99,000 Capitalized interest $ 2,712,000 $ 1,885,000 $ 1,379,000
Interest paid under the Credit Facility (net of capitalized amounts) amounted to approximately $1,535,000, $437,000 and $99,000 in 1993, 1992 and 1991, respectively. In 1993, the Company also paid approximately $74,000 of interest related to a $40,000,000 advance received from Columbia TriStar Home Video and $324,000 relating to other funds. Commitment fees under the agreements were $562,000, $249,000 and $234,000 for each of the three years ended December 31, 1993, 1992 and 1991, respectively. On January 28, 1994, the Company repaid all amounts owed under the Credit Facility with funds received from the Turner Broadcasting System, Inc. ("TBS"). (See Note 12). 4. LONG-TERM DEBT On November 14, 1991, the Company issued $30,000,000 of convertible subordinated debentures which are convertible at the option of the holder into shares of the Company's common stock at $16 7/8 per share, for a total of 1,777,778 shares. The debentures are payable with interest at 6 1/2% payable semiannually and are due November 15, 2006. Annual sinking fund payments of $3,500,000, commencing November 15, 2000, are calculated to retire 70% of the debentures prior to maturity. The debentures are redeemable at the option of 9 12 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Company, in whole or in part, at the following redemption prices together with accrued and unpaid interest commencing on each November 15 in the years set forth as follows: 1994 103% 1995 102% 1996 101% 1997 and thereafter 100%
The debentures were not redeemable by the Company before November 15, 1993 and from that date until November 15, 1994, are not redeemable unless the average price of the Company's common stock for a defined period exceeds 150% of the conversion price. In December 1993, certain holders converted $875,000 of the debentures into 51,851 shares of common stock. The Company accounted for the conversion using the book method where the converted value of the debt is equal to the increase in equity. $29,125,000 of debentures were outstanding at December 31, 1993. For the years ended December 31, 1993, 1992 and 1991, the Company incurred interest charges of $1,950,000, $1,950,000 and $244,000, respectively, of which approximately $1,852,000, $1,853,000 and $215,000 was capitalized. Interest paid (net of capitalized amounts) amounted to $100,000 in 1993. 5. INCOME TAXES Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes". As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting Statement 109 as of January 1, 1993 was not material. As of December 31, 1993 the Company has a federal net operating loss carryforward of approximately $16 million for income tax purposes that expires in the year 2008. This carryforward resulted primarily from a deduction related to the exercise of employee stock options. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1993 and 1992 are as follows:
1993 1992 ----------- ----------- Deferred tax assets: Participations $ 4,587,000 $ 3,605,000 Fixed assets 837,000 670,000 Deferred revenue 3,372,000 -- NOL Carryforward 6,070,000 -- Other 582,000 456,000 ----------- ----------- Total deferred tax assets $15,448,000 $ 4,731,000 ----------- ----------- ----------- ----------- Deferred tax liabilities: Film inventory $19,662,000 $10,857,000 RHI Equity 1,740,000 1,674,000 ----------- ----------- Total deferred tax liabilities $21,402,000 $12,531,000 ----------- ----------- ----------- ----------- Net deferred tax liability $ 5,954,000 $ 7,800,000 ----------- ----------- ----------- -----------
10 13 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision for income taxes approximated the following:
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------------------------------------------------- 1993 1992 1991 ------------------------------------ ---------------------------------- ---------------------------------- CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL ---------- ---------- ---------- ---------- -------- ---------- ---------- -------- ---------- Federal $ 439,000 $2,611,000 $3,050,000 $ 863,000 $ 57,000 $ 920,000 $2,099,000 $814,000 $2,913,000 Foreign withholding 950,000 -- 950,000 1,185,000 -- 1,185,000 1,146,000 -- 1,146,000 State and local 267,000 451,000 718,000 270,000 115,000 385,000 610,000 155,000 765,000 ---------- ---------- ---------- ---------- -------- ---------- ---------- -------- ---------- $1,656,000 $3,062,000 $4,718,000 $2,318,000 $172,000 $2,490,000 $3,855,000 $969,000 $4,824,000 ---------- ---------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ---------- -------- ---------- ---------- -------- ----------
The difference between the statutory federal income tax rate of 34% for 1991 and 1992 and 35% for 1993 and the taxes actually provided for those years, approximated the following:
YEAR ENDED DECEMBER 31, ------------------------------------- 1993 1992 1991 ----------- ---------- ---------- Taxes based on statutory federal income tax rate $ 5,335,000 $3,029,000 $4,681,000 Add (deduct): Equity in income of affiliated company permanently reinvested -- (801,000) (362,000) Dividends received deduction (1,091,000) -- -- State and local taxes, net of federal tax benefit 467,000 252,000 505,000 Other 7,000 10,000 -- ----------- ---------- ---------- $ 4,718,000 $2,490,000 $4,824,000 ----------- ---------- ---------- ----------- ---------- ----------
6. RENT EXPENSE AND LEASE COMMITMENTS The Company occupies office space under various operating leases. In addition to the base annual rental, the leases provided for certain escalation charges based on increases in operating expenses of the buildings. Rent expense amounted to approximately $1,358,000, $1,245,000 and $868,000 for the years ended December 31, 1993, 1992 and 1991, respectively. At December 31, 1993, minimum noncancellable commitments under these leases were as follows: 1994 $ 1,670,000 1995 1,727,000 1996 1,788,000 1997 1,301,000 1998 1,062,000 Thereafter 9,390,000 ----------- $16,938,000 ----------- -----------
7. COMMITMENTS AND CONTINGENCIES LEGAL MATTERS In December 1992, the Company was named as a defendant in an action brought by Troma, Inc. in the Supreme Court of the State of New York, County of New York. The action seeks unspecified damages in an amount "no less than $50 million" for breach of an agreement which allegedly required the Company to produce and distribute a film based upon the characters owned by the plaintiff. No answer has yet been filed, and the Company is considering its possible counterclaims against the plaintiff and its principal officers. In June 1990, an action was brought against the Company in the Supreme Court, New York County, by Smart Egg Pictures, S.A., one of the joint ventures with the Company in the first two "Nightmare on Elm 11 14 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Street" films. The plaintiff alleges that the Company wrongfully induced it to enter into an agreement diminishing its rights in the joint venture assets. The action seeks an accounting and damages of at least $5,000,000, together with punitive damages and treble damages under the RICO laws, in connection with the series of "A Nightmare on Elm Street" films. The Company and its subsidiaries are parties to various other legal proceedings, all of which are considered routine and incidental to the business of the Company and are not material to the financial condition and operation of the business. Neither the Company nor any of its subsidiaries is a party to any litigation, including the matters described above, which is expected to have a material adverse effect upon the Company's business. ACQUISITION OF DISTRIBUTION RIGHTS In addition to the Film inventories recorded on the Consolidated Balance Sheet at December 31, 1993, the Company is contractually committed to advancing funds, in accordance with contract terms, for the acquisition rights to films which will be completed subsequent to December 31, 1993. These unrecorded contractual commitments were approximately $56 million at December 31, 1993. 8. EMPLOYEE BENEFIT PLANS PENSION EXPENSE Certain employees of certain subsidiaries of the Company are covered under collective bargaining agreements. All such union employees are covered by multiemployer defined benefit pension plans. The Company makes contributions to such plans based on amounts specified in the related union contracts. The unions have informed the Company that they are unable to provide the actuarial present values of accumulated plan benefits or the plan's net assets available for benefits with respect to any individual firm, including the Company. The Company contributed approximately $2,498,000, $1,531,000 and $755,000 during the years ended December 31, 1993, 1992 and 1991, respectively, to such plans. EXECUTIVE BENEFIT TRUST Effective November 1, 1991, the Company established the New Line Cinema Corporation Executive Benefit Trust (the "Trust") to provide incentive compensation to certain executive employees. The Trust is not intended to provide retirement income to employees, or to provide for a deferral of income by employees for periods extending to the termination of covered employment or beyond. 401(k) PLAN In December 1992, the Company adopted a 401(k) defined contribution plan (the "Plan") for certain of its employees. Employees can make voluntary contributions to the Plan subject to certain limitations. Eligible employees are those who have reached age 21 and have worked at least 1,000 hours. No contribution was made to the Plan by the Company in 1992 or 1993. 9. CAPITAL STOCK RESERVED SHARES OF COMMON STOCK At December 31, 1993, 1992 and 1991, the Company had reserved 3,359,616, 3,083,637 and 2,722,003 shares, respectively, of common stock for grant and exercise of stock options. In addition, shares reserved for future issuance include 1,725,926 shares for the conversion of the 6.5% convertible subordinated debentures (see Note 4) and 250,000 shares reserved for Nelson Holdings International, Ltd. (see Note 11). Solely as a result of the completion of a proposed public offering of 2,875,000 shares of common stock pursuant to a registration statement on Form S-3 filed in February 1993, the Company's Chairman was granted options to purchase 12 15 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) approximately 925,305 additional shares of common stock at the market price of the common stock on February 26, 1993, pursuant to the operation of the provisions of his Employment Agreement. The terms of this Employment Agreement provide the Company's Chairman the ability to maintain his holdings at approximately 25% of the outstanding common stock of the Company (as defined). 10. STOCK OPTIONS 1990 STOCK OPTION PLAN On February 18, 1990, the Company adopted the 1990 Stock Option Plan (the "1990 Plan") under which a committee of independent members of the Board of Directors is authorized to grant options for 750,000 shares under the 1990 Plan, to any full-time employee, subject to adjustment for stock splits, stock dividends and certain other events. The 1990 Plan is similar to the 1986 Plan, except that options under the 1990 Plan may be incentive stock options and the grant may allow options to be exercised by the surrender of common stock or options to acquire Common stock having a market value equal to the aggregate exercise price of the option. As of December 31, 1993, options for a total of 709,199 shares of common stock had been granted of which 675,354 were outstanding. 1991 STOCK OPTION PLAN On January 14, 1992, the Company's Board of Directors adopted a new Stock Option Plan (the "1991 Plan"), which is identical to the 1990 Plan except that options for a total of 250,000 shares of the Company's Common Stock may be granted thereunder. As of December 31, 1993, options for a total of 200,000 shares of common stock had been granted under the 1991 Plan, all of which are outstanding. SUMMARY The activity in stock options during the three year period ended December 31, 1993 is summarized below. The information has been adjusted for the 20% stock dividend issued on February 28, 1991.
NONQUALIFIED STOCK OPTIONS QUALIFIED STOCK OPTIONS ------------------------ ----------------------- AGGREGATE AGGREGATE SHARES AMOUNT SHARES AMOUNT --------- ----------- -------- ----------- Options outstanding at January 1, 1991 1,939,712 $ 6,917,574 651,554 $ 3,283,323 Granted (from $10.13 to $16.00 and from $9.81 to $13.38 per share) 255,063 2,960,393 41,425 499,429 Exercised (at $.47 and from $3.33 to $5.42 per share) (111,374) (52,680) (54,377) (229,727) --------- ----------- -------- ----------- Options outstanding at December 31, 1991 2,083,401 9,825,287 638,602 3,553,025 Granted (from $11.25 to $15.00 and from $12.25 to $15.75 per share) 309,982 4,395,156 112,351 1,545,308 Exercised (at $5.42 and from $2.05 to $6.04 per share) (10,000) (54,170) (46,909) (179,354) Forfeited -- -- (3,790) (18,393) --------- ----------- -------- ----------- Options outstanding at December 31, 1992 2,383,383 14,166,273 700,254 4,900,586 Granted (from $12.00 to $16.88 and from $12.00 to $15.13 per share) 1,238,752 15,826,710 146,459 2,022,157 Exercised (from $.47 to $10.13 and from $2.05 to $14.75 per share) (891,865) (1,309,000) (207,367) (1,129,946) Forfeited (2,656) (26,892) (7,344) (74,358) --------- ----------- -------- ----------- Options outstanding at December 31, 1993 2,727,614 $28,657,091 632,002 $ 5,718,439 --------- ----------- -------- ----------- --------- ----------- -------- -----------
13 16 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1993, 1,975,082 of the nonqualified stock options were exercisable at prices ranging from $1.273 to $16.875 per share for an aggregate amount of $20,880,753. 11. RELATED PARTY TRANSACTIONS MEDIA BUYING SERVICE The Company employs a media buying service to place its television and radio advertising. The President of the Company is the beneficial owner of 25% of the capital stock of such service. In addition, a director of the Company is an officer and the beneficial owner of a total of 25% of the capital stock of such service. During the years ended December 31, 1993, 1992 and 1991, such buying service placed a total of approximately $28,728,000, $19,079,000 and $30,695,000, in broadcast advertising for the Company for fees totaling approximately $1,335,000, $754,000 and $1,228,000, respectively. LEGAL SERVICES A director of the Company is a principal of the Company's primary legal counsel. Until his appointment as President of the Company on September 27, 1990, the President of the Company was a principal of that law firm. Although he is currently "of counsel" to such firm, he has no financial interest therein. Until his appointment as Senior Vice President -- Business Affairs of the Company on February 1, 1993, a director of the Company was also a principal of this same law firm. Fees for legal services performed by such law firm on behalf of the Company approximated $1,471,000, $732,000 and $1,049,000 during the years ended December 31, 1993, 1992 and 1991, respectively. NOTES RECEIVABLE FROM OFFICERS Notes receivable from officers include a note receivable from the Chairman of the Company for $750,000 advanced to him in connection with the purchase and renovation of his residence. The loan is unsecured, without interest and is repayable on demand or upon the sale of the residence. In addition, there is a note receivable from the President of the Company for $625,000, which bears no interest and is repayable solely from bonus compensation to which he may become entitled through 1995, with any remaining balance payable on December 31, 1995. There are additional notes receivable from several Senior Vice Presidents of the Company aggregating approximately $635,000. These loans also are interest-free and are payable on demand of the Company. DISTRIBUTION FEE ARRANGEMENT In May 1991, pursuant to an agreement with NHI Nelson Holdings International, Ltd. ("NHI") and Credit Lyonnais Bank Nederland, N.V. ("CLBN"), the Company became the distributor of existing and future film properties of NHI's film entertainment group ("Sultan Entertainment Holdings Inc.") including foreign distribution rights and domestic home video distribution rights to up to 11 motion pictures to be produced by Castle Rock Entertainment from 1992 through 1995. The Company paid approximately $15 million in cash and issued to NHI certain securities of the Company comprised of 150,000 shares of common stock and five-year warrants to purchase 250,000 shares of common stock at $13.87 per share to obtain these rights. Fees earned in 1993 and 1992 by the Company under its arrangement with Sultan Entertainment Holdings, Inc. amounted to $8,794,000 and $12,027,000, respectively. Pursuant to this agreement, CLBN refinanced certain long-term debt of Sultan Entertainment Holdings Inc. and also agreed to provide a new credit facility to a newly-formed subsidiary with Sultan Entertainment Holdings Inc., CR Memorandum. The proceeds of the new facility will be used to fund the acquisition of foreign distribution rights and domestic home video distribution rights to the 11 motion pictures to be produced by Castle Rock Entertainment through 1995 ("Castle Rock Pictures"). The Company's financial 14 17 NEW LINE CINEMA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) obligations with respect to CLBN's advances are limited to a guaranty of a portion of this loan. There can be no assurance that funds will be available under the CLBN facility for the purchase of rights in connection with a Castle Rock Picture. The Company's ability to distribute the remaining Castle Rock Pictures is predicted upon the continued availability of funds from CLBN or from other sources. On November 27, 1991, the Company acquired the stock of Sultan Entertainment Holdings Inc. for $100,000 in cash and contributed the stock to the New Line Cinema Corporation Executive Benefit Trust (see Note 8). 12. SUBSEQUENT EVENTS -- MERGER WITH TBS On January 28, 1994, the shareholders of the Company approved the merger of the Company into NL Acquisition Corp., a Delaware corporation which is a wholly-owned subsidiary of TBS. The closing of the merger took place after the shareholders' meeting and each outstanding share of the Company's common stock was converted into the right to receive 0.96386 shares of TBS Class B Common Stock. 15
EX-99.2 3 TBS UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE 1 EXHIBIT 99.2 TURNER BROADCASTING SYSTEM, INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION INTRODUCTION On December 22, 1993, Turner Broadcasting System, Inc. ("TBS") acquired the equity interest in Castle Rock Entertainment ("Castle Rock"), a motion picture and television production company. On December 29, 1993, TBS acquired the remaining 50% in HB Holding Co. TBS held a 50% interest in HB Holding Co. since 1991. On January 28, 1994, TBS and New Line Cinema Corporation ("New Line") completed a merger of New Line with a wholly-owned subsidiary of TBS (the "Merger"). As a result of the Merger, each share of New Line Common Stock has been converted into the right to receive 0.96386 of a share of TBS Class B Common Stock. The valuations used by New Line and TBS for the purposes of arriving at the exchange ratio were $20 per share of New Line Common Stock and $20.75 per share of TBS's Class B Common Stock. The maximum number of Class B common shares issuable pursuant to the Merger is approximately 21,312,000. The accompanying Unaudited Pro Forma Condensed Combined Financial Information gives effect to (i) the acquisition by TBS of Castle Rock together with the acquisition of the remaining 50% interest in HB Holding Co. (together, the "Acquisitions") and (ii) the Acquisitions together with the Merger with New Line Cinema. The Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1993 and 1992 present the pro forma combined results of the continuing operations of TBS, Castle Rock, HB Holding Co. and New Line for those periods assuming that (i) the Acquisitions and (ii) the Acquisitions together with the Merger had occurred at the beginning of the periods presented. The Unaudited Pro Forma Condensed Combined Balance Sheet at December 31, 1993 presents the pro forma condensed combined financial position of TBS, which includes the Acquisitions, and New Line assuming that the Merger had occurred at that date. The Unaudited Pro Forma Condensed Combined Financial Information is provided for informational purposes only and does not purport to be indicative of the future results or financial position of TBS or what the results of operations or financial position would have been had (i) the Acquisitions or (ii) the Acquisitions together with the Merger been effected on the dates indicated. This information should be read in conjunction with the historical financial statements, including the related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in TBS's Annual Report on Form 10-K for the year ended December 31, 1993. This information should also be read in conjunction with the historical financial statements and related notes thereto of New Line included herein. The accompanying Unaudited Pro Form Condensed Combined Financial Information is based on TBS's preliminary review of New Line. TBS has not received any appraisals or valuations from independent third parties of the assets or properties of New Line. However, the pro forma information presented below may be adjusted once complete information on the fair value of all of New Line's assets and liabilities is developed and once a more thorough review of New Line's operating and accounting policies and procedures has been completed. 16 2 TURNER BROADCASTING SYSTEM, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DECEMBER 31, 1993 (AMOUNTS IN THOUSANDS)
NEW LINE PRO NEW ACQUISITION FORMA TBS LINE PRO FORMA NOTE FOR THE HISTORICAL HISTORICAL ADJUSTMENTS REFERENCE MERGER ---------- ---------- ----------- --------- ---------- ASSETS Cash and cash equivalents........................ $ 162,858 $ 4,400 $ 39,000 1(a) $ 206,258 Accounts receivable, net of allowance Unaffiliated................................... 378,228 72,455 (6,920) 1(b) 443,763 Affiliated..................................... 94,011 94,011 Film Costs....................................... 314,637 221,450 2,500 1(a) 435,234 (103,353) 1(b) Installment contracts receivable, net of allowance...................................... 56,563 56,563 Prepaid expense and other current assets......... 68,196 5,691 1(b) 73,887 ---------- ---------- ----------- ---------- Total current assets.................... 1,074,493 298,305 (63,082) 1,309,716 Film Costs, less current portion................. 1,633,731 47,500 1(a) 1,784,584 103,353 Goodwill and other intangible assets............. 111,202 261,521 1(a) 372,723 Property and equipment, less accumulated depreciation................................... 225,228 10,334 235,562 Installment contracts receivable, net of discount....................................... 15,077 15,077 Other assets..................................... 185,131 33,904 25,000 1(a) 245,264 1,229 1(b) ---------- ---------- ----------- ---------- Total Assets.......................... $3,244,862 $342,543 $ 375,521 $3,962,926 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Accounts payable and accrued expenses............ $ 168,975 $ 23,062 $ 192,037 Film contracts payable........................... 28,096 28,096 Interest payable................................. 32,128 32,128 Participants' share and royalties payable........ 33,922 24,271 (11,391) 1(b) 46,802 Current portion of long-term debt................ 2,051 126,800 (126,800) 1(c) 2,051 Deferred income.................................. 106,496 8,400 (1,011) 1(b) 113,885 Other current liabilities........................ 42,240 14,000 1(a) 56,240 ---------- ---------- ----------- ---------- Total current liabilities............... 413,908 182,533 (125,202) 471,239 Long-term debt, less current portion............. 2,294,557 29,125 (29,125) 1(c) 2,421,357 126,800 1(a) Deferred income taxes............................ 395,668 5,954 73,353 1(a) 474,975 Other long-term liabilities...................... 141,832 12,402 1(b) 154,234 ---------- ---------- ----------- ---------- Total liabilities....................... 3,245,965 217,612 58,228 3,521,805 Class C Convertible Preferred Stock.............. 260,438 260,438 TBS Class A Common Stock......................... 4,271 4,271 TBS Class B Common Stock......................... 7,555 7,555 New Line Common Stock............................ 168 168 HB Common Stock.................................. Capital in excess of par value................... 731,042 79,895 362,161 1(d) 1,173,098 Retained earnings (accumulated deficit).......... (1,004,409) 45,077 (45,077) 1(d) (1,004,409) Treasury shares.................................. (209) 209 1(d) ---------- ---------- ----------- ---------- Total stockholders' equity (deficit).... (1,103) 124,931 317,293 441,121 ---------- ---------- ----------- ---------- Total liabilities and stockholders' equity (deficit).................... $3,244,862 $342,543 $ 375,521 $3,962,926 ---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information. 17 3 TURNER BROADCASTING SYSTEM, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1993 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
HB HOLDING CASTLE ROCK CO. ACQUISITION HB HOLDING ACQUISITION TBS CASTLE ROCK PRO FORMA NOTE CO. PRO FORMA NOTE HISTORICAL HISTORICAL ADJUSTMENTS REFERENCE HISTORICAL ADJUSTMENTS REFERENCE ---------- ----------- ------------ --------- ---------- ----------- --------- Revenue............................. $1,921,606 $ 162,729 $ 66,687 $ (12,900) 3(a) ---------- ----------- ------------ ---------- ----------- Cost of operations.................. 1,023,045 182,409 41,482 (12,200) 3(b) 5,100 3(c) Selling, general and administrative.................... 537,108 2,217 $ 3,800 2(a) 4,637 (760) 3(d) Amortization of goodwill and other intangible assets................. 5,123 4,900 2(b) 247 Depreciation of property and equipment......................... 34,150 147 Interest expense, net of interest income............................ 181,571 5,064 12,800 2(c) 11,120 12,200 3(e) Equity in (income) loss of unconsolidated entities........... 20,040 1,593 3(f) ---------- ----------- ------------ ---------- ----------- 1,801,037 189,690 21,500 57,633 5,933 ---------- ----------- ------------ ---------- ----------- Income (loss) before provision for income taxes, extraordinary item and the cumulative effect of a change in accounting for income taxes........................... 120,569 (26,961) (21,500) 9,054 (18,833) Provision for income taxes (benefits)........................ 48,124 (18,900) 2(d) 5,198 (4,600) 3(g) ---------- ----------- ------------ ---------- ----------- Income (loss) before extraordinary item and the cumulative effect of a change in accounting for income taxes.................... 72,445 (26,961) (2,600) 3,856 (14,233) Extraordinary item.................. 10,693 ---------- ----------- ------------ ---------- ----------- Income before the cumulative effect of a change in accounting for income taxes................ 61,752 (26,961) (2,600) 3,856 (14,233) Cumulative effect of a change in accounting for income taxes....... 306,000 ---------- ----------- ------------ ---------- ----------- Net income (loss)........... $ (244,248) $ (26,961) $ (2,600) $ 3,856 $ (14,233) ---------- ----------- ------------ ---------- ----------- ---------- ----------- ------------ ---------- ----------- Earnings per common share and common stock equivalent.................. $ (0.92) ---------- ---------- Weighted average number of common shares outstanding, including conversion of common stock equivalents Class A Common Stock.............. 68,330 Class B Common Stock.............. 196,113 Fully diluted weighted average number of outstanding common shares............................ PRO FORMA NEW LINE FOR THE PRO FORMA MERGER MERGER FOR THE NEW LINE PRO FORMA NOTE AND THE ACQUISITIONS HISTORICAL ADJUSTMENTS REFERENCE ACQUISITIONS ------------ ---------- ----------- --------- ------------ Revenue............................. $2,138,122 $ 306,335 $2,444,457 ------------ ---------- ----------- ------------ Cost of operations.................. 1,239,836 258,591 $ 2,500 4(a) 1,500,927 Selling, general and administrative.................... 547,002 29,507 1,400 4(b) 577,909 Amortization of goodwill and other intangible assets................. 10,270 6,600 4(a) 16,870 Depreciation of property and equipment......................... 34,297 3,819 38,116 Interest expense, net of interest income............................ 222,755 3,071 (800) 4(c) 225,026 Equity in (income) loss of unconsolidated entities........... 21,633 (3,896) 17,737 ------------ ---------- ----------- ------------ 2,075,793 291,092 9,700 2,376,585 ------------ ---------- ----------- ------------ Income (loss) before provision for income taxes, extraordinary item and the cumulative effect of a change in accounting for income taxes........................... 62,329 15,243 (9,700) 67,872 Provision for income taxes (benefits)........................ 29,822 4,718 (2,300) 4(d) 32,240 ------------ ---------- ----------- ------------ Income (loss) before extraordinary item and the cumulative effect of a change in accounting for income taxes.................... 32,507 10,525 (7,400) 35,632 Extraordinary item.................. 10,693 10,693 ------------ ---------- ----------- ------------ Income before the cumulative effect of a change in accounting for income taxes................ 21,814 10,525 (7,400) 24,939 Cumulative effect of a change in accounting for income taxes....... 306,000 306,000 ------------ ---------- ----------- ------------ Net income (loss)........... $ (284,186) $ 10,525 $(7,400) $ (281,061) ------------ ---------- ----------- ------------ ------------ ---------- ----------- ------------ Earnings per common share and common stock equivalent.................. $ (1.07) $ 0.58 $ (0.98) ------------ ---------- ------------ ------------ ---------- ------------ Weighted average number of common shares outstanding, including conversion of common stock equivalents Class A Common Stock.............. 68,330 68,330 Class B Common Stock.............. 196,113 21,312 217,425 Fully diluted weighted average number of outstanding common shares............................ 18,109 (18,109)
See accompanying Notes to Unaudited Pro Forma Financial Information. 18 4 TURNER BROADCASTING SYSTEM, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1992 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
HB HOLDING CASTLE ROCK CO. CASTLE ACQUISITION HB HOLDING ACQUISITION TBS ROCK PRO FORMA NOTE CO. PRO FORMA NOTE HISTORICAL HISTORICAL ADJUSTMENTS REFERENCE HISTORICAL ADJUSTMENTS REFERENCE ---------- ---------- ------------ --------- ---------- ----------- --------- Revenue........................................ $1,769,892 $ 126,268 $ 63,541 $ (23,600) 3(a) ---------- ---------- ------------ ---------- ----------- Cost of operations............................. 984,630 135,548 32,284 (9,721) 3(b) 5,600 3(c) Selling, general and administrative............ 442,270 3,339 $ 4,000 2(a) 2,546 (600) 3(d) Amortization of goodwill and other intangible assets....................................... 3,743 4,400 2(b) Depreciation of property and equipment......... 29,843 325 Interest expense, net of interest income....... 189,637 3,109 12,200 2(c) 12,170 12,900 3(e) Equity in (income) loss of unconsolidated entities..................................... 4,024 (3,878) 3(f) Estimated loss on termination of the Checkout Channel...................................... 16,000 ---------- ---------- ------------ ---------- ----------- 1,670,147 141,996 20,600 47,325 4,301 ---------- ---------- ------------ ---------- ----------- Income (loss) before gain on issuance of stock, provision for income taxes and extraordinary item......................... 99,745 (15,728) (20,600) 16,216 (27,901) Gain on issuance of stock by affiliated company...................................... ---------- ---------- ------------ ---------- ----------- Income (loss) before provision for income taxes and extraordinary item............... 99,745 (15,728) (20,600) 16,216 (27,901) Provision for income taxes (benefits).......... 65,684 (14,500) 2(d) 13,371 (9,400) 3(g) ---------- ---------- ------------ ---------- ----------- Income (loss) before extraordinary item...... $ 34,061 $ (15,728) $ (6,100) $ 2,845 $ (18,501) ---------- ---------- ------------ ---------- ----------- ---------- ---------- ------------ ---------- ----------- Earnings per common share and common stock equivalent before extraordinary item......... $ 0.13 ---------- ---------- Weighted average number of common shares outstanding, including conversion of common stock equivalents Class A Common Stock......................... 68,330 Class B Common Stock......................... 187,143 Fully diluted weighted average number of shares of outstanding common shares................. PRO FORMA NEW LINE FOR THE PRO FORMA MERGER MERGER FOR THE NEW LINE PRO FORMA NOTE AND THE ACQUISITIONS HISTORICAL ADJUSTMENTS REFERENCE ACQUISITIONS ------------ ---------- ----------- --------- ------------ Revenue........................................ $1,936,101 $ 227,002 $2,163,103 ------------ ---------- ----------- ------------ Cost of operations............................. 1,148,341 194,653 $ 2,500 4(a) 1,345,494 Selling, general and administrative............ 451,555 23,636 2,000 4(b) 477,191 Amortization of goodwill and other intangible assets....................................... 8,143 6,700 4(a) 14,843 Depreciation of property and equipment......... 30,168 2,809 32,977 Interest expense, net of interest income....... 230,016 3,685 (1,000) 4(c) 232,701 Equity in (income) loss of unconsolidated entities..................................... 146 (2,355) (2,209) Estimated loss on termination of the Checkout Channel...................................... 16,000 16,000 ------------ ---------- ----------- ------------ 1,884,369 222,428 10,200 2,116,997 ------------ ---------- ----------- ------------ Income (loss) before gain on issuance of stock, provision for income taxes and extraordinary item......................... 51,732 4,574 (10,200) 46,106 Gain on issuance of stock by affiliated company...................................... 4,335 4,335 ------------ ---------- ----------- ------------ Income (loss) before provision for income taxes and extraordinary item............... 51,732 8,909 (10,200) 50,441 Provision for income taxes (benefits).......... 55,155 2,490 900 4(d) 58,545 ------------ ---------- ----------- ------------ Income (loss) before extraordinary item...... $ (3,423) $ 6,419 $ (11,100) $ (8,104) ------------ ---------- ----------- ------------ ------------ ---------- ----------- ------------ Earnings per common share and common stock equivalent before extraordinary item......... $ (0.01) $ 0.45 $ (0.03) ------------ ---------- ------------ ------------ ---------- ------------ Weighted average number of common shares outstanding, including conversion of common stock equivalents Class A Common Stock......................... 68,330 68,330 Class B Common Stock......................... 187,143 21,233 208,376 Fully diluted weighted average number of shares of outstanding common shares................. 14,327 (14,327)
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information. 19 5 NOTE 1. (A) THE PURCHASE PRICE OF THE MERGER IS CALCULATED AS FOLLOWS: Maximum shares of TBS Class B Common Stock assumed issued............... 21,312 Valuation per share of TBS Class B Common Stock (See "Comparative Per Share Prices and Dividends.")......................................... $ 20.75 -------- 442,224 Advisory fees, legal fees, accounting fees and other direct acquisition costs................................................................. 14,000 -------- Total purchase price.................................................... $456,224 -------- --------
TBS currently intends to redeem the New Line Debentures as soon as possible under the terms thereof after closing the Merger. The New Line Debentures are redeemable at the earlier of (i) November 15, 1994 or (ii) such point in time that the average price of the common stock into which the New Line Debentures are convertible exceeds 150% of the conversion price for a defined period. The excess of the total purchase price over the net assets acquired consists of: Total purchase price.................................................... $456,224 Less: net assets acquired of $124,931 plus $29,125 for the assumed conversion of all of the outstanding New Line Debentures (as of December 31, 1993)................................................ 154,056 Less: amount received upon exercise of New Line stock options and warrants.......................................................... 39,000 Add: deferred taxes arising from the difference between the tax basis and the fair market value of assets acquired, computed as 40% of identifiable intangible assets..................................... 73,353 -------- Total adjustment to assets.............................................. $336,521 -------- --------
The excess purchase price over net assets acquired in connection with the Merger has been allocated in the Unaudited Pro Forma Condensed Combined Balance Sheet as follows: Film costs.............................................................. $ 50,000 Investment in RHI....................................................... 25,000 Goodwill and other intangible assets.................................... 261,521 -------- $336,521 -------- --------
New Line currently owns approximately 37% of RHI. TBS management has considered a number of alternatives regarding New Line's investment in RHI following the Merger but has not yet made any decision with respect thereto. Such alternatives include the possible disposition of further acquisition of shares of RHI. Valuation included herein is based on the 52-week average of RHI stock price, multiplied by the number of shares owned, less book value. (b) To reclassify New Line's unclassified balance sheet to provide for current and long-term assets and liabilities. (c) Assumes TBS incurs new debt to retire the current New Line credit facility of $126,800. All of the outstanding New Line Debentures are assumed to be converted into shares of TBS Class B Common Stock. (d) To eliminate historical equity and affect retained earnings for the above adjustments. NOTE 2. CASTLE ROCK ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (a) To record additional salary expense for new employment agreements with Castle Rock management as if the agreements were in effect during the periods presented. 20 6 (b) To record amortization of adjustments to goodwill and other intangible assets acquired in connection with the Castle Rock acquisition using an estimated life of 20 years. (c) To record interest expense related to incremental indebtedness incurred to finance the purchase price for the Castle Rock acquisition and to record the effect of refinancing Castle Rock's existing long-term debt. (d) To adjust the provision for income taxes to reflect the tax impact assuming the Castle Rock acquisition occurred at the beginning of the periods presented. NOTE 3. HB HOLDING CO. ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (a) To eliminate intercompany revenue associated with the license of film rights between TBS and HB Holding Co. (b) To eliminate the distribution fee payable to TBS by HB Holding Co. (c) To record amortization of adjustments to assets using an estimated life of 20 years. (d) To eliminate TBS service fees charged to HB Holding Co. (e) To record interest expense related to the incremental indebtedness incurred to finance the cash purchase price of HB Holding Co. and to record (i) the effect of refinancing HB Holding Co.'s existing indebtedness and (ii) the continuing effect of interest rate swap agreements entered into by HB Holding Co. For purposes of the pro forma calculations, TBS has assumed that the existing interest rate swap agreements of HB Holding Co. will remain in place. HB Holding Co. entered into such interest rate swap agreements with a total notional principal amount of $130,000 in January 1992 to mitigate against possible rising interest rates. Each contract expires in January 1995. For purposes of the pro forma presentation, TBS has included the effect of the differential between the interest rates under such swap agreements and TBS's incremental borrowing rate under its credit facility. The differential to be paid on the interest rate swaps was estimated to be approximately $2,200 and was included in the pro forma adjustments as interest expense. (f) To eliminate TBS's equity in (income) loss of HB Holding Co. (g) To adjust the provision for income taxes to reflect the tax impact assuming the acquisition occurred at the beginning of the periods presented. NOTE 4. NEW LINE ADJUSTMENTS TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS (a) To record amortization of adjustments to assets made in connection with the Merger using estimated lives of 20 to 40 years. (b) To record additional salary expense for the New Employment Agreements as if the agreements were in effect during the periods presented. (c) To eliminate interest expense related to New Line Debentures assumed to be converted. (d) To adjust the provision for income taxes to reflect the tax impact assuming the Merger occurred at the beginning of the periods presented. 21
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