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, 1995
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 A Common Stock March 31, 1995
- --------------------- -----------------
Class A Common Stock, par value $.01 per share 1,000,000 shares
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
March 31, 1995 and December 31, 1994
Condensed Consolidated Statements of Operations --
Three Months Ended March 31, 1995 and
March 31, 1994
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1995 and
March 31, 1994
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 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,
1994 1995
------------ ------------
(Note) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,840,000 $ 6,870,000
Trade accounts receivable, less allowance
for doubtful accounts (December--$321,000;
March--$335,000) 13,640,000 10,717,000
Film contract rights 3,350,000 2,407,000
Other current assets 1,171,000 1,213,000
------------ ------------
TOTAL CURRENT ASSETS 26,001,000 21,207,000
OTHER ASSETS
Film contract rights 1,012,000 863,000
Deferred financing costs 3,019,000 2,911,000
Other 380,000 331,000
------------ ------------
4,411,000 4,105,000
PROPERTY AND EQUIPMENT 49,632,000 51,427,000
Less accumulated depreciation 27,115,000 27,976,000
------------ ------------
22,517,000 23,451,000
INTANGIBLE ASSETS, less accumulated amortization
(December--$20,149,000; March--$20,780,000) 76,999,000 76,368,000
------------ ------------
$129,928,000 $125,131,000
============ ============
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
December 31, March 31,
1994 1995
------------ ------------
(Note) (Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 801,000 $ 107,000
Accrued expenses 10,394,000 8,451,000
Film contracts payable 4,174,000 2,894,000
Deferred revenue 833,000 833,000
Federal and state income taxes 2,724,000 2,297,000
Current portion of long-term debt 4,500,000 4,625,000
------------ ------------
TOTAL CURRENT LIABILITIES 23,426,000 19,207,000
LONG-TERM DEBT
Senior bank loan 15,000,000 13,750,000
10 7/8% Senior Subordinated Notes 60,000,000 60,000,000
------------ ------------
75,000,000 73,750,000
OTHER LIABILITIES
Film contracts payable 1,019,000 821,000
Unfunded pensions 2,355,000 2,396,000
Deferred revenue 3,889,000 3,681,000
Deferred income taxes 4,403,000 4,843,000
Other 3,432,000 3,432,000
------------ ------------
15,098,000 15,173,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock 10,000 10,000
Contributed capital 32,532,000 32,537,000
Accumulated deficit (16,138,000) (15,546,000)
------------ ------------
16,404,000 17,001,000
------------ ------------
$129,928,000 $125,131,000
============ ============
Note: The balance sheet at December 31, 1994 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,
1994 1995
------------ ------------
Net revenue $ 11,458,000 $ 13,470,000
Expenses:
Technical, programming and news 4,346,000 5,106,000
Selling, general and administrative 2,275,000 3,036,000
Corporate expenses 495,000 534,000
Depreciation 688,000 914,000
Amortization of intangible assets 590,000 631,000
------------ ------------
8,394,000 10,221,000
------------ ------------
Operating income 3,064,000 3,249,000
Other income (expense):
Interest expense (2,098,000) (2,119,000)
Interest income 10,000 89,000
Other income 70,000 46,000
Other expense (98,000) (233,000)
------------ ------------
Income before income taxes 948,000 1,032,000
Income taxes 391,000 440,000
------------ ------------
Net income $ 557,000 $ 592,000
============ =============
Net income per share $ 0.56 $ 0.59
============ =============
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,
1994 1995
------------ ------------
Cash from operations $ 1,814,000 $ 2,316,000
Investing activities:
Capital expenditures-net of disposals (336,000) (1,849,000)
Investment in local marketing agreement (1,000,000)
Other (188,000) (317,000)
------------ ------------
(1,524,000) (2,166,000)
Financing activities:
Payment of loan payable (875,000) (1,125,000)
Other 5,000
------------ ------------
(875,000) (1,120,000)
------------ ------------
Net decrease in cash and cash equivalents $ (585,000) $ (970,000)
============= =============
See accompanying notes.
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1995
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, 1995 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. 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, 1994.
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 $11,192,000 of film
contract rights at March 31, 1995.
At March 31, 1995, the Company remains contingently liable on
approximately $12,415,000 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 $4,461,000
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 three owned television stations and
one television station operated under a local marketing agreement. The owned
stations include two NBC network-affiliated VHF television stations and one
independent UHF television station. The two VHF television stations are WJAR,
which serves the Providence, Rhode Island-New Bedford, Massachusetts area and
WCMH, which serves the Columbus, Ohio area. The UHF television station,
acquired by the Company on August 10, 1994, is WNCN which serves the Raleigh-
Durham (Fayetteville, Goldsboro and Rocky Mount), North Carolina market area.
Since April 18, 1994, the Company has also operated independent UHF
television station WWHO, Chillicothe, Ohio, under a local marketing agreement
with that station's licensee. The Company serves as a broker for the sale of
that station's advertising time and provides it with certain programming and
operating capabilities. In return, the Company retains a substantial
percentage of WWHO's net operating income to the extent that it exceeds
cumulative net operating losses.
Three Months Ended March 31, 1995 and March 31, 1994
The following table sets forth a comparison of total Company operating
results for the first quarters of 1994 and 1995.
Three Months Ended March 31
------------------------------
1994 1995
-------------- -------------- Increase(Decrease)
Percent Percent 1995 vs. 1994
of Net of Net Percentage
Dollars in thousands Amount Revenue Amount Revenue Amount Change
- -------------------- ------ ------- ------ ------- ------ ----------
Net revenue $11,458 100.0% $13,470 100.0% $2,012 17.6%
Expenses:
Technical, programming
and news 4,346 37.9 5,106 37.9 760 17.5
Selling, general and
administrative 2,275 19.9 3,036 22.5 761 33.5
Corporate expenses 495 4.3 534 4.0 39 7.9
Depreciation and
amortization 1,278 11.2 1,545 11.5 267 20.9
------ ----- ------- ----- ------ ----
Operating income $ 3,064 26.7% $ 3,249 24.1% $ 185 6.0%
======= ====== ======= ====== ======= =====
Net cash provided
by operations (a) $ 1,814 15.8% $ 2,316 17.2% $ 502 27.7%
======= ====== ======= ====== ======= =====
Operating cash
flow (a) $ 4,342 37.9% $ 4,794 35.6% $ 452 10.4%
======= ====== ======= ====== ======= =====
(a) "Net cash provided 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 $13,470,000 in the first quarter of 1995 increased by
$2,012,000 or 17.6% versus net revenue of $11,458,000 in the first quarter of
1994. Compared with the prior year period, 1995 first quarter revenue at WJAR
and WCMH increased by 21.6% and .9%, respectively. The 1994 station
additions, WNCN and WWHO, provided an aggregate revenue increase in the
current quarter of 8.4%. Both WJAR and WCMH set first quarter revenue
records. This marked the third successive year that WCMH established a record
high in first quarter revenue.
Benefiting from strong viewer ratings, advertising rates continued to
trend upward, particularly at WJAR. WJAR's revenue from local and national
advertising sources increased by more than 16% and 20%, respectively.
Combined with a significant increase in network compensation, the station
accounted for approximately one-half of the Company's total first quarter
revenue gain. Although WCMH had a slight decrease in local and national
revenue, this amount was offset by a virtual doubling of its network
compensation.
Technical, programming and news expenses of $5,106,000 in the 1995 first
quarter increased by $760,000 or 17.5% from $4,346,000 in the prior year
period. All of the increase resulted from inclusion of operating expenses for
WNCN and WWHO in the current year's first quarter. Due primarily to
reductions in film syndication costs, the Company's VHF television stations
experienced a 2% decrease in technical, programming and news expenses. As a
percent to revenue, technical, programming and news expenses remained at 37.9%
for the comparable first quarter periods.
Selling, general and administrative expenses of $3,036,000 in the first
quarter of 1995 increased by $761,000 or 33.5% compared with $2,275,000 in the
1994 first quarter. Of the total increase, WNCN and WWHO accounted for
approximately $658,000. The balance of the increase primarily reflected
higher sales commissions payable by WJAR because of increased revenue along
with an increase in WJAR's advertising and promotion costs. As a percentage
of revenue, selling, general and administrative expenses increased to 22.5% in
the 1995 first quarter from 19.9% a year ago.
Corporate expenses had a relatively minor increase of $39,000 or 7.9%
compared with the prior year period. However, as a percent to revenue, such
expenses decreased to 4% in the current quarter from 4.3% a year ago.
Depreciation expense and amortization of intangibles both increased in the
1995 first quarter due to the Company's 1994 investments in television
stations WNCN and WWHO.
Total expenses of $10,221,000 in the first quarter of 1995 increased by
$1,827,000 or 21.8% from $8,394,000 in the prior year. The increase was
virtually all attributable to the 1994 station additions described above. As
a percent to revenue, total 1995 first quarter expenses were 75.9%, up from
73.3% in the prior year period.
Operating income of $3,249,000 in the 1995 first quarter increased by
$185,000 or 6.0% compared to $3,064,000 in the prior year. However, because
of higher costs at the new stations, operating income decreased as a percent
to revenue, from 26.7% in the first quarter of 1994 to 24.1% in the first
quarter of 1995.
The increased operating income contributed to the Company's improvement
of $502,000 in net cash provided by operations. Similarly, operating cash
flow of $4,794,000 increased by $452,000 or 10.4% from last year's $4,342,000.
Operating cash flow in the current year, however, represented 35.6% of revenue
compared with 37.9% of revenue in the prior year.
In the first quarter of 1995, total interest expense of $2,119,000
increased by $21,000 or 1% compared to $2,098,000 a year ago. Although the
Company reduced its outstanding long-term debt by making installment payments
on its term loan with a bank, the interest rate applicable to such borrowing
increased in concert with market trends and resulted in an increased quarterly
interest expense. The ratio of operating cash flow - $4,794,000, to interest
expense - $2,119,000, in the 1995 first quarter was 2.3 to 1. In the first
quarter of 1994, this ratio was 2.1 to 1.
Interest income increased in 1995 because of greater cash balances
maintained during the current period and because of higher returns on invested
funds. The increase in other expense in 1995 included costs of stock options
and other charges associated with the added UHF stations.
The Company's 1995 first quarter income before income taxes totalled
$1,032,000. This was an improvement of $84,000 or 8.9% compared with pretax
income in the prior year period of $948,000. After a 1995 first quarter
provision for income taxes of $440,000, which increased deferred income taxes
payable, net income was $592,000 or $.59 per share. This compares with 1994
first quarter net income of $557,000 or $.56 per share.
Net cash provided by operations in the first quarter of 1995 totalled
$2,316,000. This was an increase of $502,000 or 27.7% compared to net cash
provided by operations of $1,814,000 in the first quarter of 1994. The
increase reflects the Company's improved operating results.
During the first quarter of 1995, the Company increased its cash
investment in film contract rights by $1,589,000, primarily by making payment
of film contract obligations. After giving effect to the period's
amortization of film contract rights of $1,203,000, the increased net
investment in film contract rights was $386,000. This compares with a cash
investment in film contract rights of $1,441,000 during the first quarter of
1994 and a net increased investment in film contract rights of $241,000 for
that period.
Because of the Company's increased volume of business activity, and added
stations, outstanding trade accounts receivable continued to trend at a higher
level in the 1995 first quarter compared with the same period a year ago.
In the first quarter of 1995, cash required by investing activities
totalled $2,166,000. This included capital expenditures of $1,849,000 of
which a substantial amount represented payments made for new transmitting
equipment at WNCN. Disbursements for other investing activities totalled
$317,000 and included deposits and other miscellaneous payments.
In 1994, cash required by investing activities totalled $1,524,000. This
included normal capital expenditures of $336,000 and an investment of
$1,000,000 in a local marketing agreement with the licensee of WWHO. Other
investing activities of $188,000 included a deposit payment made in connection
with the company's agreement to purchase television station WNCN.
Cash used by financing activities in the first quarter of 1995 amounted
to $1,120,000 and included a required quarterly installment of $1,125,000 due
on a term loan with the Company's senior bank lender. In 1994 such quarterly
installment was $875,000.
Because of cash used in the investing and financing activities described
above, the Company's overall cash position decreased by $970,000 in the first
quarter of 1995. This contributed to a decrease in the Company's net current
assets during the period of $575,000. Also contributing to such decrease in
net current assets was an increase of $125,000 in current portion of long-term
debt. Nevertheless, the Company's ratio of current assets to current
liabilities remained at 1.1 to 1 at both December 31, 1994 and March 31, 1995.
The Company has benefited from improved operating results and a stable
and/or declining 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 2, 1995
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 5,153,125 51,187
Letitia Baldrige 5,121,115 83,197
Robert C. Butler 5,121,115 83,187
Stephen J. Carlotti 3,068,125 2,136,187
Frederick R. Griffiths 5,153,115 51,197
Julius Koppelman 5,153,125 51,187
Leonard Lieberman 5,153,125 51,187
James K. Makrianes 5,153,125 51,187
Victor H. Palmieri 5,121,125 83,187
Frank E. Richardson 5,153,125 51,187
Frank E. Walsh, Jr. 5,153,115 51,197
Solomon M. Yas 5,153,125 51,187
Appointment of Independent Accountants: Votes representing 3,114,079
shares were cast for, 2,089,200 shares were cast against, and 1,033 shares
abstained in the voting on the ratification of the selection of Ernst & Young
LLP as independent auditors of OCI and its subsidiaries for the year ending
December 31, 1995.
Approval of Amendment to the 1992 Stock Incentive Plan: Votes
representing 4,987,662 shares were cast for, 213,862 shares were cast against,
and 2,588 shares abstained in the voting on the approval of adoption of the
Amendment to the 1992 Stock Incentive Plan of OCI.
Item 6. Exhibits 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 11, 1995 /s/ James G. Babb
------------------- ----------------------------
James G. Babb
Chairman of the Board,
President and
Chief Executive Officer
Date May 11, 1995 /s/ Felix W. Oziemblewski
-------------------- -------------------------------
Felix W. Oziemblewski
Vice President-
Chief Financial Officer
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