Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 33-9443
OUTLET BROADCASTING, INC.
(Exact name of registrant as specified in its charter)
Rhode Island 05-0194550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 Kenney Drive 02920
Cranston, Rhode Island (Zip Code)
(Address of principal executive offices)
(401) 455-9200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 1994
- - ---------------------- ---------------
Class A Common Stock, par value $.01 per share 1,000,000 shares
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
March 31, 1994 and December 31, 1993
Condensed Consolidated Statements of Operations --
Three Months Ended March 31, 1994 and
March 31, 1993
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1994 and
March 31, 1993
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1993 1994
------------ ------------
(Note) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,756,000 $ 1,171,000
Trade accounts receivable, less allowance
for doubtful accounts (December--$300,000;
March--$307,000) 10,840,000 9,036,000
Film contract rights 3,769,000 3,152,000
Other current assets 793,000 920,000
------------ ------------
TOTAL CURRENT ASSETS 17,158,000 14,279,000
OTHER ASSETS
Film contract rights 2,093,000 1,534,000
Deferred financing costs and sundry 3,385,000 3,432,000
Other investments 1,050,000
------------ ------------
5,478,000 6,016,000
PROPERTY AND EQUIPMENT 43,797,000 44,133,000
Less accumulated depreciation 25,674,000 26,362,000
------------ ------------
18,123,000 17,771,000
INTANGIBLE ASSETS, less accumulated amortization
(December--$17,544,000; March--$18,134,000) 76,852,000 76,262,000
------------ ------------
$117,611,000 $114,328,000
============ ============
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
December 31, March 31,
1993 1994
------------ ------------
(Note) (Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 153,000 $ 102,000
Accrued expenses 8,894,000 7,094,000
Film contracts payable 4,187,000 4,214,000
Federal and state income taxes 2,200,000 2,079,000
Current portion of long-term debt 3,500,000 3,750,000
------------ ------------
TOTAL CURRENT LIABILITIES 18,934,000 17,239,000
LONG-TERM DEBT
Senior bank loan 19,500,000 18,375,000
10 7/8% Senior Subordinated Notes 60,000,000 60,000,000
------------ ------------
79,500,000 78,375,000
OTHER LIABILITIES
Film contracts payable 2,754,000 1,310,000
Unfunded pensions 2,652,000 2,685,000
Deferred income taxes 4,554,000 4,945,000
Other 3,432,000 3,432,000
------------ ------------
13,392,000 12,372,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock 10,000 10,000
Contributed capital 32,482,000 32,482,000
Accumulated deficit (26,707,000) (26,150,000)
------------ ------------
5,785,000 6,342,000
------------ ------------
$117,611,000 $114,328,000
============ ============
Note: The balance sheet at December 31, 1993 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
----------------------------
March 31, March 31,
1993 1994
------------ ------------
Net revenue $ 10,027,000 $ 11,458,000
Expenses:
Technical, programming and news 4,396,000 4,346,000
Selling, general and administrative 2,232,000 2,275,000
Corporate expenses 498,000 495,000
Depreciation 632,000 688,000
Amortization of intangible assets 590,000 590,000
------------ ------------
8,348,000 8,394,000
------------ ------------
Operating income 1,679,000 3,064,000
Other income (expense):
Interest expense:
Loan and notes payable (1,398,000) (2,098,000)
Note payable to shareholder (1,858,000)
------------ ------------
(3,256,000) (2,098,000)
Interest income 89,000 10,000
Other income 117,000 70,000
Other expense (106,000) (98,000)
------------ ------------
Income (loss) before income taxes and cumulative
effect of change in accounting principle (1,477,000) 948,000
Income taxes 391,000
------------ ------------
Income (loss) before cumulative effect of
change in accounting principle (1,477,000) 557,000
Cumulative effect of change in method of
accounting for income taxes 4,434,000
------------ ------------
Net income $ 2,957,000 $ 557,000
============ ============
Income (loss) per share:
Before cumulative effect of change
in accounting principle $ (1.48) $ 0.56
Cumulative effect of change in method
of accounting for income taxes 4.44
------------ ------------
Net income per share $ 2.96 $ 0.56
============= =============
Weighted average number of
common shares outstanding 1,000,000 1,000,000
============ ============
See accompanying notes.
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
----------------------------
March 31, March 31,
1993 1994
------------ ------------
Cash from operations $ (1,390,000) $ 1,814,000
Investing activities:
Capital expenditures-net of disposals (3,654,000) (336,000)
Investment in local marketing arrangement (1,000,000)
Other (188,000)
------------ ------------
(3,654,000) (1,524,000)
Financing activities:
Payment of term loan (875,000)
------------ ------------
(875,000)
------------ ------------
Net decrease in cash and cash equivalents $ (5,044,000) $ (585,000)
============ ============
See accompanying notes.
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1994
Note 1 - Basis of Presentation
- - ------------------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
period ended March 31, 1994 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1994. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
Note 2 - Income (Loss) Per Share
- - --------------------------------
Income (loss) per share has been computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding during
the period.
Note 3 - Contingent Liabilities and Commitments
- - -----------------------------------------------
The Company has commitments to acquire approximately $3,777,000 of film
contract rights at March 31, 1994.
At March 31, 1994, the Company remains contingently liable on
approximately $15,067,000 of store leases associated with its retail division
which was sold as of the fiscal year ended January 31, 1983. All of the
leases have been assumed by others and management believes that future
payments, if any, would not be material to the Company's financial statements.
The Company also remains contingently liable on approximately $5,016,000
of building and tower leases related to radio and television stations sold in
March 1990.
The Company may be subject to litigation arising from its normal
business operations. Any liability which may result therefrom, to the extent
not provided by insurance or accruals, would not have a material effect on the
Company's financial position.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
The Company's operations consist of two VHF television stations, WJAR,
which serves the Providence, Rhode Island area and WCMH which serves the
Columbus, Ohio area.
Three Months Ended March 31, 1994 and March 31, 1993
The following table sets forth a comparison of total Company operating
results for the first quarters of 1993 and 1994.
Three Months Ended March 31
----------------------------------- Increase(Decrease)
1993 1994 1994 vs. 1993
---------------- --------------- ------------------
Percent Percent
of Net of Net Percentage
Dollars in thousands Amount Revenue Amount Revenue Amount Change
- - -------------------- ------ ------- ------ ------- ------ ----------
Net revenue $10,027 100.0% $11,458 100.0% $1,431 14.3%
Expenses:
Technical, programming
and news 4,396 43.8 4,346 37.9 (50) (1.1)
Selling, general and
administrative 2,232 22.3 2,275 19.9 43 1.9
Corporate expenses 498 5.0 495 4.3 (3) (.6)
Depreciation and
amortization 1,222 12.2 1,278 11.2 56 4.6
Operating income $ 1,679 16.7% $ 3,064 26.7% $1,385 82.5%
Net cash provided (used)
by operations (a) $(1,390) - $ 1,814 15.8% $3,204 230.5%
Operating cash
flow (a) $ 2,901 28.9% $ 4,342 37.9% $1,441 49.7%
(a) "Net cash provided (used) by operations" includes all cash flows (including
working capital changes) other than cash flows associated with investing
or financing activities.
"Operating cash flow" means operating income plus depreciation and
amortization.
Net revenue of $11,458,000 in the first quarter of 1994 increased by
$1,431,000 or 14.3% compared with $10,027,000 in the first quarter of 1993.
The increased revenue was primarily attributable to a continuing, improved
economic environment, an improved advertising marketplace and continuing
strong viewership of the Company's television stations. As a result, the
Company was able to generate higher advertising rates compared to those of a
year ago. Revenues from local and national advertising sources increased over
last year by more than 13% and 16% respectively. Total network compensation
increased by 2.6%.
Revenues were up at both of the Company's television stations. In
comparison with the first quarter of 1993, television stations WJAR and WCMH
had revenue gains of 17.7% and 12.1%, respectively. The Company's overall
revenue improvement accounted for the first quarter's increase in operating
income.
Technical, programming and news expenses in the 1994 first quarter of
$4,396,000 decreased by $50,000 or 1.1% from $4,346,000 in the prior year.
The decrease resulted from an 11.5% reduction in film syndication costs at
WCMH offset, somewhat, by a 7.8% increase in news department expenses at WJAR.
The latter station incurred added news costs due to its television coverage of
winter storms and certain sports events. It also incurred additional expense
from use of an outside news service. As a percent to revenue, technical,
programming and news expenses decreased from 43.8% in the 1993 first quarter
to 37.9% in the 1994 first quarter.
Selling, general and administrative expenses of $2,275,000 in the first
quarter of 1994 increased by $43,000 or 1.9% versus $2,232,000 in the prior
year period. The increase resulted from higher sales commissions payable
because of the Company's increased revenue. As a percent to revenue, however,
selling, general and administrative expenses decreased to 19.9% in the 1994
first quarter from last year's 22.3%. Depreciation expense increased in the
current quarter because of an increased investment in property and equipment
attributable to the Company's April 1993 relocation of WJAR studios and
corporate headquarters into a new facility.
Total expenses of $8,394,000 in the first quarter of 1994 increased by
$46,000 or .6% from $8,348,000 in the prior year period. As a percent to
revenue, total quarterly expenses in 1994 were 73.3%. This was down 10%
versus the prior year's first quarter, wherein total expenses were at 83.3% of
revenue.
Operating income of $3,064,000 in the 1994 first quarter increased by
$1,385,000 or 82.5% compared to $1,679,000 in the prior year. Operating
income also increased as a percent to revenue, from 16.7% in the first quarter
of 1993 to 26.7% in the first quarter of 1994. The improvement in operating
income was the result of increased revenue and relatively little change in
total expenses.
The increased operating income also contributed to the Company's
improvement of $3,204,000 in net cash provided by operations. Similarly,
operating cash flow of $4,342,000 increased by $1,441,000 or 49.7% from last
year's $2,901,000 and represented 37.9% of revenue compared to 28.9% of
revenue in the prior year.
In the first quarter of 1994, total interest expense of $2,098,000
decreased by $1,158,000 or 35.6% compared to $3,256,000 a year ago. The
decrease resulted from a debt refinancing undertaken in 1993 which served to
reduce the Company's outstanding debt as well as lower the rate of interest on
borrowed funds. Interest income declined because of lower cash balances
maintained during 1994.
In the first quarter of 1994, the ratio of operating cash flow -
$4,342,000, to interest expense - $2,098,000, was 2.1 to 1. In the first
quarter of 1993, this ratio was .9 to 1.
The Company's 1994 first quarter income before income taxes amounted to
$948,000. This was an improvement of $2,425,000 compared to a loss in the
prior year period of $1,477,000. After a 1994 first quarter provision for
income taxes of $391,000, which increased deferred income taxes payable, net
income was $557,000 or $.56 per share. This compares with a 1993 loss, before
cumulative effect of change in accounting principle, of $1,477,000 or $(1.48)
per share.
Effective January 1, 1993, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes", which
requires a change to the liability method of accounting for deferred income
taxes. Adoption of Statement 109 resulted in a cumulative effect of change in
accounting principle, in the amount of $4,434,000 or $4.44 per share,
representing the recognition of previously unrecognized tax benefits. After
giving effect to the change in accounting principle, the 1993 first quarter
net income amounted to $2,957,000 or $2.96 per share.
Net cash provided by operations in the first quarter of 1994 totalled
$1,814,000. This was an improvement of $3,204,000 compared to net cash used
by operations of $1,390,000 in the first quarter of 1993. The improvement
primarily represents the beneficial effect of the Company's increased
operating income and decreased interest expense. As a result of the 1993 debt
refinancing, cash paid for 1994 first quarter interest installments was
reduced to $3,658,000 from $6,050,000 in the prior year period. There was
also a reduced liability for accrued interest payable as of March 31, 1994.
The 1994 first quarter saw a net increase in the Company's investment in
film contract rights of $1,441,000, primarily attributable to the payment of
film contract obligations during the period.
Because of the Company's increased volume of business activity,
outstanding trade accounts receivable trended generally higher in the first
quarter of 1994 compared with the same period a year ago.
Cash required by investing activities totalled $1,524,000 in the first
quarter of 1994. This included normal capital expenditures of $336,000 and an
investment of $1,000,000 in a Local Marketing Agreement ("LMA") with the
licensee of television station WWHO-TV in Chillicothe, Ohio. Pursuant to the
LMA, television station WCMH will function as broker of the programming and
commercial time available on WWHO-TV. In return, WCMH is allowed to recover
its aggregate capital expenditure investment in the LMA from operating profits
of WWHO-TV and will share any remaining net operating profits with that
station's licensee. In connection with the LMA, the Company expects to incur
additional capital expenditures during 1994 of approximately $750,000.
Other investing activities totalling $188,000 include a deposit payment
made in connection with the Company's agreement to purchase television station
WYED-TV, Goldsboro, North Carolina. WYED-TV is an independent television
station serving the Raleigh-Durham-Goldsboro market area. This acquisition is
expected to close in August 1994 at a total purchase cost of approximately
$5,400,000. The Company expects to incur additional capital expenditures
during 1994 of approximately $900,000 for this station.
The Company anticipates that it will finance the capital costs of the
LMA and the WYED-TV acquisition from internally generated funds from
operations along with amounts available under its revolving credit facility
with a bank. In this connection, and for added flexibility, the Company may
seek to increase the limit of its revolving credit facility from $5,000,000 to
$10,000,000.
In 1993, cash required by investing activities totalled $3,654,000.
This included $3,397,000 in progress payments for construction of new
corporate headquarters and WJAR broadcast studios.
Cash used by financing activities in the first quarter of 1994 was
$875,000 and represented payment of the required quarterly installment due on
a term loan with the Company's senior bank lender.
Because of cash used in the investing and financing activities described
above, the Company's overall cash position decreased by $585,000 in the first
quarter of 1994. This contributed to an increase of $1,184,000 in the excess
of current liabilities over current assets during the period. Also
contributing to the excess of current liabilities over current assets was an
increase of $250,000 in current portion of long-term debt.
The ratio of current assets to current liabilities was reduced from .9
to 1 at December 31, 1993 to .8 to 1 at March 31, 1994. The Company is
benefitting, however, from improved operating results and a reduced annual
requirement for interest expense. It is expected that continuation of this
favorable trend, combined with amounts currently available under the
revolving credit facility ($5,000,000), will provide adequate liquidity for the
Company to meet its ongoing operating and capital expenditure needs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - --------------------------
There are no pending legal proceedings or actions against the Company or
its subsidiaries which would have a material effect on the business or
financial condition of the Company except for the legal proceedings and
contingent lease and film obligations as described in Note 3 to the
consolidated condensed financial statements on page 7 of this report.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
Date of Meeting: May 4, 1994
Annual Meeting of Outlet Communications,
Inc. ("OCI")
(OCI owns all of the issued and outstanding
shares of capital stock of Outlet
Broadcasting, Inc.)
Election of Directors: All nominees for Directors, as
stated in the proxy statement, were elected as follows:
For Withheld
--------- -----------
James G. Babb 5,759,335 23,887
Letitia Baldrige 5,759,335 23,887
Robert C. Butler 5,759,335 23,887
Stephen J. Carlotti 3,674,335 2,108,887
Frederick R. Griffiths 5,759,335 23,887
Julius Koppelman 5,759,335 23,887
Leonard Lieberman 5,759,335 23,887
James K. Makrianes 5,759,335 23,887
Victor H. Palmieri 5,759,335 23,887
Frank E. Richardson 5,759,335 23,887
Frank E. Walsh, Jr. 5,759,335 23,887
Solomon M. Yas 5,756,935 26,287
Appointment of Independent Accountants: Votes representing 3,536,114
shares were cast for, 2,245,835 shares were cast against, and 1,273 shares
abstained in the voting on the ratification of the selection of Ernst & Young
as independent auditors of OCI and its subsidiaries for the year ending
December 31, 1994.
Item 5. Other Information
- - --------------------------
On March 18, 1994 the Company entered into a Local Marketing Agreement
("LMA") with Fant Broadcasting of Ohio, Inc. ("Fant"), licensee of television
station WWHO-TV (formerly WWAT-TV), Chillicothe, Ohio. Pursuant to the LMA,
the Company's television station WCMH-TV will function as broker and provide
news, sports, informational and entertainment programming and associated
advertising, promotional and public service programming and announcements for
transmission by WWHO-TV. The Company made an initial payment to Fant of
$525,000 and has agreed to pay Fant a monthly fee equal to certain operating
expenses, as defined in the LMA. The Company and Fant have agreed to share in
net operating income generated by WWHO-TV after the Company has been reimbursed
for its aggregate capital expenditures and debt service costs.
Item 5. Other Information - Continued
- - --------------------------------------
The Company also made an option payment to Fant of $475,000 to allow the
Company to acquire WWHO-TV from Fant for a purchase price of $6,500,000 at such
time if, and when, permitted by regulatory policies. Of the total price,
$3,000,000 will be in cash, subject to credit for the option payment, and the
balance will be paid in 175,000 shares of OCI's common stock at a guaranteed
price of at least $20 per share. If the market price of the Common Stock is
less than $20 per share, the difference will be paid in cash. The term of the
LMA will be for ten years with two additional renewal periods of five years
each.
On May 3, 1994 the Company entered into a purchase agreement with Group H
Broadcasting Corp. to acquire WYED-TV, Goldsboro, North Carolina. WYED-TV is
an independent television station that serves the Raleigh-Durham-Goldsboro,
North Carolina market area. The purchase price of the television station,
including real estate, will be approximately $5,400,000. The funds for the
acquisition will be provided by internal operations and/or a revolving credit
facility with a bank. The transaction is expected to close in August 1994.
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibits -- None
(b) Reports on Form 8-K -- None
SIGNATURES
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.
OUTLET BROADCASTING, INC.
(Registrant)
Date May 13, 1994 /s/ James G. Babb
--------------------- ----------------------------
James G. Babb
Chairman of the Board,
President and
Chief Executive Officer
Date May 13, 1994 /s/ Felix W. Oziemblewski
--------------------- -----------------------------
Felix W. Oziemblewski
Vice President-
Chief Financial Officer