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 11, 2001
AOL TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 1-15062 13-4099534
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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
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(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 2. Acquisition and Disposition of Assets
This Form 8-K/A amends the current report on Form 8-K/A dated January 11,
2001 (filed January 26, 2001) to include Item 7(b) Pro Forma Financial
Information as of and for the year ended December 31, 2000, and related
exhibits.
Item 7. Financial Statements and Exhibits
(b) Unaudited Pro Forma Consolidated Condensed Financial Statements:
(i) AOL Time Warner Inc.:
(A) Pro Forma Consolidated Condensed Balance Sheet as of December 31,
2000;
(B) Notes to the Pro Forma Consolidated Condensed Balance Sheet;
(C) Pro Forma Consolidated Condensed Statement of Operations for the
year ended December 31, 2000; and
(D) Notes to the Pro Forma Consolidated Condensed Statement of
Operations.
Unaudited Pro Forma Consolidated Condensed Financial Statements
On January 11, 2001, America Online, Inc. ("America Online" and predecessor
to AOL Time Warner Inc. "AOL Time Warner") and Time Warner Inc. ("Time Warner")
completed their previously announced merger pursuant to the Second Amended and
Restated Agreement and Plan of Merger among the companies and certain of their
subsidiaries dated as of January 10, 2000 (the "merger"). The combined company
is named AOL Time Warner Inc.
The following pro forma consolidated condensed financial statements are
presented to illustrate the effects of the merger on the historical financial
position and operating results of America Online and Time Warner. The pro forma
operating results are presented on a December 31 calendar-year basis, which is
consistent with America Online's, Time Warner's and AOL Time Warner's fiscal
year-end. The following pro forma consolidated condensed balance sheet of AOL
Time Warner at December 31, 2000 gives effect to the merger as if it occurred as
of that date. The pro forma consolidated condensed statement of operations of
AOL Time Warner for the year ended December 31, 2000 gives effect to the merger
as if it occurred as of January 1, 2000.
The pro forma consolidated condensed financial statements have been derived
from, and should be read in conjunction with, the historical consolidated
financial statements, including the notes thereto, of each of America Online and
Time Warner. For America Online, those financial statements are included in AOL
Time Warner's Annual Report on Form 10-K for the year ended December 31, 2000,
which is incorporated herein by reference. For Time Warner, those financial
statements are included in AOL Time Warner's Current Report on Form 8-K/A dated
January 11, 2001 (filed February 9, 2001), which is incorporated herein by
reference.
The pro forma consolidated condensed financial statements are presented for
informational purposes only and are not necessarily indicative of the financial
position or results of operations of AOL Time Warner that would have occurred
had the merger been consummated as of the dates indicated. In addition, the pro
forma consolidated condensed financial statements are not necessarily indicative
of the future financial condition or operating results of AOL Time Warner.
The Merger
The merger was structured as a stock-for-stock exchange. Prior to the
merger, America Online and Time Warner formed a new holding company called AOL
Time Warner and the new holding company formed two wholly owned subsidiaries.
Upon the closing of the transaction, one such subsidiary merged with and into
America Online and one such subsidiary merged with and into Time Warner. As a
result, America Online and Time Warner each became a wholly owned subsidiary of
AOL Time Warner. As part of the merger, each issued and then outstanding share
of each class of common stock of Time Warner was converted into 1.5 shares of an
identical series of common stock of AOL Time Warner. In addition, each issued
and then outstanding share of common stock of America Online was converted into
one share of common stock of AOL Time Warner.
1
As a result of the merger, the former shareholders of America Online have
an approximate 55% interest in AOL Time Warner and the former shareholders of
Time Warner have an approximate 45% interest in AOL Time Warner, expressed on a
fully diluted basis. The merger will be accounted for by AOL Time Warner as an
acquisition of Time Warner under the purchase method of accounting for business
combinations.
Pro Forma Adjustments
Pro forma adjustments to record the merger as of December 31, 2000 reflect:
o the issuance of approximately 2.0 billion shares of AOL Time Warner
common stock and AOL Time Warner Series LMCN-V common stock in exchange
for all of the 1.3 billion outstanding shares of Time Warner common
stock and Series LMCN-V common stock;
o the issuance of approximately 3.1 million shares of AOL Time Warner
preferred stock in exchange for all of the 3.1 million outstanding
shares of Time Warner preferred stock;
o the issuance of options to purchase approximately 190.5 million shares
of AOL Time Warner common stock in exchange for all of the outstanding
options to purchase 127 million shares of Time Warner common stock;
o the issuance of approximately 1.2 million shares of AOL Time Warner
restricted common stock in exchange for all of the approximately 800
thousand outstanding shares of Time Warner restricted common stock; and
o the incurrence of an additional $100 million of transaction costs by
AOL Time Warner, including legal and investment banking fees, that had
not been recorded as of December 31, 2000.
No pro forma adjustments are necessary to reflect the merger of America
Online into a separate wholly owned subsidiary of AOL Time Warner because
America Online's net assets will be recorded at their historical cost basis and
the exchange ratio for America Online common stock is one to one.
Merger Benefits
Management expects that the strategic benefits of the merger will result in
incremental revenue and cost-savings opportunities for the combined company.
Those opportunities include, but are not limited to, the ability to
cross-promote the combined company's products and services and the ability to
offer consumers expanded broadband and online services. However, such
incremental revenues or cost savings have not been reflected in the accompanying
pro forma consolidated condensed statements of operations of AOL Time Warner.
Purchase Accounting
Under the purchase method of accounting, the estimated cost of
approximately $147 billion to acquire Time Warner, including transaction costs,
will be allocated to its underlying net assets in proportion to their respective
fair values. Any excess of the purchase price over the estimated fair value of
the net assets acquired will be recorded as goodwill. As more fully described in
the notes to the pro forma consolidated condensed financial statements, a
preliminary allocation of the excess of the purchase price, including
transaction costs, over the book value of the net assets to be acquired has been
made to goodwill and other intangible assets, including film libraries, cable
television franchises, music catalogues and music copyrights. At this time, the
work needed to provide the basis for estimating these fair values and related
amortization periods has not been completed. It is expected that the final
allocation of the excess of purchase price over the book value of the net assets
acquired will not differ materially from the amounts included herein.
AOL Time Warner will periodically review the carrying value of the goodwill
resulting from acquired businesses to determine whether an impairment may exist.
AOL Time Warner will consider relevant cash flow information, including
estimated future operating results, trends and other available information, in
assessing
2
whether the carrying value of goodwill can be recovered. If it is determined
that the carrying value of goodwill will not be recovered from the undiscounted
future cash flows of acquired businesses, the carrying value of such goodwill
would be considered impaired and reduced by a charge to operations in the amount
of the impairment. An impairment charge is measured as any deficiency in the
amount of estimated undiscounted cash flows of acquired businesses available to
recover the carrying value related to goodwill.
Other Pro Forma Considerations
AOL Europe
AOL Time Warner has a 50-50 joint venture with Bertelsmann AG
("Bertelsmann") called AOL Europe, which provides online services in several
European countries. In March 2000, America Online and Bertelsmann announced a
restructuring of AOL Europe in which AOL Time Warner may be required to purchase
Bertelsmann's 50% interest in AOL Europe for consideration ranging from $6.75
billion to $8.25 billion pursuant to certain put and call arrangements between
the parties, as described more fully in AOL Time Warner's Annual Report on Form
10-K for the year ended December 31, 2000. Should AOL Time Warner acquire this
interest, the purchase price will be payable, at AOL Time Warner's option, in
cash, stock or a combination of cash and stock.
The operations of AOL Europe are not material to AOL Time Warner's pro
forma revenues and net loss. Accordingly, the primary financial impact of this
potential acquisition is expected to be (i) incremental net losses of $1.3-$1.8
billion per year, primarily relating to amortization of goodwill to be
recognized in connection with the purchase price allocation and (ii) incremental
financing costs and/or share dilution depending upon the ultimate purchase price
and form of consideration.
Stock-Based Compensation
AOL Time Warner will account for its stock option plans in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and FASB
Interpretation No. 44, Accounting for Certain Transactions involving Stock
Compensation ("FIN 44").
FIN 44 requires the intrinsic value of the unvested awards at the merger
consummation date to be allocated to deferred compensation and recognized as
noncash compensation cost over the remaining future vesting period. The amount
of deferred compensation established in connection with the merger is comparable
in amount to that recorded in Time Warner's historical balance sheet.
Accordingly, the related compensation expense expected to be recognized by AOL
Time Warner will not differ materially from that recorded in Time Warner's
historical income statement.
3
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
December 31, 2000
(in millions, unaudited)
AOL
Time Pro Forma Time Warner
AOL(a) Warner(b) Adjustments(c) Pro Forma
---------- ---------- ------------- ------------
ASSETS
Cash and equivalents........................................... $ 2,610 $ 690 $ -- $ 3,300
Other current assets........................................... 2,061 8,440 (91) 10,410
------- ------- -------- --------
Total current assets...................................... 4,671 9,130 (91) 13,710
Noncurrent inventories and film costs, including film libraries -- 5,075 1,160 6,235
Investments.................................................... 3,824 1,548 4,100 9,472
Property, plant and equipment.................................. 1,041 10,148 (15) 11,174
Music catalogues and copyrights................................ -- 707 1,793 2,500
Cable television and sports franchises......................... -- 8,055 23,645 31,700
Brands and trademarks.......................................... -- -- 10,000 10,000
Goodwill and other intangible assets........................... 816 15,734 112,779 129,329
Other assets................................................... 475 1,804 50 2,329
------- ------- -------- --------
Total assets.............................................. $10,827 $52,201 $153,421 $216,449
======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities...................................... $ 2,328 $10,243 $ 100 $ 12,671
Long-term debt and other obligations(1)........................ 1,411 20,482 670 22,563
Deferred income taxes.......................................... -- 3,079 11,818 14,897
Other long-term liabilities.................................... 310 5,072 (55) 5,327
Minority interests............................................. -- 3,364 -- 3,364
Shareholders' Equity
Series LMCN-V common stock..................................... -- 1 -- 1
Common stock................................................... 24 12 6 42
Paid-in capital................................................ 4,966 15,074 135,756 155,796
Accumulated earnings (deficit)................................. 1,727 (4,877) 4,877 1,727
Accumulated other comprehensive income (loss).................. 61 (249) 249 61
------- ------- -------- --------
Total shareholders' equity................................ 6,778 9,961 140,888 157,627
------- ------- -------- --------
Total liabilities and shareholders' equity................ $10,827 $52,201 $153,421 $216,449
======= ======= ======== ========
-------------------
(1) For Time Warner, includes $575 million of mandatorily redeemable preferred
securities of subsidiaries.
See accompanying notes.
4
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
(unaudited)
(a) Reflects the historical financial position of America Online at
December 31, 2000.
(b) Reflects the historical financial position of Time Warner at December
31, 2000.
(c) Pro forma adjustments to record the merger as of December 31, 2000 reflect:
o an increase in equity of $135.263 billion relating to the issuance of
1.997 billion shares of AOL Time Warner common stock (including the
issuance of 171.2 million shares relating to the conversion of 114.1
million outstanding shares of Time Warner's Series LMCN-V common stock
into an identical class of AOL Time Warner Series LMCN-V common stock),
$0.01 par value per share, in exchange for approximately 1.331 billion
outstanding shares of Time Warner common stock, based on an exchange
ratio of 1.5 to 1. The AOL Time Warner common stock to be issued was
valued based on a price per share of $67.75, which is the average
market price of the America Online common stock for a few days before
and after the date the merger was announced;
o an increase in equity of $1.323 billion relating to the issuance of
approximately 3.125 million shares of AOL Time Warner preferred stock,
$0.10 par value per share, in exchange for all outstanding shares of
Time Warner preferred stock. The shares of AOL Time Warner preferred
stock to be issued, which will each be convertible into 6.24792 shares
of AOL Time Warner common stock, were valued based on their common
equivalent value of $423.30 per share;
o an increase in equity of $9.795 billion relating to the issuance of
options to purchase 190.534 million shares of AOL Time Warner common
stock in exchange for all of the 127.023 million outstanding options to
purchase shares of Time Warner common stock, based on a
weighted-average fair value of $51.41 for all options. The fair value
of the options was determined using the Black-Scholes option-pricing
model and was based on the following weighted-average assumptions:
expected volatility--46.3%; expected lives--5 years; a risk-free
interest rate--4.98%; and expected dividend yield--0%;
o an increase in equity of $81 million relating to the issuance of 1.2
million shares of AOL Time Warner restricted common stock in exchange
for all 800 thousand shares of restricted common stock of Time Warner,
based on the $67.75 fair value of AOL Time Warner common stock;
o a reduction in equity of $32 million relating to a reclassification of
a portion of the value of the purchase consideration resulting from the
issuance of unvested AOL Time Warner stock options and restricted
shares of common stock to deferred compensation, a contra-equity
account. In accordance with FIN 44, the determination of deferred
compensation was based on the product of the intrinsic value of these
stock compensation awards and the portion of the awards that was
unvested as of the merger date;
o a reduction of $4.419 billion in deferred income tax liabilities and a
corresponding increase in paid-in capital relating to the elimination
of America Online's deferred tax valuation allowance against stock
option-related tax benefits that will become realizable as a direct
result of the merger;
o a decrease in stockholders' equity of $9.961 billion relating to the
elimination of Time Warner's historical shareholders' equity;
o a decrease in other current assets of $91 million and a corresponding
increase to goodwill related to the reclassification of transaction
costs capitalized by America Online in connection with the acquisition
of Time Warner;
5
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET--(Continued)
(unaudited)
o an increase in accrued expenses of approximately $100 million and a
corresponding increase to goodwill principally relating to the accrual
of remaining transaction costs expected to be incurred by AOL Time
Warner, including legal and investment banking fees;
o the elimination of approximately $25.936 billion of Time Warner's
pre-existing goodwill and other intangible assets; and
o the preliminary allocation of the excess of the $146.621 billion
purchase price, including transaction costs, over the book value of the
net assets acquired, as set forth below:
Calculation of Purchase Price: (in millions)
Common stock............................................................... $135,263
Preferred stock............................................................ 1,323
Restricted stock........................................................... 81
Stock options.............................................................. 9,795
Accrued transaction costs, including $91 million capitalized by
America Online as of December 31, 2000.................................. 191
Allocation of value to deferred compensation relating to unvested stock
options and restricted stock............................................ (32)
--------
Total purchase price.................................................. $146,621
========
Allocation of Purchase Price: (in millions)
Assets:
Carrying value of Time Warner's historical assets.......................... $ 52,201
Eliminate Time Warner's historical goodwill and other intangible assets.... (25,936)
Write-up of film and television libraries.................................. 2,600
Write-up of investments.................................................... 4,100
Net write-down of property, plant and equipment, net (including $75
million write-up of land)............................................. (15)
Write-up of music catalogues and copyrights................................ 2,500
Write-up of cable television and sports franchises......................... 31,700
Write-up of brands and trademarks.......................................... 10,000
Write-up of new goodwill and other intangible assets....................... 128,513
Write-up of other assets................................................... 50
Liabilities and Equity:
Carrying value of Time Warner's historical liabilities..................... (42,240)
Write-up of long-term debt to fair market value............................ (670)
Increase in deferred income tax liabilities................................ (16,237)
Decrease in current and noncurrent liabilities due to the elimination of a
deferred gain on a sales-leaseback transaction.......................... 55
--------
Total purchase price.................................................. $146,621
========
Time Warner's other assets and liabilities have not been adjusted because
their cost approximates fair value in all material respects.
6
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET--(Continued)
(unaudited)
A reconciliation of the above adjustments to reflect the merger is set
forth below:
Issuance of
Common Stock, Elimination of
Preferred Time Warner's
Stock, Elimination of Historical
Restricted of AOL's Elimination of Goodwill
Stock and Accrued Deferred Time Warner's and Other Allocation Total
Stock Transaction Tax Valuation Historical Intangible of Purchase Pro Forma
Options Costs Allowance Equity Assets Price Adjustments
------- ----- --------- ------ ------ ----- -----------
(in millions)
Other current assets............. $ - $ (91) $ - $ - $ - $ - $ (91)
Noncurrent inventories and
film costs.................. - - - - (1,440) 2,600 1,160
Investments...................... - - - - - 4,100 4,100
Property, plant and equipment.... - - - - - (15) (15)
Music catalogues and copyrights.. - - - - (707) 2,500 1,793
Cable television and sports
franchises.................. - - - - (8,055) 31,700 23,645
Brands and trademarks............ - - - - - 10,000 10,000
Goodwill and other intangible
assets...................... - 191 - - (15,734) 128,322 112,779
Other assets..................... - - - - - 50 50
Total current liabilities........ - 100 - - - 100
Long-term debt................... - - - - - 670 670
Deferred income taxes............ - - (4,419) - - 16,237 11,818
Other long-term liabilities...... - - - - - (55) (55)
Series LMCN-V common stock....... 1 - - (1) - - -
Common stock..................... 18 - - (12) - - 6
Paid-in capital.................. 146,411 - 4,419 (15,074) - - 135,756
Accumulated earnings (deficit)... - - - 4,877 - - 4,877
Accumulated other comprehensive
income (loss)............... - - - 249 - - 249
7
AOL TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 2000
(in millions, except per share amounts, unaudited)
Pro Forma Adjustments
---------------------
Conforming Purchase AOL
Time Reclassifica- Price Time Warner
AOL (d) Warner (e) tions (f) Adjustments Pro Forma
(g)
-------- ---------- ----------- ----------- -----------
Revenues......................................... $ 7,703 $28,514 $ (4) $ - $36,213
Cost of revenues................................. (3,874) (15,796) 38 27 (19,605)
Selling, general and administrative.............. (1,902) (7,608) (293) (45) (9,848)
Amortization of goodwill and other
intangible assets.............................. (100) (1,353) - (5,616) (7,069)
Gain on sale or exchange of cable systems
and investments................................ - 37 (9) - 28
Gain on sale of interest in CanalSatellite....... - 65 (65) - -
Merger-related costs............................. (10) - (145) - (155)
-------- ------- ----- ------ -------
Operating income (loss).......................... 1,817 3,859 (478) (5,634) (436)
Interest expense, net............................ 275 (1,696) 48 61 (1,312)
Other income (expense), net...................... (208) (1,054) 256 (350) (1,356)
Corporate expenses............................... - (174) 174 - -
Minority interest................................ - (264) - - (264)
-------- ------- ----- ------ -------
Income (loss) before income taxes and
cumulative effect of accounting change......... 1,884 671 - (5,923) (3,368)
Income tax benefit (provision)................... (732) (403) - 590 (545)
-------- ------- ----- ------ -------
Income (loss) before cumulative effect of
accounting change.............................. 1,152 268 - (5,333) (3,913)
Preferred dividend requirements.................. - (14) - - (14)
-------- ------- ----- ------ -------
Income (loss) applicable to common shares
before cumulative effect of accounting
change......................................... $1,152 $ 254 $ - $ (5,333) $ (3,927)
======== ======= ===== ======== ========
Income (loss) per common share before cumulative
effect of accounting change:
Basic......................................... $ 0.50 $ 0.19 $ (0.91)
======== ====== =======
Diluted....................................... $ 0.45 $ 0.19 $ (0.91)
======== ====== =======
Average common shares:
Basic......................................... 2,323 1,319 4,301
======== ====== =======
Diluted....................................... 2,595 1,319 4,301
======== ====== =======
EBITDA(h)........................................ $ 2,261 $ 6,516 $(465) $ (45) $ 8,267
======== ======= ===== ======== =======
See accompanying notes.
8
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENT
OF OPERATIONS--(Continued)
(unaudited)
(d) Reflects the historical operating results of America Online for the year
ended December 31, 2000.
(e) Reflects the historical operating results of Time Warner for the year ended
December 31, 2000.
(f) Certain reclassifications have been made to conform both America Online's
and Time Warner's historical financial statement presentations to the
combined financial statement presentation of AOL Time Warner. These
adjustments primarily include reclassifications of (i) income and losses
related to equity method investees from operating income to other income
(expense), net, (ii) gains and losses on the sale of investments from
operating income to other income (expense), net, (iii) corporate expenses
to selling, general and administrative costs which reduces operating income
and (iv) merger-related costs from other income (expense), net, to
operating income.
(g) Pro forma adjustments to record the merger for the year ended December 31,
2000 reflect:
o a decrease of $27 million in depreciation expense included in cost of
revenues. These adjustments consist of (i) a decrease in depreciation
expense of $58 million relating to a write-down in the carrying value
of property, plant and equipment in the amount of $300 million, which
had a weighted-average useful life of approximately 5 years and was
being depreciated on a straight-line basis, (ii) an increase in
depreciation expense of $7 million relating to a write-up in the
carrying value of property, plant and equipment in the amount of $210
million, which had a weighted-average useful life of 30 years and was
being depreciated on a straight-line basis and (iii) an increase in
depreciation expense of $24 million relating to the conforming of Time
Warner's depreciation policies to America Online's policies;
o an increase of $7 million in selling, general and administrative
expense relating to the elimination of the periodic recognition of a
$55 million deferred gain on a sales-leaseback transaction which was
eliminated in the purchase price allocation;
o an increase of $34 million in selling, general and administrative
expenses relating to an increase in pension expense due to the
elimination of Time Warner's previously existing unrecognized gains in
its pension plans;
o an increase of $4 million in selling, general and administrative
expenses relating to an increase in rent expense. The adjustment
results from the recognition of a $50 million asset due to favorable
lease arrangements that have a weighted-average remaining lease term of
14 years;
o a decrease of $1.353 billion in amortization of goodwill and other
intangible assets relating to the elimination of Time Warner's
amortization of pre-existing goodwill and other intangible assets;
o an increase of $6.969 billion in amortization of $175.313 billion of
goodwill and other intangible assets, as set forth below. These amounts
are being amortized on a straight-line basis:
9
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENT
OF OPERATIONS--(Continued)
(unaudited)
Weighted- Year
Average Purchase Ended
Useful Price December 31,
Life Allocation 2000
---- ---------- ----
(Years) (in millions)
Film and television libraries.......................... 16.8 $2,600 $ 155
Music catalogues and copyrights........................ 20.0 2,500 125
Cable television and sports franchises................. 25.0 31,700 1,268
Brands and trademarks.................................. 34.1 10,000 293
Subscriber lists....................................... 5.0 350 70
Goodwill and other intangible assets................... 25.3 128,163 5,058
------- -----
Total.................................................. $175,313 $6,969
======== ======
o a decrease of $61 million in interest expense, net relating to the
amortization of the write-up of debt over its remaining useful life
which ranges from 2001-2036 on a straight-line basis, which
approximates the effective interest method;
o a decrease of $350 million in other income (expense), net, relating to
the amortization of the $4.100 billion excess of the fair value of
investments accounted for under the equity method of accounting over
their respective book value. The excess cost of these investments is
being amortized on a straight-line basis over a weighted-average life
of approximately 11.7 years; and
o an increase of $590 million in income tax benefits, provided at a 40%
tax rate, on the aggregate pro forma reduction in pretax income before
goodwill amortization.
In addition, pro forma net income (loss) per common share has been adjusted
to reflect the issuance of additional shares of AOL Time Warner common
stock in the merger, based on Time Warner's historical weighted-average
shares outstanding for the periods presented and an exchange ratio of 1.5
to 1. Because the effect of stock options and other convertible securities
would be antidilutive to AOL Time Warner, dilutive per share amounts on a
pro forma basis are the same as basic per share amounts.
(h) EBITDA consists of operating income (loss) before depreciation and
amortization. AOL Time Warner considers EBITDA an important indicator of
the operational strength and performance of its businesses, including the
ability to provide cash flows to service debt and fund capital
expenditures. EBITDA, however, should not be considered an alternative to
operating or net income as an indicator of the performance of AOL Time
Warner, or as an alternative to cash flows from operating activities as a
measure of liquidity, in each case determined in accordance with generally
accepted accounting principles. This definition of EBITDA may not be
comparable to similarly titled measures reported by other companies.
Pro forma EBITDA for AOL Time Warner includes a number of significant and
nonrecurring items. Set forth below is a reconciliation of pro forma EBITDA
to a normalized measure of pro forma EBITDA that excludes the effect of the
significant and nonrecurring items.
Year Ended
December 31,
2000
------
(in millions)
Pro forma EBITDA.................................... $ 8,267
=======
Decrease in pro forma EBITDA........................ $ (127)
========
Adjusted EBITDA..................................... $ 8,394
=======
10
AOL TIME WARNER INC.
NOTES TO THE PRO FORMA CONSOLIDATED CONDENSED STATEMENT
OF OPERATIONS--(Continued)
(unaudited)
The increase (decrease) in pro forma EBITDA includes the following
significant and nonrecurring items:
Year
Ended
December 31,
2000
----
(in millions)
Items related to America Online include:
Merger-related costs................................. $(10)
Items related to Time Warner include:
Merger-related costs................................. (145)
Gain on sale or exchange of cable systems............ 28
------
Decrease in pro forma EBITDA.............................. $(127)
======
The items above related to America Online are described more fully in
AOL Time Warner's Annual Report on Form 10-K for the year ended
December 31, 2000. The above items related to Time Warner are described
more fully in AOL Time Warner's Current Report on Form 8-K/A dated
January 11, 2001 (filed February 9, 2001). These filings are incorporated
herein by reference.
11
(c) Exhibits:
(i) Exhibit 23.1: Consents of Ernst & Young LLP, Independent Auditors.
(ii) Exhibit 99(a): Financial Statements of Time Warner Inc., incorporated
by reference from the AOL Time Warner Current Report on Form 8-K/A
dated January 11, 2001 (filed February 9, 2001).
12
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.
AOL TIME WARNER INC.
By: /s/ J. Michael Kelly
----------------------------
Name: J. Michael Kelly
Title: Executive Vice President and
Chief Financial Officer
Date: March 30, 2001
By: /s/ James W. Barge
----------------------------
Name: James W. Barge
Title: Vice President and Controller
Date: March 30, 2001
EXHIBIT INDEX
Exhibit
No. Description of Exhibits
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23.1 Consents of Ernst & Young LLP, Independent Auditors.
99(a) Financial Statements of Time Warner Inc., incorporated by reference
from the AOL Time Warner Current Report on form 8-K/A dated
January 11, 2001 (filed February 9, 2001).