<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): February 28, 1997
A. H. BELO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-8598 75-0135890
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
P.O. BOX 655237
DALLAS, TEXAS 75265-5237
(Address of principal executive offices)
(214) 977-6606
(Registrant's Telephone No.)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
As previously reported, A. H. Belo Corporation ("Belo") completed the merger of
The Providence Journal Company ("Providence Journal") into a wholly-owned
subsidiary of Belo on February 28, 1997 (the "Merger"). An agreement to
purchase Providence Journal was announced on September 26, 1996 and on February
19, 1997, shareholders of both companies approved the terms of the Merger.
a. Financial Statements.
Set forth below are the Independent Auditors' Reports,
Consolidated Balance Sheets at December 31, 1995 and 1996 and
the Consolidated Statements of Stockholders' Equity,
Consolidated Statements of Operations and Consolidated
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 of The Providence Journal Company and its
subsidiaries as described more fully in the notes thereto.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of The Providence Journal Company:
We have audited the accompanying consolidated financial statements of The
Providence Journal Company and Subsidiaries (the Company) as of December 31,
1996 and 1995 and for each of the years in the three year period ended December
31, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
consolidated financial statements of King Holding Corp. (a 50% owned investee
company prior to October 5, 1995) for the year ended December 31, 1994. The
Company's equity in losses of King Holding Corp. was $8,325,000 for the year
ended December 31, 1994. The consolidated financial statements of King Holding
Corp. were audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for King Holding
Corp., is based solely on the report of the other auditors.
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 consolidated 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 and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Providence Journal Company and
Subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Providence, Rhode Island /s/ KPMG PEAT MARWICK LLP
February 10, 1997
1
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
King Holding Corp.:
We have audited the consolidated statements of operations,
stockholders' equity and cash flows of King Holding Corp. and subsidiaries (the
Company) for the year ended December 31, 1994 (not presented herein). These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 such consolidated financial statements of King Holding
Corp. present fairly, in all material respects, the results of their
operations, changes to their stockholders' equity and their cash flows for the
year ended December 31, 1994 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
2
<PAGE> 4
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,141 $ 87
Short-term investments 3,349 -
Accounts receivable, net of allowance for doubtful accounts of
$4,110 in 1996 and $4,328 in 1995 63,374 56,321
Television program rights, net 17,868 16,536
Federal and state income taxes receivable 2,582 24,146
Deferred income taxes (note 14) 3,846 7,112
Inventory, prepaid expenses and other current assets 12,309 5,019
--------- ---------
Total current assets 122,469 109,221
Investments in affiliated companies (note 7) 8,326 22,171
Notes receivable (note 8) 910 19,174
Television program rights, net 4,784 3,817
Property, plant and equipment, net (note 9) 176,536 171,649
License costs, goodwill and other intangible assets, net (notes 5, 6 and 10) 363,019 354,411
Other assets (notes 11, 15 and 19) 37,536 22,927
Investment in marketable equity security 7,424 3,860
--------- ---------
$ 721,004 $ 707,230
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,887 $ 16,837
Accrued expenses and other current liabilities (notes 12, 13 and 18) 44,989 49,504
Current installments of long-term debt (note 15) 100 100
Current portion of television program rights payable (note 16) 15,466 16,463
--------- ---------
Total current liabilities 81,442 82,904
Long-term debt, less current installments (note 15) 186,600 243,998
Television program rights payable, less current portion (note 16) 4,443 5,509
Deferred income taxes (note 14) 45,687 52,298
Deferred compensation (note 18) 3,380 10,204
Other liabilities (notes 18 and 19) 44,843 49,078
--------- ---------
Total liabilities 366,395 443,991
--------- ---------
Commitments and contingencies (notes 4, 6, 7, 9, 17, 19, 21 and 22)
Minority interest 5,390 -
--------- ---------
Stockholders' equity (notes 2, 3, 4, 21 and 23) Class A common stock, par value
$1.00 per share; authorized 150,000,000 shares, issued 27,506,127 shares in
1996; 17,331,300
shares in 1995 27,507 17,331
Class B common stock, par value $1.00 per share; authorized
46,825,000 shares, issued 20,109,026 shares in 1996; 21,067,650
shares in 1995 20,109 21,068
Additional paid in capital 116,828 65
Retained earnings 183,890 226,028
Unrealized gain (loss) on securities available for sale 885 (1,253)
--------- ---------
349,219 263,239
--------- ---------
$ 721,004 $ 707,230
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 5
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Broadcasting $ 213,770 $ 180,547 $ 54,024
Publishing advertising 97,073 96,340 97,006
Publishing circulation 33,413 32,151 30,887
Programming and Electronic Media 15,343 3,468 2,300
------------ ------------ ------------
Total net revenues 359,599 312,506 184,217
------------ ------------ ------------
Expenses:
Operating 214,005 161,283 77,543
Selling, general and administrative 100,066 86,023 83,302
Newspaper consolidation and restructuring costs (note 13) 1,791 14,222 -
Stock based compensation (note 18) 12,394 2,387 15,138
Depreciation and amortization 43,517 33,969 19,983
Pension expense (note 19) 1,114 1,236 (173)
------------ ------------ ------------
Total expenses 372,887 299,120 195,793
------------ ------------ ------------
Operating income (loss) (13,288) 13,386 (11,576)
------------ ------------ ------------
Other income (expense):
Interest expense (notes 4 and 15) (18,892) (11,395) (2,426)
Equity in loss of affiliated companies (note 7) (4,706) (7,835) (13,380)
Management fees from related parties (note 5) - - 3,525
Other income (expense) (note 8) 10,621 4,797 2,578
------------ ------------ ------------
Total other expense, net (12,977) (14,433) (9,703)
------------ ------------ ------------
Loss from continuing operations before
income tax expense (benefit) (26,265) (1,047) (21,279)
Income tax expense (benefit) (note 14) (4,710) 3,956 1,950
------------ ------------ ------------
Loss from continuing operations (21,555) (5,003) (23,229)
Discontinued operations (note 4):
Loss from operations of discontinued segments,
net of income tax benefits - - (1,798)
Loss on disposal of segments, net of income tax
benefits (2,678) - (34,764)
------------ ------------ ------------
Loss before extraordinary item (24,233) (5,003) (59,791)
Extraordinary item, net (note 15) - (2,086) -
------------ ------------ ------------
Loss before minority interests (24,233) (7,089) (59,791)
Minority interests (note 6) 10,503 (2,559) -
------------ ------------ ------------
Net loss $ (13,730) $ (9,648) $ (59,791)
============ ============ ============
Net loss per common share:
From continuing operations $ (0.50) $ (0.13) $ (0.61)
From discontinued operations (0.06) - (0.96)
Extraordinary item - (0.05) -
Minority interests 0.24 (0.07) -
------------ ------------ ------------
Net loss per common share $ (0.32) $ (0.25) $ (1.57)
============ ============ ============
Weighted average shares outstanding 42,969,762 38,506,500 38,196,900
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss $ (13,730) $ (9,648) $ (59,791)
Adjustments to reconcile net loss to cash provided by
continuing operations:
Extraordinary items - 2,086 -
Discontinued operations 2,678 - 36,562
Minority interests (10,503) 2,559 -
Depreciation and amortization 43,517 33,969 19,983
Program rights amortization 21,198 17,318 7,356
Equity in loss of affiliated companies 4,706 7,835 13,380
Deferred income taxes (1,265) 11,008 (3,258)
Increase (decrease) in deferred compensation (6,824) (1,531) 7,740
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (4,653) (4,604) (484)
Inventory, prepaid expenses and other current assets 12,247 (34,870) (1,868)
Accounts payable 1,393 1,172 2,545
Accrued expenses and other current liabilities (7,544) (15,095) (697)
Other, net (798) 1,776 3,459
--------- --------- ---------
Cash flows provided by continuing operations 40,422 11,975 24,927
Investing activities:
Purchase of Kelso interest, less cash acquired of $3,578 - (261,422) -
Purchase of TVFN interest, less cash acquired of $263 (23,787) -
Investment in securities held for sale - (397) -
Investments in affiliated companies (6,434) (23,647) (6,555)
Additions to property, plant and equipment (25,048) (15,276) (6,481)
Collections on notes receivable 23,322 339 3,086
Proceeds from sale of assets - 8,739 594
Cash proceeds from sale of cable operations, net of taxes paid (25,000) 693,058 -
Increase (decrease) in operations through disposal date - (66,459) 24,838
Purchase of television station options (11,750) - -
--------- --------- ---------
Cash flows provided by (used in) investing activities (68,697) 334,935 15,482
Financing activities:
Proceeds from syndicated long-term debt 117,000 233,000 -
Net increase (decrease) in syndicated line of credit (1,298) 1,298 -
Proceeds from refinanced syndicated long-term debt - 90,711 -
Principal payments on long-term debt including
prepayment penalty in 1995 (173,100) (638,224) (19,345)
Payments of debt issue costs - (1,748) -
Payments of television program rights payable (17,443) (16,166) (6,760)
Cash received from minority partners 12,800 - -
Dividends paid (9,763) (9,706) (9,711)
Issuance of Class A stock, net of expenses 119,133 46 -
Purchases and adjustments to basis of treasury stock - (7,353) (4,291)
--------- --------- ---------
Cash flows provided by (used in) financing activities 47,329 (348,142) (40,107)
Increase (decrease) in cash 19,054 (1,232) 302
Cash and cash equivalents at beginning of year 87 1,319 1,017
--------- --------- ---------
Cash and cash equivalents at end of year $ 19,141 $ 87 $ 1,319
========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 7
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES AMOUNT SHARES AMOUNT APIC
---------- ------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 17,258,850 $43,147 21,283,650 $53,209 $ -
Purchase of treasury stock
Conversion upon sale of Class B to
Class A common stock 7,200 18 (7,200) (18)
Dividends declared, $0.25 per share
Cumulative effect of change in
accounting principle
Net change in unrealized gain (loss)
Net loss
---------- ------- ---------- ------- --------
Balances at December 31, 1994 17,266,050 $43,165 21,276,450 $53,191 -
Conversion upon sale of Class B to
Class A common stock 58,950 147 (58,950) (147)
Reissuance of treasury stock in connection
with stock-based compensation plans 2,738
Treasury stock adjustment to basis
Dividends declared, $0.25 per share
Net change in unrealized gain (loss)
Excess proceeds over net assets held for
sale in disposal of cable operations (note 4)
Deemed distribution to shareholders of
Continental capital stock in connection with
disposal of cable operations (note 4)
Recapitalization in connection with PJC
Spin-Off (note 4) (25,987) (149,850) (31,976) (2,738)
Exercise of options 6,300 6 65
Net loss
---------- ------- ---------- ------- --------
Balances at December 31, 1995 17,331,300 $17,331 21,067,650 $21,068 65
Dividends declared, $0.25 per share
Net change in unrealized gain (loss)
Conversion of Class B to Class A common stock 958,624 959 (958,624) (959)
Common stock issued:
Common stock offering, net of expenses (note 3) 8,643,750 8,644 110,379
Exercise of options (note 18) 29,700 30 305
Common stock issued for R.S.U. plan (note 18) 542,753 543 6,079
Adjustment to excess proceeds over assets
held for disposal of cable assets (note 4)
Settlement of contingent liability relating to
disposal of cable assets (notes 4 and 21)
Net loss
---------- ------- ---------- ------- --------
Balances at December 31, 1996 27,506,127 $27,507 20,109,026 $20,109 $116,828
========== ======= ========== ======= ========
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON SECURITIES TREASURY STOCK
RETAINED AVAILABLE ------------------
EARNINGS FOR SALE SHARES AMOUNT TOTAL
--------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 266,376 $ - (192,150) $(3,157) $ 359,575
Purchase of treasury stock (240,300) (4,291) (4,291)
Conversion upon sale of Class B to
Class A common stock -
Dividends declared, $0.25 per share (9,711) (9,711)
Cumulative effect of change in -
accounting principle 5,120 5,120
Net change in unrealized gain (loss) (5,015) (5,015)
Net loss (59,791) (59,791)
--------- -------- -------- ------- ---------
Balances at December 31, 1994 $ 196,874 $ 105 (432,450) $(7,448) $ 285,887
Conversion upon sale of Class B to
Class A common stock -
Reissuance of treasury stock in connection
with stock-based compensation plans 282,600 4,867 7,605
Treasury stock adjustment to basis (7,353) (7,353)
Dividends declared, $0.25 per share (9,706) (9,706)
Net change in unrealized gain (loss) (1,358) (1,358)
Excess proceeds over net assets held for
sale in disposal of cable operations (note 4) 582,510 582,510
Deemed distribution to shareholders of
Continental capital stock in connection with
disposal of cable operations (note 4) (584,769) (584,769)
Recapitalization in connection with PJC
Spin-Off (note 4) 50,767 149,850 9,934 -
Exercise of options 71
Net loss (9,648) (9,648)
--------- -------- -------- ------- ---------
Balances at December 31, 1995 $ 226,028 $ (1,253) - $ - $ 263,239
Dividends declared, $0.25 per share (9,763) (9,763)
Net change in unrealized gain (loss) 2,138 2,138
Conversion of Class B to Class A common stock -
Common stock issued:
Common stock offering, net of expenses (note 3) 119,023
Exercise of options (note 18) 335
Common stock issued for R.S.U. plan (note 18) 6,622
Adjustment to excess proceeds over assets
held for disposal of cable assets (note 4) 6,355 6,355
Settlement of contingent liability relating to -
disposal of cable assets (notes 4 and 21) (25,000) (25,000)
Net loss (13,730) (13,730)
--------- -------- -------- ------- ---------
Balances at December 31, 1996 $ 183,890 $ 885 - $ - $ 349,219
========= ======== ======== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 8
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Consolidation
The consolidated financial statements present the financial position and
results of operations of The Providence Journal Company and its subsidiaries
(collectively, the "Company"). The Company is the successor to Providence
Journal Company ("Old PJC") which reorganized itself, acquired all of its joint
venture partner's interest in King Holding Corp. ("KHC"), and disposed of its
cable operations on October 5, 1995 in a series of transactions as described in
Note 4. The Company is a diversified communications company with operations and
investments in several media and electronic communications businesses. The
principal areas of the Company's activities are television broadcasting
("Broadcasting"), newspaper publishing ("Publishing") and programming and
electronic media ventures ("Programming and Electronic Media"). Prior to the
consummation of the Continental Merger (defined below) and other transactions
described below, these businesses were conducted by Old PJC which was also
engaged in the ownership and operation of cable television systems.
All significant intercompany balances and transactions have been eliminated and
minority interests have been recorded in consolidation. The results of
operations for King Holding Corp. ("KHC"), America's Health Network ("AHN") and
Television Food Network ("TVFN") have been consolidated in the accompanying
consolidated statements of operations since January, 1995; January, 1996; and
May, 1996, respectively, with appropriate adjustments for minority interests.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
(b) Cash and Cash Equivalents
Cash equivalents are those short-term highly liquid investments with original
maturities of 90 days or less. At December 31, 1996, cash equivalents
consisted primarily of commercial paper and overnight investments and totaled
$13,916. There were no cash equivalents at December 31, 1995.
The Company has a cash management program whereby outstanding checks in excess
of cash in the concentration account are not accounted for as reductions of
cash until presented to the bank for payment. At December 31, 1996 and 1995,
the Company reclassified $936 and $2,162 respectively, of net outstanding
checks to accounts payable.
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes paid (received) during the year (excluding
settlements, see Note 14) .......................... $(27,384) 12,679 2,588
-------- -------- --------
Interest paid during the year (including amounts allocated
to discontinued operations), net of amounts
capitalize .......................................... $ 19,261 47,891 20,911
-------- -------- --------
Obligations incurred for acquisition of television program
rights (non-cash transactions) ...................... $ 15,247 21,520 6,627
-------- -------- --------
</TABLE>
7
<PAGE> 9
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In connection with the acquisition of the joint venture partner's interest in
King Holding Corp. in 1995 and its acquisition of a controlling interest in
TVFN in 1996, assets acquired and liabilities assumed were as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Assets acquired .............. $ 15,141 $243,186
======== ========
Goodwill and other intangibles $ 20,617 $206,740
======== ========
Liabilities assumed .......... $ 5,464 $184,926
======== ========
Minority interest .............. $ 6,244 $ --
======== ========
</TABLE>
(c) Investments
Investments in Affiliates
Investments in affiliates in which the Company has significant influence
(generally ownership of 20% to 50% of voting stock) and investments in
partnerships are accounted for using the equity method. Other investments
(generally ownership of less than 20% of voting stock) are carried at the lower
of cost or net realizable value. The following investments are accounted for
under the equity method as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
Linkatel Pacific, L.P. Linkatel Pacific, L.P.
Partner Stations Network, L.P. Partner Stations Network, L.P.
Peapod, L.P. Peapod, L.P.
AHN
TVFN
</TABLE>
Information about these investments is presented in Notes 6 and 7.
Investments in Marketable Securities
Investments in marketable securities consist of a marketable equity security
investment in common stock of StarSight Telecast, Inc., in which the Company
owns approximately 5% of the outstanding common stock, and marketable debt
security investments in government securities, with maturities of one year or
less.
At December 31, 1996, marketable debt securities of $3,349 were pledged to
secure the payment of must carry rights and lease obligations.
Prior to January 1, 1994, marketable securities were stated at cost. Effective
January 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, ''Accounting for Certain Investments in Debt and
Equity Securities''. Under this standard, the Company's marketable equity
securities are recorded at fair market value and are considered to be
''available for sale'' and unrealized gains and losses, net of the related tax
effect, are recorded as a separate component of stockholders' equity.
Marketable debt securities are considered "held to maturity" and are recorded
at amortized cost, adjusted for amortization or accretion of premiums or
discounts. A decline in the market value of any marketable security below cost
that is deemed other than temporary results in an adjustment to the cost basis
of the security which is charged to the consolidated statement of operations.
At both December 31, 1996 and 1995, the cost of marketable equity securities
totaled $5,949; fair market value totaled $7,424
8
<PAGE> 10
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
and $3,860 at December 31, 1996 and 1995, respectively. At December 31, 1996,
the cost of marketable debt securities of $3,349 approximated fair market
value. There were no marketable debt securities at December 31, 1995.
(d) Inventories
Inventories, principally comprising raw materials and merchandise inventories,
are stated at the lower of cost or market. Cost is determined principally on
the last-in, first-out (LIFO) basis. Replacement cost of inventories was $2,090
and $2,806 at December 31, 1996 and 1995, respectively.
(e) Television Program Rights
Television program rights consist of costs to acquire program rights, and
production costs associated with developed programming. Production costs
consist primarily of subcontracted production services, salaries and costs of
talent, and costs of set construction. Capitalized production costs are
amortized using an accelerated method over three years. Program rights
acquired under license agreements are recorded as assets at the gross value of
the related liabilities at the time the programs become available for showing.
The rights are amortized using accelerated methods over the term of the
applicable contract. Amortized costs are included in operating expenses in the
accompanying consolidated statements of operations.
Program rights classified as a current asset represent the total amount
estimated to be amortized within a year. Related liabilities due to licensers
are classified as current or long-term in accordance with the payment terms.
Television program rights are reviewed periodically for impairment and, if
necessary, adjusted to estimated net realizable value.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to operations as incurred; significant improvements are
capitalized. The Company provides for depreciation using the straight-line
method over the following estimated useful lives:
Machinery and equipment. . . 3 - 15 years
Buildings and improvements . 2 - 45 years
Broadcast equipment . . . . 6 - 15 years
Furniture and fixtures . . . 5 - 11 years
When the Company determines that certain property, plant and equipment is
impaired, a loss for impairment is recorded for the excess of the carrying
value over the fair value of the asset. Fair value is determined by independent
appraisal, if an active market exists for the related asset. Otherwise, fair
value is estimated through forecasts of expected cash flows.
(g) License Costs, Goodwill and Other Intangible Assets
License costs and other intangible assets are stated at cost. Goodwill
represents the excess of purchase price over fair value of net assets acquired.
The Company provides for amortization using the straight-line method over
periods ranging from 5 to 40 years. The Company periodically reviews its
intangible assets to determine whether any impairment has occurred. The Company
assesses the recoverability of intangible assets by reviewing the performance
of the underlying operations, in particular the operating cash flows (earnings
before income taxes, depreciation, and amortization) of the operation.
9
<PAGE> 11
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
(i) Pension and Other Post-retirement Benefits
The Company has a defined benefit pension plan covering substantially all
employees of The Providence Journal Company and its wholly owned subsidiaries.
The plan is funded in accordance with the requirements of the Employee
Retirement Income Security Act.
The Company sponsors a defined life insurance and medical plan for its
newspaper and one of its broadcast operations, respectively. The plans are
accounted for under SFAS No. 106, ''Employer's Accounting for Post-retirement
Benefits Other than Pensions''.
(j) Derivative Financial Instruments
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. Derivative financial instruments
are only used to manage interest rate risks.
The Company has entered into an interest rate swap agreement which is accounted
for as a hedge of the obligation and, accordingly, the net swap settlement
amount is recorded as an adjustment to interest expense in the period incurred
(see Note 15). Gains and losses upon settlement of a swap agreement are
deferred and amortized over the remaining term of the agreement.
(k) Advertising Costs
The Company expenses media advertising and advertising promotion expense as
incurred. For the years ended December 31, 1996, 1995 and 1994, the Company
incurred advertising expense of approximately $12,042, $8,332, and $3,904,
respectively.
(l) Net Loss Per Share
Net loss per share is based on the weighted average number of Class A and Class
B shares of common stock outstanding. Restricted stock units and stock options
are both considered common stock equivalents. Common stock equivalents were
anti-dilutive for all periods in which the common stock equivalents were
outstanding except for the fourth quarter of 1996, however inclusion of such
common stock equivalents for that period would not have materially changed the
loss per share and consequently only basic loss per share is presented in the
consolidated statement of operations.
(m) Stock-Based Compensation
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." The Statement encourages, but does not require, a
fair value based method of accounting for stock-based compensation plans. SFAS
No. 123 allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." For those entities electing to use
the intrinsic value based
10
<PAGE> 12
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
method, SFAS No. 123 requires pro forma disclosures of net income and earnings
per share computed as if the fair value based method had been applied. The
Company has chosen to continue to account for stock-based compensation using
the intrinsic value method. Accordingly, compensation cost for stock awards is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. Compensation cost for stock appreciation rights and performance
equity units is recorded based on the quoted market price of the Company's
stock at the end of each reporting period. See Note 18.
NOTE 2 -- MERGER WITH A. H. BELO CORPORATION
On September 26, 1996, the Company signed a definitive agreement to merge with
the A. H. Belo Corporation ("Belo") of Dallas, TX. ("Belo Merger"). The
exchange ratio in the transaction is .5333 share of Belo stock plus $12.33 for
every share of The Providence Journal Company stock. Shareholders will have
the ability to select this exact mixture of consideration or, alternatively,
all cash or all stock, subject to pro-ration. The value of each package will
be identical. This value will be determined during a pricing period prior to
the effective time of the closing. Cash and stock elections will be subject to
pro-ration. The transaction is subject to shareholder, Federal Communications
Commission ("FCC"), and various other approvals. The shareholders of Belo and
the Company are scheduled to vote on the proposed merger on February 19, 1997.
Pursuant to the Belo Merger agreement, in the event of termination of the
merger, under certain circumstances, the Company may be required to pay a
termination fee in the amount of $50 million. Through December 31, 1996, the
Company has incurred approximately $2.8 million in transaction costs related to
the proposed merger with Belo. This amount has been expensed in operating
costs in the consolidated statement of operations. See Note 25.
NOTE 3 -- STOCK SPLIT AND PUBLIC OFFERING
On June 18, 1996, the Board of Directors declared a 450 for 1 stock split of
its issued and outstanding common stock as of that date. Such stock split has
been reflected throughout these financial statements.
On June 25, 1996, the Company raised $106,277 net of underwriters' commission,
in an initial public offering and direct placement of its Class A Common stock
(the "Offerings"). The number of Class A shares sold to the public in the
underwritten offering was 7,125,000 and the number of Class A shares sold to
eligible employees in the direct placement program was 450,000. Expenses
associated with the Offerings were $2,249. On July 10, 1996, the Company issued
an additional 1,068,750 Class A shares and raised an additional $14,995, net of
underwriters' commission, pursuant to the exercise of an over-allotment option
granted to the underwriters by the Company. The net proceeds from the offerings
were used to repay a portion of the Company's outstanding debt.
Assuming the Offerings occurred on January 1, 1996 and the proceeds were used
to repay a portion of the indebtedness at that time, the supplementary pro
forma net loss (after giving effect to the resulting reduction in interest
expense) and loss per share for the year ended December 31, 1996 would have
been as follows:
<TABLE>
<S> <C>
Net loss ............................. $ (10,658)
Net loss per common share:
From continuing operations ...... (0.39)
From discontinued operations .... (0.06)
Minority interests .............. 0.22
-----------
Net loss per common share ............ $ (0.23)
===========
Shares used in calculation ........... 47,193,737
============
</TABLE>
11
<PAGE> 13
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4-- REORGANIZATION AND DISCONTINUED CABLE OPERATIONS
(a) Reorganization
On October 5, 1995, Old PJC completed the acquisition of the 50% interest in
KHC held by an unrelated third party for $265 million, including $5 million in
transaction fees (the "Kelso Buyout"), completed the transfer of all non-cable
operations from Old PJC to the Company in a substantially tax-free
reorganization pursuant to which the shares of capital stock of the Company
were distributed to the shareholders of Old PJC (the "PJC Spin-Off"), and,
following the PJC Spin-Off, at which point it held only Old PJC's cable
television businesses and assets, Old PJC was merged ("the Continental Merger")
with and into Continental Cablevision, Inc. ("Continental"). Immediately prior
to the Kelso Buyout, Continental purchased for $405 million all of the stock of
King Videocable Company ("KVC"), a wholly owned subsidiary of King Broadcasting
Company ("KBC"), which is wholly owned by KHC. As a result of these
transactions, the Company, in substance, became successor to Old PJC, in the
same lines of businesses, simultaneously spinning off its cable subsidiaries to
its shareholders who then merged them into Continental.
Proceeds from the disposal of the cable operations discussed above consisted of
a combination of Continental stock, which was received directly from
Continental by Old PJC's shareholders in connection with the Continental
Merger, assumption of a portion of Old PJC's debt by Continental (see Note 15),
and cash. The total combined consideration amounted to approximately $1.4
billion (including the $405 million from the sale of KVC). The excess of the
proceeds over the net assets of the discontinued cable operations was $582,510
and is reflected in the consolidated statement of stockholders' equity. The
receipt by Old PJC Shareholders of the Continental shares, valued at $584,769,
is recorded as a deemed distribution to shareholders in the statement of
stockholders' equity. In 1996, a credit adjustment of $ 6,355 related to
income tax provisions and, as discussed in Note 21, a debit adjustment of
$25,000 related to settlement of contingent liabilities were charged to
stockholders' equity to reflect a net decrease of $18,645 in the net proceeds
received from the cable operations disposed of in 1995.
The Continental Merger agreement between Old PJC and Continental provided that
the total combined consideration received from the disposal of the Company's
cable operations would be adjusted for certain working capital items of the
cable operations acquired by Continental. On March 4, 1996, the Company agreed
to pay Continental $4,250 in full settlement of this working capital adjustment
which was accrued in the accompanying balance sheet as of December 31, 1995 and
included in discontinued operations in 1995.
In connection with the Continental Merger, the Company agreed to indemnify
Continental from any and all liabilities arising from the non-cable television
businesses, and is responsible for all federal and state income tax liabilities
for periods ending on or before the closing date.
(b) Discontinued Cable Operations
The results of operations of the cable television segment, the cellular system
and the paging subsidiary have been reported as discontinued in the
accompanying consolidated statements of operations. Prior year financial
statements have been reclassified to present these businesses as discontinued
operations. Operating results of these discontinued operations were as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Revenues ......................... $ 148,268 $ 177,953
(154,741) (180,597)
Costs and expenses ...............
Equity in income of affiliate .... 1,373 2,417
--------- ---------
Loss before income taxes ......... (5,100) (227)
Income tax expense ............... 2,017 1,571
--------- ---------
Net loss ......................... $ (7,117) $ (1,798)
========= =========
</TABLE>
12
<PAGE> 14
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The net loss for discontinued operations in 1995 was accrued in 1994 as part of
the costs to dispose of the cable operations. No amounts were required to be
recorded in the loss from operations of discontinued segments in the
consolidated statement of operations for 1995. Subsequent adjustments to
certain estimates made pertaining to discontinued operations in 1995 were
recorded in 1996 to the loss on disposal of segments. See Note 18.
Loss from operations of discontinued segments includes allocated interest
expense totaling $17,265 and $20,674 in 1995 and 1994, respectively. Interest
allocated to discontinued segments was limited to the associated interest on
debt that was repaid in connection with the Continental Merger. The estimated
loss on disposal of segments in 1994 of $34,764, which is net of income tax
benefits of $8,038, includes severance packages, transaction costs and a
provision for loss during the phase-out period.
Included in discontinued operations is a 50% equity investment in
Copley/Colony, Inc. (''Copley/Colony''), a joint venture between Colony
Communications, Inc. ("Colony") (a subsidiary of Old PJC) and Copley Press
Electronics Company (''Copley''), engaged in cable television operations. In
connection with the Continental Merger agreement, in May, 1995 Copley sold all
of its interests in Copley/Colony to Colony for a fixed aggregate purchase
price of $47,790 in cash. As a result, Colony owned all of the outstanding
shares of Copley/Colony at the time of the Continental Merger.
In addition, in 1994 the Company sold its remaining cellular system investment
and its paging subsidiary. As a result of these transactions, the Company
recorded gains of $1,390 (net of phase-out period operating losses and income
taxes).
NOTE 5 -- KELSO BUYOUT
The Kelso Buyout as discussed in Note 4 (a), was recorded in the fourth quarter
of 1995 as a step acquisition under the purchase method of accounting. The
excess of the purchase price over the net book value of assets acquired
including deferred taxes was $206,740, of which approximately $88,000 was
allocated to identifiable intangibles and the remainder to goodwill, together
to be amortized over an average life of approximately 30 years.
Prior to the acquisition of all outstanding interests, the Company received
annual governance fees and management fees from KHC totaling $3,525 in 1994
which had been included in management fees from related parties. The Company
charged KHC $1,130 for accounting services in 1994 and was also reimbursed
$3,240 by KHC for expenses in its capacity as manager in 1994. In 1995 and
1996, the annual governance, management, and accounting fees and expenses
reimbursed have been eliminated in consolidation.
Summary combined information for KHC. as of December 31, 1994 and for the year
then ended is summarized below:
<TABLE>
<CAPTION>
1994 1994
--------- ---------
<S> <C> <C> <C>
Current assets . . . . . . . . . . . . . $ 39,978 Revenues . . . . . . . . . . . . . . . . $ 117,059
=========
Current liabilities . . . . . . . . . . (48,804) Operating income . . . . . . . . . . . . $ 24,776
--------- =========
Working capital deficiency . . . . (8,826) Income from continuing operations . . . $ 7,263
=========
Property, plant and equipment, net . . . 58,131
Intangible and other assets . . . . . . 138,453 Loss from discontinued operations, net $ (23,915)
=========
Net assets of discontinued operations 255,902 Net loss . . . . . . . . . . . . . . . . $ (16,652)
Long-term liabilities . . . . . . . . . (289,669) =========
---------
Net Assets . . . . . . . . . . . . . $ 153,991
=========
</TABLE>
13
<PAGE> 15
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6 -- CONSOLIDATION OF TVFN AND AHN
(a) TVFN
As of December 31, 1995, the Company controlled a 21% interest in TVFN. The
partnership was formed specifically to own and operate the Television Food
Network channel. TVFN is a 24-hour advertising supported network service that
provides television programming related to the preparation, enjoyment and
consumption of food, as well as programs focusing on nutrition and topical news
areas. TVFN is distributed predominantly through cable television stations to
approximately 19.2 million subscribers throughout the United States. The
Company is the general partner in the managing partner of TVFN. Prior to May
1996, the Company's investment in TVFN was accounted for under the equity
method.
In May, 1996, the Company acquired the equity partnership interests in TVFN
held by Landmark Programming, Inc. ("Landmark") and Scripps Howard Publishing,
Inc. ("Scripps") for respective purchase prices of approximately $12,650 and
$11,400. Prior to such purchases, Landmark and Scripps each owned a 10.8% and
9.8% general partnership interest, respectively in TVFN. These purchases
increased the Company ownership to 46% and allowed the Company to hold three of
the five voting seats on the TVFN management committee. As a result of the
purchases, TVFN became a controlled subsidiary of the Company and was
consolidated into the Company's results of operations effective May, 1996. The
acquisition was recorded in the second quarter of 1996 as a step acquisition
under the purchase method of accounting. The excess of the purchase price over
the fair market value of assets acquired was $20,617 which was allocated to
goodwill to be amortized over a life of 40 years. The Company's investment in
TVFN through December 31, 1996, including these purchases and funding of its
share of operating losses, totaled $52,600 which represents an equity interest
of approximately 45%. Other unrelated partners invested $800 from May 1, 1996
(date of consolidation) to December 31, 1996. On January 6, 1997, the Company
purchased the 9.5% equity partnership interest in TVFN held by Continental for
a purchase price of $16.3 million. In connection with this transactions, the
Company agreed to transfer a 1.4% equity interest to Continental which interest
had been given to the Company in 1993 in exchange for the Company's agreement
to carry TVFN on all of its former cable systems. Following the consummation
of such transactions, the Company owns an equity interest of approximately
55.5% in TVFN and holds four of the five voting seats on the TVFN management
committee.
(b) AHN
During the year ended December 31, 1996, the Company invested $30,800 and other
unrelated partners invested $12,000 in AHN, a 24-hour basic cable television
programming service devoted exclusively to health related issues and products.
The channel launched on March 25, 1996 with 750 thousand subscribers. The
Company's total investment through December 31, 1996 is $41,050 and its equity
interest in AHN is approximately 65%. Effective January, 1996, the results of
AHN's operations have been consolidated with the Company. Prior to January,
1996, the Company accounted for this investment under the equity method of
accounting. The Company invested an additional $13.7 million in January,
1997.
(c) Summary Pro Forma Results of Operations
The following table presents unaudited pro forma summary results of operations
as if AHN and TVFN had been consolidated in operations since January 1, 1995,
and accordingly, includes adjustments for additional amortization and interest
expense and related income tax benefits. It does not purport to be indicative
of what would have actually occurred had the consolidation occurred on January
1, 1995 nor is it indicative of results which may occur in the future:
14
<PAGE> 16
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro forma
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 363,436 $ 317,663
Loss from continuing operations (25,170) (20,345)
Loss from discontinued operations (2,678) --
Extraordinary item -- (2,086)
Minority interests 11,951 3,966
------------ ------------
Net loss (15,897) (18,465)
============ ============
Net loss per common share $ (0.37) $ (0.48)
============ ============
Shares used in calculation 42,969,762 38,506,500
============ ============
</TABLE>
(d) Summary Financial Information for TVFN and AHN
Summary combined financial information for TVFN and AHN as of December 31, 1995
and for each of the years in the two years then ended are presented below.
Information for 1994 includes only TVFN.
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Current assets $ 11,389
Current liabilities (7,977)
--------
Working capital 3,412
Property, plant and equipment, net 7,202
Intangible and other assets 10,270
Long-term liabilities (2,636)
--------
Net assets $ 18,248
========
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revenues $ 6,657 $ 1,961
-------- --------
Operating loss $(25,526) $(19,534)
-------- --------
Net loss $(25,261) $(19,243)
======== ========
</TABLE>
NOTE 7- INVESTMENTS IN AFFILIATES
(a) Peapod, L.P.
On July 27, 1995, the Company purchased a 17.1% interest in Peapod, L.P., which
currently provides an interactive computer on-line grocery ordering, shopping
and delivery service in Boston, Chicago, Columbus and San Francisco and will
expand such services to Providence in 1997. Total investments in the
partnership during 1995 were $5,335. The Company has invested an additional
$1,003 in 1996 as part of a $15 million private placement and as such diluted
its interest to approximately 15%. No additional investments have been
committed to.
15
<PAGE> 17
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(b) Linkatel Pacific, L.P.
In July 1993, the Company, through its wholly-owned subsidiary Colony/Linkatel
Networks, Inc., invested in Linkatel Pacific, L.P. ("Linkatel") (a development
stage enterprise), with two other communications companies. The Company has a
45% limited interest in the partnership, which was formed to pursue the
development of alternative access networks. Through December 31, 1996, the
Company has invested $6,666 in Linkatel.
On February 4, 1997, the owners of Linkatel completed the sale of that business
to Nextlink Communications LLC for $42.5 million. The Company's interest in
Linkatel is valued at approximately $14.3 million in this transaction. The
sale resulted in a pre-tax gain of approximately $10.7 million, which will be
recorded in the first quarter of 1997.
(c) Partner Stations Network, L.P.
The Company is a limited partner with four other television group broadcasters
in Partner Stations Network, L.P. ("PSN"). PSN was formed in 1994 to develop
and produce television programming for broadcast on their own stations and for
potential national distribution to other television broadcast stations. Each
of the limited partners has a 16% interest and the general partner, Lambert
Television Management, Inc. has a 20% interest. Through December 31, 1996, the
Company has invested $2,105.
NOTE 8- NOTES RECEIVABLE
In September 1990, the Company advanced the Lowell Sun Publishing Company and
Lowell Sun Realty Company (collectively the ''Lowell Sun Companies'') $25,650
and agreed to provide a $6,500 revolving credit facility. The principal balance
receivable at December 31, 1995 was $23,575. The loan and revolving credit
facility which were originally due in March 1996 were subject to a forbearance
until January 2, 1997. Amounts outstanding bore interest at a floating rate
of prime plus 1.25%. The advance was collateralized by all assets of the Lowell
Sun Companies and an interest in Lowell Sun Companies stock. On December 27,
1996, the Company collected $23,147 in full satisfaction of all principal and
interest amounts due from the Lowell Sun Companies and recognized $5,261
million included in other income (expense) upon collection of this note.
NOTE 9- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of the following at December
31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land .......................................................... $ 23,759 $ 24,338
Machinery and equipment ....................................... 98,474 84,733
Buildings and improvements .................................... 125,007 116,790
Broadcast equipment ........................................... 108,763 104,147
Furniture and fixtures ........................................ 51,372 45,076
Construction in progress ...................................... 3,893 1,445
-------- --------
411,268 376,529
Less accumulated depreciation ................................. 234,732 204,880
-------- --------
$176,536 $171,649
======== ========
</TABLE>
Depreciation expense on property, plant and equipment used in continuing
operations totaled $25,295, $22,346 and $16,617 in 1996, 1995 and 1994,
respectively.
16
<PAGE> 18
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 10- INTANGIBLE ASSETS
As of December 31, 1996 and 1995, intangible assets consist of:
<TABLE>
<CAPTION>
LIFE RANGE 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Goodwill ...................... 25-40 years $189,758 $166,594
Licenses ...................... 10-25 years 165,836 165,836
Advertiser Relationships ...... 18-25 years 88,595 88,595
Other ......................... 5-8 years 4,077 411
-------- --------
Total ...................... $448,266 $421,436
======== ========
</TABLE>
Advertiser relationships generally represent the present value of anticipated
cash flows from well established local and national advertiser relationships
which existed at the time of acquisition by the Company of some of its
television stations, generally those stations which were more mature in their
market and had long-term relationships established.
Amortization expense on intangible assets charged to continuing operations
totaled $18,222, $11,623 and $3,366 in 1996, 1995, and 1994, respectively.
Accumulated amortization on intangible assets totaled $85,247 and $67,025 at
December 31, 1996 and 1995, respectively. See also Note 6.
NOTE 11 - OPTIONS TO PURCHASE LMAS
During 1996, the Company paid $11,750 for certain options to purchase stations
covered under existing Local Marketing Agreements ("LMA"). Of the total amount
paid, $9,000 was paid to the license holder of KFVE in Honolulu, Hawaii in
exchange for an option to purchase KFVE for an agreed upon exercise price and a
significant reduction in its monthly fees paid to KFVE under its LMA. The
option is exercisable after such time, if ever, as the FCC permits ownership of
television stations in the same market. The option, which is freely
transferable to a third party, expires on December 31, 1999. This option is
included in other assets and will be amortized over the remaining life of the
LMA unless exercised.
NOTE 12 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Significant components of accrued expenses and other current liabilities
consisted of the following amounts at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Accrued costs on disposal of the cable television segment . . . . $ 1,571 $ 14,498
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . 10,896 4,806
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . 509 872
Salaries, wages and other employee benefits . . . . . . . . . . . 15,106 11,626
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . 4,307 3,709
Publishing restructuring . . . . . . . . . . . . . . . . . . . . . 2,108 6,800
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,492 7,193
-------- --------
$ 44,989 $ 49,504
======== ========
</TABLE>
17
<PAGE> 19
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13 -- NEWSPAPER CONSOLIDATION AND NEWSPAPER RESTRUCTURING COSTS
(a) Newspaper Consolidation Costs
Included in the 1995 consolidated statement of operations are one-time charges
related to the consolidation of the Company's afternoon newspaper (The Evening
Bulletin) with the morning newspaper (The Providence Journal). This
consolidation was effective June 5, 1995 and resulted in the publishing of
Providence Journal-Bulletin, a morning newspaper. This consolidation is
referred to as the Newspaper Consolidation. In connection with the Newspaper
Consolidation, the Company offered early retirement benefits and voluntary
separation assistance to affected employees. As of December 31, 1995, 61
employees accepted early retirement benefits and 19 employees accepted
voluntary separation amounting to a charge to operations of approximately
$3,826 and $1,071, respectively, including benefits. In addition, the Company
incurred costs of approximately $2,525 for promotion, training, and other costs
of the conversion. The early retirement benefits will be paid from the
Company's retirement plans. As of December 31, 1996 and 1995, $60 and $700,
respectively, remained unpaid under the voluntary separation plans.
(b) Newspaper Restructuring Costs
During the fourth quarter of 1995, management approved a plan of reorganization
and restructuring of most departments of Publishing in an effort to improve
efficiencies (the "Newspaper Restructuring"). Under the plan, the Company
targeted a reduction in work-force of approximately 100 full time equivalents
through a combination of early retirement and voluntary and involuntary
separation assistance plans. Of the 100 full time equivalents, approximately
62 were anticipated from the news and operations departments with the remainder
coming from other departments. Salaries and related payroll taxes associated
with these reductions amounted to approximately $6,800 and has been included as
a restructuring charge in the accompanying consolidated statement of operations
for 1995. Early retirement and voluntary separation benefits will be paid out
of the Company's pension plans (in which plan assets exceed plan obligations).
During 1996, the Company recorded an additional charge to operations of
approximately $1,791, relating to the Newspaper Restructuring due to a larger
than expected response to the early retirement costs and voluntary separation
benefits. No additional expenses are anticipated. At December 31, 1996 and
1995, $2,108 and $6,800 remained unpaid. Remaining costs are expected to be
paid over several years extending to the year 2004 in accordance with the terms
of the applicable severance packages. The following table illustrates the
current status of the restructuring accrual:
<TABLE>
<S> <C>
Balance at December 31, 1995 ........................ $ 6,800
Charge to operations ................................ 1,791
Utilization of accrual .............................. (613)
Funding by pension plan ............................. (5,870)
----------
Balance at December 31, 1996 ........................ $ 2,108
==========
</TABLE>
18
<PAGE> 20
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14 -- FEDERAL AND STATE INCOME TAXES
Income tax expense (benefit) has been allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Continuing operations. . . . . . . . $(4,710) $ 3,956 $ 1,950
Operations of discontinued
Segments . . . . . . . . . . . . . . (1,421) 2,017 1,571
Loss on disposal of segments . . . . -- -- (8,038)
Extraordinary items . . . . . . . . -- (417) --
Stockholders' equity . . . . . . . . 590 (905) 70
------- ------- -------
$(5,541) $ 4,651 $(4,447)
======== ======= =======
</TABLE>
Income tax expense (benefit) attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- ------------ ---------
<S> <C> <C> <C>
Year ended December 31, 1996:
U.S. Federal . . . . . . . . . . . . . . . . . . . . $ (3,617) $ (1,773) $ (5,390)
State . . . . . . . . . . . . . . . . . . . . . . . . 172 508 680
---------- --------- --------
$ (3,445) $ (1,265) $ (4,710)
========== ========= ========
Year ended December 31, 1995:
U.S. Federal . . . . . . . . . . . . . . . . . . . . $ (8,523) $ 11,162 $ 2,639
State . . . . . . . . . . . . . . . . . . . . . . . . 1,471 (154) 1,317
---------- --------- --------
$ (7,052) $ 11,008 $ 3,956
========== ========= ========
Year ended December 31, 1994:
U.S. Federal . . . . . . . . . . . . . . . . . . . . $ 5,855 $ (3,258) $ 2,597
State . . . . . . . . . . . . . . . . . . . . . . . . (647) -- (647)
---------- --------- --------
$ 5,208 $ (3,258) $ 1,950
=========== ========= ========
</TABLE>
In January 1997, the Company paid $2,806 in additional taxes and interest in
final settlement with the Internal Revenue Service ("IRS") relating to
examinations of King Broadcasting Company's income tax returns for tax periods
ended June 30, 1989 through February 24, 1992. The returns examined were for
tax periods ending prior to the Company's initial investment in King
Broadcasting Company on February 24, 1992. In anticipation of this settlement,
the Company had provided adequate provisions for this contingency at the time
of its initial investment.
During 1995, the Company paid $15,023 in additional taxes and interest in final
settlement with the Internal Revenue Service ("IRS") relating to examinations
of its income tax returns for the years 1984 through 1989. In anticipation of
the interest on these settlements and in providing for various contingencies on
income tax exposures identified during on-going examinations, the Company
recorded additional income tax expense of $6,000 in 1994.
Income tax expense (benefit) differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to pretax loss from continuing operations
as a result of the following:
19
<PAGE> 21
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Computed ''expected'' tax benefit .......................... $(8,930) $ (356) $(7,235)
Increase (decrease) in income taxes resulting from:
Provisions for tax contingencies and interest on ...... -- -- 6,000
settlements ......................................... 609 623 2,831
609
Equity in net loss of affiliates ...................... 448 804 (427)
State and local income taxes, net of federal income tax
3,739 2,223 231
Amortization of goodwill ..............................
(576) 662 550
------- ------- -------
Other, net ............................................
$(4,710) $ 3,956 $ 1,950
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
Gross deferred tax assets: 1996 1995
-------- --------
<S> <C> <C>
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . $ 5,344 $ 5,678
State net operating loss carryforwards . . . . . . . . . . . . . 7,139 3,329
Federal net operating loss carryforwards . . . . . . . . . . . . . 3,813 -
Investment and other reserves . . . . . . . . . . . . . . . . . . 1,382 5,535
Self-insurance reserves . . . . . . . . . . . . . . . . . . . . . 751 1,357
Vacation accrual . . . . . . . . . . . . . . . . . . . . . . . . 1,079 935
Post-retirement benefits . . . . . . . . . . . . . . . . . . . . 648 3,767
Accounts receivable, principally due to allowance for doubtful
accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,255 1,163
Accrued costs on disposal of segments . . . . . . . . . . . . . . 2,017 2,968
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,074 3,765
-------- --------
Total gross deferred tax assets . . . . . . . . . . . . . . 25,502 28,497
Less valuation allowance . . . . . . . . . . . . . . . . . . (6,426) (3,329)
-------- --------
Net deferred tax assets . . . . . . . . . . . . . . . . . . 19,076 25,168
-------- --------
Gross deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation
and capitalized interest . . . . . . . . . . . . . . . . . . . (26,835) (29,771)
Net intangibles, principally due to differences in basis . . . . (30,338) (33,288)
Prepaid pension costs . . . . . . . . . . . . . . . . . . . . . . (3,287) (3,544)
Partnership investment . . . . . . . . . . . . . . . . . . . . . (120) (213)
Other.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (337) (3,538)
-------- --------
Total gross deferred tax liabilities . . . . . . . . . . . . (60,917) (70,354)
-------- --------
Net deferred tax liabilities. . . . . . . . . . . . . . . . . $(41,841) $(45,186)
======== ========
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible, or the recovery of taxes
paid in the carryback period. Based upon certain assumptions, such as the
scheduled reversal of deferred tax liabilities,
20
<PAGE> 22
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
available taxes in the carryback period, projected future taxable income, (the
realization of which there can be no assurance) management evaluates whether it
is more likely than not that the deferred tax assets will be realized.
The valuation allowance for deferred tax assets as of December 31, 1996 and
1995 was $6,426 and $3,329. The net change in the total valuation allowance was
an increase of $3,097 in 1996 an increase of $77 in 1995. Changes to the
valuation allowance relate principally to deferred tax assets recorded for
state net operating loss carryforwards.
At December 31, 1996, the Company had net operating loss carryforwards for
state income tax purposes of approximately $126,208 which are available to
offset future state taxable income, if any, expiring in various years ending in
2010. Further, at December 31, 1996, the Company had a net operating loss
carryforward for federal income tax purposes of approximately $11,215 which is
available to offset future federal taxable income, if any. This federal net
operating loss carryforward expires in 2011.
NOTE 15-- LONG-TERM DEBT
At December 31, 1996 and 1995, long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revolving credit and term loan facility at rates of interest averaging
7.9% and 7.2% in 1996 and 1995, respectively ..................... $177,000 $234,298
Industrial Revenue Bonds ("IRB") payable at various rates of
interest averaging 3.5% payable through December 2022 ........... 9,700 9,800
-------- --------
Total long-term debt ........................................... 186,700 244,098
Less current installments .......................................... 100 100
-------- --------
Long-term debt, excluding current installments ................. $186,600 $243,998
======== ========
</TABLE>
Scheduled principal payments on outstanding debt total $186,700 and are due as
follows: IRB payments of $100 in 1997. Thereafter scheduled principal
payments on the IRB increase to $200 in 1998 through 2005; to $300 in 2006
through 2010; to $400 in 2011 through 2014; to $500 in 2015 through 2017; to
$600 in 2018 through 2019; to $700 in 2020 and 2021, and a final payment of
$800 in 2022. Of the revolver and term loan outstanding at December 31, 1996,
$75,000 is a term loan with a balloon payment due in 2004. The revolver
commitment decreases quarterly on a schedule commencing December 31, 1996 in
accordance with the Credit Agreement as described below.
Costs of obtaining debt financing have been deferred and are being amortized
using the straight-line method over the period of the related debt. Deferred
financing costs totaled $1,748 at both December 31, 1996 and 1995. Accumulated
amortization at December 31, 1996 and 1995 aggregated $250 and $50,
respectively. On October 5, 1995 the Company refinanced its debt in connection
with the transactions described in Note 4. Accordingly, unamortized deferred
financing costs of $4,554 associated with the debt refinanced were written off
and allocated to discontinued operations in the fourth quarter of 1995.
On October 5, 1995, in connection with the transactions discussed in Note 4,
Old PJC prior to the PJC Spin-Off, incurred indebtedness (net of $2 million in
certain costs shared with Continental) to a subsidiary of Continental in a
principal amount of approximately $408 million ("New Cable Indebtedness").
Prior to the PJC Spin-Off, Old PJC used the proceeds of the New Cable
Indebtedness, the $405 million provided by the sale of KVC and the Company
Indebtedness (defined below) to (i) consummate the Kelso Buyout (ii) to repay
substantially all outstanding indebtedness of Old PJC and KHC in an aggregate
amount of approximately $623 million, and (iii) to pay other costs associated
with the transactions discussed in Note 4. Additional indebtedness (the
"Company Indebtedness") required to meet the foregoing obligations, among
others, was incurred by Old PJC and the Company in the principal amount of $105
million. Following the PJC Spin-Off, the Company had no obligations or
liabilities with
21
<PAGE> 23
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
respect to the New Cable Indebtedness, and Continental had no obligations or
liabilities with respect to the Company Indebtedness. In connection with the
sale of KVC, KBC paid approximately $115 million in taxes funded by the
Company Indebtedness.
The Company Indebtedness was incurred pursuant to a Credit Agreement entered
into by the Company on October 5, 1995 (the "Credit Agreement"). The Credit
Agreement, consists of a $75,000 term loan and a $300,000 revolving credit
facility. The $75,000 term loan provided for under the Credit Agreement is due
2004. The revolving credit facility provided for under the terms of the Credit
Agreement decreases by the following amounts in the years indicated:
1997-$10,500; 1998- $14,500; 1999-$21,500; 2000-$53,250; 2001-$65,750;
2002-$67,750; 2003- $62,750. Effective October 8, 1996, the Credit Agreement
was amended to reduce the $300,000 revolving credit facility to $150,000 and to
allow for the Belo Merger. The indebtedness evidenced by the Credit Agreement
is secured by guarantees from all of the material subsidiaries of the Company
and a first priority pledge of all such material subsidiaries' capital stock.
The Credit Agreement provides for borrowings indexed, as the Company may from
time to time elect, to the Eurodollar rate, the certificate of deposit rate, or
the "base" rate of the agent, plus the "spread" over such rates. The "spread"
will be determined by the ratio of the total debt of the Company to the
operating cash flow of the Company (as defined by the Credit Agreement).
Further, the Credit Agreement calls for payment of commitment fees of 3/8 of
one percent per annum on the average daily unused portion of any unused
revolving commitment. Commitment fees totaled $516, $597, and $333 in 1996,
1995, and 1994, respectively.
The Credit Agreement contains customary events of default, financial covenants,
covenants restricting the incurrence of debt (other than under the Credit
Agreement), investments and encumbrances on assets and covenants limiting
mergers and acquisitions. The Credit Agreement provides for the mandatory
prepayment of amounts outstanding and a reduction in the commitment under
certain circumstances.
In July, 1995, the Company retired its 18% note payable for $8,734. The loss
on the early retirement of this debt amounted to $2,086 (net of income taxes of
$417) and is included as an extraordinary item in the Company's consolidated
statement of operations.
In November 1992, the Company entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its revolving credit and term
loan facilities described above. The interest rate under the swap agreement is
equal to 6.71% plus an applicable margin as defined in the revolving credit and
term loan facility which presently sets the fixed interest rate at 8.1% on the
first $200,000 of outstanding debt. The Company recorded additional interest
expense during 1996, 1995 and 1994 totaling approximately $2,341, $1,121 and
$4,880 respectively, which represents the excess of the swap agreement rate
over the original contractual rate. In accordance with certain covenants under
the Credit Agreement, the Company will maintain its existing interest rate swap
arrangements with The First National Bank of Chicago through December 31, 1999.
The notional amounts and respective periods covered under the interest rate
swap agreement are as follows:
<TABLE>
<CAPTION>
AMOUNT PERIOD
------ ------
<S> <C>
$200,000 ... December 30, 1992--December 29, 1996
$175,000 ... December 30, 1996--December 29, 1997
$150,000 ... December 30, 1997--December 29, 1999
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement; however, the Company does not
anticipate nonperformance under the agreement.
NOTE 16 -- TELEVISION PROGRAM RIGHTS PAYABLE
Television program rights payable consist of the gross value of cash payments
due on the acquisition of program rights as well as amounts due in the amount
of approximately $1,915 at December 31, 1996 for programs purchased through
barter transactions. Future cash payments total $17,994 and are due in the
following years: 1997 $13,551; 1998 $3,064; 1999 $1,302;
22
<PAGE> 24
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
and 2000 $77. The barter obligations are scheduled to be fulfilled in 1997.
NOTE 17-- OPERATING LEASES
The Company has certain noncancelable operating leases with renewal options for
land, buildings, machinery and equipment. Future minimum lease payments under
noncancelable operating leases are due in the following years: 1997--$5,636;
1998--$5,006; 1999--$4,588; 2000--$4,573; 2001--$3,694, and
thereafter--$15,463. Gross rental expense for the years ended December 31,
1996, 1995 and 1994, was $5,061, $5,993 and $5,167, respectively.
Future minimum rental income under noncancelable satellite subleases is as
follows: 1997--$2,227; 1998--$1,646 and 1999--$1,180. Sublease satellite rental
income totaled $ 2,321, $3,349 and $2,100 in 1996, 1995 and 1994,
respectively, and is included in Programming and Electronic Media revenue.
NOTE 18-- STOCK-BASED COMPENSATION PLANS
The Company's stock-based compensation plans are described below.
(a) Incentive Compensation Plans
Since 1971, the Company has had in place a deferred incentive unit
compensation plan (the "IUP Plan") which was administered by the Compensation
Committee of the Board of Directors in which certain executives were
periodically awarded units. The value ascribed to such units were measured
based on prescribed formulas measuring the year over year increase in the
Company's value. In 1990, the plan was amended to include Directors of the
Company. On September 29, 1995, the Company liquidated 85% of the units in
the IUP Plan which was paid in cash and stock totaling $27,233. As approved by
the Compensation Committee, amounts paid to participants in the liquidation of
85% of the IUP Plan and the remaining units in the IUP Plan were adjusted in
1996 to reflect the increase in the price of Continental Class A Common Stock
since the Continental Merger as a result of the merger of Continental with and
into US West Media Group (the "US West Merger") on November 15, 1996. A
similar adjustment was made to certain stock options and units issued prior to
the Continental Merger in the Option Plans (defined below) and the RSU Plan
(defined below). Collectively, these adjustments are referred to as the "US
West Stock Compensation Adjustments." As a result of the US West Stock
Compensation Adjustments, the Company recorded additional compensation expense
of $11,289 to continuing operations and $3,826 (before provision for income
taxes) to discontinued operations. See stock-based compensation expense table
below. As of December 31, 1996 and 1995, amounts payable under the IUP Plan
equaled $10,896 and $4,806, respectively and are included in accrued expenses
and other current liabilities. All amounts payable at December 31, 1996 are
expected to be paid at the closing of the Belo Merger.
(b) Restricted Stock Unit Plan
The Company established a Restricted Stock Unit Plan (the "RSU Plan") for
certain key executives in October, 1993. Participants were awarded restricted
stock units with each unit being equivalent to one share of Class A Common
Stock. In connection with the disposal of its cable operations, the Company
fully vested 276,126 units of which 143,972 units were paid in cash and stock
totaling $1,653 prior to the Continental Merger. In connection with the
reorganization and transactions described in Note 4, and as provided under the
terms of the plans, the number of units awarded to participants holding units
immediately after the closing of the transaction were adjusted upward by a
factor of approximately 2.3876 (the "Conversion Factor") in order to preserve
the economic value of the outstanding units. Such Conversion Factor has been
reflected throughout these financial statements. All remaining restricted
stock units, including additional units accrued as a result of dividends and
reinvested dividends, became 100% vested in September, 1996 at which time
542,753 shares of Class A Common Stock were issued to the restricted stock unit
participants in settlement of this plan.
23
<PAGE> 25
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(c) Stock Option Plans
Effective October 1, 1994, the Board of Directors of the Company adopted the
''1994 Employee Stock Option Plan'' and the ''1994 Non-Employee Director Stock
Option Plan'', (The ''Option Plans''). The Option Plans were approved by the
stockholders of the Company at its Annual Meeting in 1995. The Option Plans
will remain in effect until the earlier of October 1, 1999 or termination of
the aforementioned Option Plans by the Board of Directors of the Company.
Under the terms of the Option Plans, key employees recommended by the
Compensation Committee of the Board of Directors (or by any other committee
appointed by the Board consisting of two or more non-employee Directors) and
all non-employee directors, are eligible to receive grants of stock options. On
May 8, 1996, the stockholders of the Company approved amendments to the Options
Plans which, among other things, increased the number of shares reserved under
the 1994 Providence Journal Employee Stock Option Plan (the "Employee Plan")
from 1,687,500 to 3,600,000 and similarly increased the number of shares
reserved under the 1994 Providence Journal Non-Employee Director Stock Option
Plan (the "Director Plan") from 180,000 to 238,500. Shares may be awarded from
authorized and unissued shares or from treasury shares, as determined by the
Compensation Committee.
Options granted under the ''1994 Employee Stock Option Plan'' are exercisable
in four equal annual installments beginning one year after the grant date.
Options under the ''1994 Non-Employee Director Stock Option Plan'' are
exercisable on the first anniversary date of the grant. Options granted under
both plans have a term of ten years. Upon a ''Change of Control'' as defined in
the Option Plans, all options granted will become immediately vested and
exercisable. If the proposed Belo Merger is consummated all outstanding
options will be settled by Belo in cash at the closing of the Belo Merger.
24
<PAGE> 26
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth information relative to these stock-based
compensation plans:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
1996 Exercise 1995 Exercise 1994 Exercise Rsu
Options Price Options Price Options Price Plan Units
----------- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at 12/31/93 -- -- -- 703,745
Options granted in 1994 -- -- 286,650 $ 1.47 26,862
Options canceled -- -- -- (15,042)
----------- ---------- ---------- ----------
Options outstanding at 12/31/94 -- -- 286,650 $ 1.47 715,565
Options granted in 1995 -- 376,200 $ 11.27 -- --
Options canceled -- -- -- (4,142)
Options exercised -- -- (6,300) $ 1.47
Units paid -- -- -- (143,972)
----------- ---------- ---------- ----------
Options outstanding at 12/31/95 -- 376,200 $ 11.27 280,350 $ 1.47 567,451
Options granted in 1996 1,042,650 $ 15.68 -- -- --
Options canceled (42,300) $ 15.00 (13,500) $ 11.27 (7,650) $ 1.47 (21,150)
Options exercised -- (1,800) $ 11.27 (27,900) $ 1.47 --
Units paid -- -- -- (542,723)
Adjustments -- -- -- (3,578)
----------- ----------- ---------- ---------- ---------- ---------- ----------
Options outstanding at 12/31/96 1,000,350 $ 15.60 360,900 $ 11.27 244,800 $ 1.47 --
=========== =========== ========== ========== ========== ========== ==========
Options exercisable at 12/31/96 -- -- 112,500 $ 11.27 159,525 $ 1.47 --
=========== =========== ========== ========== ========== ========== ==========
</TABLE>
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related Interpretations in accounting for its plans.
Compensation expense, including the US West Stock Compensation Adjustments
discussed above, recorded under APB 25 for the above described stock-based
compensation plans included in continuing operations was as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
IUP Plan ............ $ 7,190 $ 773 $12,747
1994 Option Plan..... 1,681 441 --
RSU Plans ........... 3,523 1,173 2,391
------- ------- -------
Total ............... $12,394 $ 2,387 $15,138
======= ======= =======
</TABLE>
Had compensation costs for the Company's three stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the optional fair value based method of SFAS
Statement 123, "Accounting for Stock-Based Compensation", the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated in the table below. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option pricing-model
with the following weighted average assumptions used for grants in 1995 and
1996: expected volatility, 19.38% for both 1995 and 1996; dividend yield,
2.22% for 1995 and no dividend yield for 1996; risk-free interest rates of
5.86% and 6.27% in 1995 and 1996, respectively; expected life of options, four
years for both 1995 and 1996. The weighted average fair market value for
options granted in 1996 and 1995 were $4.43 and $2.26, respectively.
The effects on pro forma net loss obtained from applying SFAS 123 may not be
representative of the effects on reported net income (loss) for future years:
25
<PAGE> 27
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net loss As reported $(13,730) $(9,648)
======== =======
Pro forma $(14,270) $(9,689)
======== =======
Net loss per share As reported $ (0.32) $ (0.25)
======== =======
Pro forma $ (0.33) $ (0.25)
======== =======
</TABLE>
NOTE 19 -- PENSIONS AND OTHER EMPLOYEE BENEFITS
(a) Defined Benefit Pension Plan
The Company's defined benefit pension plan covers substantially all employees
of the Providence Journal Company and its wholly owned subsidiaries. The
Company's funding policy for this defined benefit plan is to contribute such
amounts as are deductible for federal income tax purposes. Benefits are based
on the employee's years of service and average compensation immediately
preceding retirement and vest upon completion of five years of service with the
Company.
The funded status of the defined benefit plan is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations ..................................... $ (88,896) $ (86,502)
========= =========
Accumulated benefit obligations ................................ $ (94,960) $ (91,968)
========= =========
Projected benefit obligations ...................................... $(120,736) $(109,985)
Plan assets at fair value (primarily corporate equity and debt
securities, government securities and real estate) ................. 133,486 132,779
--------- ---------
Excess of plan assets over projected benefit obligations ....... $ 12,750 $ 22,794
========= =========
</TABLE>
The assumptions used in the above valuations are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate ......................... 7.0% 7.0%
Rate of increase in compensation levels 4.5% 4.5%
</TABLE>
Certain changes in the items shown above are not recognized as they occur, but
are amortized systematically over subsequent periods. Unrecognized amounts to
be amortized and amounts included in the consolidated balance sheets are shown
below:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Unrecognized net loss ........................................ $ (6,426) $ (2,874)
Unrecognized net transition asset being amortized principally
over 18 years ................................................ 9,495 10,727
Unrecognized prior service cost due to plan amendment ........ (2,609) (3,029)
Prepaid pension cost (included in other assets) ............ 12,290 17,970
-------- --------
Excess of plan assets over projected benefit obligations $ 12,750 $ 22,794
======== ========
</TABLE>
26
<PAGE> 28
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The components of 1996, 1995 and 1994 pension expense (income) and the
assumptions used as determined by the plans' actuary, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost ............................................ $ 3,410 $ 3,185 $ 2,017
Interest cost ........................................... 8,262 7,480 5,093
Actual return on plan assets ............................ (14,548) (25,674) 2,724
Net amortization of unrecognized net assets and deferrals 2,685 15,041 (11,304)
-------- -------- --------
Pension expense (income ......................... $ (191) $ 32 $ (1,470)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate .................................. 7.0% 7.5% 7.5%
Rate of increase in compensation levels ........ 4.5 5.0 5.0
Expected long-term rate of return on assets .... 9.0 8.5 8.5
</TABLE>
The effects of the special termination benefits of $3,701 and curtailment gain
of $531 associated with the Newspaper Consolidation are included in the
Newspaper Consolidation Costs as discussed in Note 13. The effects of the
special termination benefits of $7,457 and curtailment gain of $1,587
associated with the Newspaper Restructuring are included in the Newspaper
Restructuring Costs discussed in Note 13.
(b) Defined Contribution Plans
The Company contributes to defined contribution plans based on the amount of
each employee's plan contribution, not to exceed a predetermined amount as
defined by each plan. The total expense of these plans was $1,519, $1,312, and
$1,150 in 1996, 1995 and 1994 respectively.
(c) Other Post-retirement Benefit Plans
In addition to the Company's defined benefit pension plans, one of the
Broadcasting stations provides post-retirement medical benefits to its group of
employees. The Company provides post-retirement life insurance benefits to
substantially all of The Providence Journal Company employees. These plans are
non-contributory and are not funded.
The Company's accrued post-retirement benefit cost as of December 31, 1996 and
1995 was $ 3,500 and $3,461 respectively, consisting primarily of accumulated
post-retirement benefit obligations for retirees. Net periodic post-retirement
benefit cost for 1996, 1995 and 1994 totaled $239, $204 and $300
respectively, consisting primarily of interest costs.
For measurement purposes relating to the medical plan, a medical trend rate of
11.0% was used grading to 6.0% by the year 2001. A 1% change in the medical
trend rate does not result in a material impact to the Company's reported post-
retirement benefits. The discount rate used in determining the accumulated
post-retirement benefit obligation for the medical and life insurance plans was
7.0% in both 1996 and 1995.
27
<PAGE> 29
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(d) Supplemental Retirement Plans
The Company maintains two unfunded supplemental retirement plans which provide
supplemental benefits to a select group of senior management employees. At
December 31, 1996 and 1995, the vested benefit obligation was $5,244 and
$3,933, respectively, and the accumulated benefit obligation was $5,350 and
$4,684, respectively. The projected benefit obligation totaled $6,979 and
$6,065, respectively, at December 31, 1996 and 1995.
The net periodic pension cost for 1996, 1995, and 1994 was $1,066, $1,000 and
$997, respectively, consisting of service and interest costs. An assumed
discount rate of 7.0% and compensation level increase rate of 4.5% and were
used in determining the benefit obligations at both December 31, 1996 and 1995,
respectively.
(e) Change in Control Agreements
In October, 1993, the Company executed various management agreements which
only become effective upon a change-in- control of the Company. The terms of
the agreements vary, with the maximum agreement providing a three year term of
employment with responsibilities, compensation, and benefits at least
commensurate as those during the prior six (6) months. If terminated
involuntarily, the individuals are entitled to a maximum of 299% of their
highest base pay and average bonus received during the prior three years as a
lump sum severance payment. In a supplemental agreement, executed in October
1993, the Company committed to paying the severance stated above in the event
an individual was involuntarily terminated as a result of corporate
restructuring, even if prior to a change-in-control. The Belo Merger, if
approved by shareholders, will constitute a change in control of the Company
and the obligations under these agreements would be assumed by Belo.
NOTE 20 -- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) Current Assets and Liabilities
The carrying amount of cash, trade receivables, trade accounts payable and
accrued expenses approximates fair value because of the short maturity of these
instruments.
(b) Notes Receivable
The fair values of the Company's notes receivable are based on the amount of
expected future cash flows associated with each instrument, discounted using
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same maturities.
(c) Long-Term Debt and Obligations for Television Program Rights
The fair values of each of the Company's long-term debt instruments are based
on the amount of future cash flows associated with each instrument discounted
using the Company's current borrowing rate, for similar debt instruments of
comparable maturity.
The fair value of obligations for television program rights are based on future
cash flows, discounted using the Company's current borrowing rate, over the
term of the related contract.
28
<PAGE> 30
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(d) Interest Rate Swaps
The fair value of interest rate swaps is the amount at which they could be
settled, based on estimates obtained from dealers. The amount of payment
required to settle outstanding interest rate swaps at December 31, 1996 and
1995 approximated $2,800 and $8,000, respectively.
(e) Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The estimated fair value of the Company's financial instruments are summarized
as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT DECEMBER 31, 1995
--------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
======== ========== ======== ==========
<S> <C> <C> <C> <C>
Notes receivable ....................... $ 910 $ 910 $ 19,174 $ 19,174
======== ======== ======== ========
Long-term debt ......................... $186,700 $184,700 $244,098 $242,098
======== ======== ======== ========
Television program rights payable ...... $ 19,909 $ 18,539 $ 21,972 $ 20,467
======== ======== ======== ========
</TABLE>
NOTE 21 -- SETTLEMENT OF LITIGATION
On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory
judgment action against Providence Journal Company ("Old PJC"), Colony
Communications Inc. ("Colony") and Dynamic Cablevision Inc. ("Dynamic") in the
Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida.
Colony was a cable television subsidiary of Old PJC, which was transferred to
Continental Cablevision, Inc. ("Continental") in connection with the Agreement
and Plan of Merger between Old PJC, Continental, and the Company dated
November, 18, 1994 as amended and restated as of August 1, 1995 (the
"Continental Merger Agreement"). This case related to the Dynamic Partnership,
in which Dynamic is the general partner with an 89.8% interest and Cable LP is
the limited partner with a 10.2% interest. In this action, Cable LP claimed
that (i) Dynamic was obligated to offer to sell Dynamic's general partnership
interest to Cable LP before Old PJC entered into the Continental Merger
Agreement and (ii) Dynamic's offer to purchase Cable LP's limited partnership
interest for $13.1 million triggered a right of first refusal entitling Cable
LP to purchase Dynamic's general partnership interest for $115 million. Cable
LP sought a declaration by the court that the right of first refusal it
asserted applies.
A motion to strike allegations of bad faith and breach of fiduciary duty
against Old PJC, Colony and Dynamic was granted by the court, and an answer to
the Complaint and a Counterclaim was filed by Old PJC, Colony and Dynamic on
March 16, 1995, seeking a declaratory judgment that Cable LP unreasonably
refused consent to the transfer of Dynamic's general partnership interest to
Continental and that a purported transfer of Cable LP's interest in the Dynamic
Partnership to a partnership to be managed by Adelphia Communications, Inc.
violates Dynamic's right of first refusal under the Dynamic partnership
agreement. The case was tried in December 1995. A final declaratory judgment
in this action in favor of Cable LP was entered on May 21, 1996. Such judgment
required, among other matters, Dynamic and Colony to negotiate with Cable LP on
a price to transfer Dynamic's general partnership interest to Cable LP. The
Company appealed this judgment and moved to stay the effect of the judgment
during the pendency of the appeal. On June 10, 1996, a hearing was held on the
Company's motion to stay. At such hearing, the judge declined to grant or deny
the Company's motion to stay at that time.
29
<PAGE> 31
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In the event that, as a result of such litigation, Dynamic was required to sell
its interest in the Dynamic Partnership to Cable LP, the Continental Merger
Agreement provided that the Company would pay to Continental simultaneously
with the closing of such sale an amount equal to the sum of (i) the amount (if
any) by which the consideration received by Dynamic for the sale of such
interest was less than $115 million plus (ii) the taxes which would have been
payable assuming the purchase price for such interest equaled $115 million.
On December 27, 1996, the Company settled this obligation in full with
Continental for $25 million. Consequently, the Company recorded a charge for
this amount to stockholders' equity in the fourth quarter of 1996 to reflect
the decrease in the net proceeds received from the disposal of the cable assets
in 1995 pursuant to the Continental Merger Agreement (see Note 4). Such
payment was funded by borrowings under the Company's revolving credit facility.
Following such payment, all parties in the above mentioned litigation
stipulated for and were granted a voluntary dismissal with prejudice of all
claims before the Circuit Court of the Eleventh Judicial Circuit in and for
Dade County, Florida on December 27, 1996.
NOTE 22 -- COMMITMENTS AND CONTINGENCIES
The Company is party to various claims, legal actions and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are adequately covered by insurance or, if not so covered, are without merit or
are of such kind, or involve such amounts, that unfavorable disposition would
not have a material effect on the consolidated financial position or results of
operations of the Company
The Company has outstanding payment commitments for broadcast television
programming totaling $42,442 at December 31, 1996, which under the licensing
agreements are not yet available for showing. Such programming becomes
available at various times over the years 1997 through 2002, at which point the
Company records the asset and related liability.
The Company has various talent contract commitments primarily with its newscast
employees covering up to three years together totaling $ 19,851.
The Company has an agreement with an electronic publisher of a major medical
and education research company in which the publisher will provide medical and
health content for certain programs and other programming, as well as for
certain health related products offered for sale to viewers. In addition to
payments for programming and products, the Company is required to make royalty
payments over the next five years at amounts ranging from $1,000 to $3,250
annually to maintain this exclusivity agreement.
The Company has self-insurance programs for workers' compensation, general
liability, auto and certain health coverages. The Company's liability for
large losses is capped, individually and in the aggregate, through contracts
with insurance companies. In addition, the Company is self-insured for
environmental hazards. An estimate for claims incurred but not paid is accrued
at the end of each reporting period.
The Company has letter of credit commitments in amounts not to exceed $12,000
and $750 in support of industrial revenue bonds and leased studio space,
respectively.
The Company employs approximately 2,800 full-time equivalents, of which
approximately 1,080 worked in Broadcasting, 1,150 worked in Publishing and the
remainder in corporate and Programming and Electronic Media. Approximately 32%
of the Broadcasting employees are covered by a number of labor unions that are
independent and unaffiliated among the television stations of Broadcasting.
Approximately 60% of Publishing employees are represented by labor unions,
mostly under existing collective bargaining agreements. The Providence
Newspaper Guild and The Communications Workers of America Local 33's (combined,
representing approximately 72% of all labor union employees), collective
bargaining agreements expired on December 31, 1996. The Company is currently
negotiating with the bargaining units for new collective bargaining
agreements.
30
<PAGE> 32
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In 1987, the Company repurchased approximately 8% of its outstanding shares of
common stock from an unaffiliated party with a provision that additional
consideration be paid to the unaffiliated party in the event of a significant
change in ownership of the Company. The Company paid this unaffiliated party
approximately $7,353 on October 5, 1995 in full settlement of the redemption
agreement, and has recorded the additional consideration in the consolidated
statement of stockholders' equity.
On August 12, 1994, Department of Insurance regulators seized control of
Confederation Life Insurance Company. The Company's Qualified Compensation
Deferral Plan has an investment contract with Confederation Life Insurance
Company. The contract was entered into in 1991 and was scheduled to mature on
January 2, 1996. As a result of this seizure, the value of the contract as of
August 11, 1994, has been frozen at $3,840. The Company has agreed to guarantee
the difference between the amount eventually paid by the regulators and the
contract value on the seizure date. To date, the Company has paid $1,270 to the
trustee of the Qualified Compensation Deferral Plan and anticipates full
recovery of this amount from the Confederation Life Insurance Company.
NOTE 23 -- STOCKHOLDERS' EQUITY
The Company has two classes of common stock: Class A and Class B. Each class
has the same rights and privileges, except that Class A common stock is
entitled to one vote per share, whereas Class B common stock is entitled to
four votes per share. In addition, the transfer of Class B common stock is
limited to ''Permitted Transferees'' only; otherwise the shares convert to
Class A common stock upon sale. In connection with the Continental Merger
agreement, trading of all shares was restricted for a period of one year from
the date of the closing, ending October 5, 1996.
Effective May 8, 1996, pursuant to a shareholder rights agreement, the Company
declared and paid to shareholders one Class A right for each outstanding share
of Class A common stock and one Class B right (a Class A right and a Class B
right are collectively, "the Rights") for each outstanding share of Class B
common stock. The Rights entitle the holder to purchase one share of Class A
or Class B common stock at a purchase price of $70 per share. Upon the
occurrence of certain events including certain parties acquiring beneficial
ownership, the rights become exercisable. The Rights expire on May 7, 2006
unless the date is extended or unless the Rights are earlier redeemed or
exchanged by the Company. See also Note 2.
NOTE 24 -- BUSINESS SEGMENT INFORMATION
The Company primarily operates in Broadcasting, Publishing, and Programming
and Electronic Media. Broadcasting consists of nine owned network-affiliated
television stations and four television stations for which the Company provides
or will provide programming and marketing service for under local marketing
agreements ("LMA"s) serving the following markets: Seattle, Portland,
Charlotte, Albuquerque, Louisville, Honolulu, Spokane, Tucson, and Boise.
Prior to the Kelso Buyout, Broadcasting consisted of five stations (including
one station under an LMA). Broadcasting revenues are derived substantially
from local and national advertising and, to a lesser extent, from network
compensation for the broadcast of network programming. Publishing consists
primarily of the publication and sale of the major daily newspaper serving
Rhode Island and parts of southeastern Massachusetts. Publishing revenues are
derived primarily from advertising and, to a lesser extent, paid circulation.
The Programming and Electronic Media segment consists of wholly owned
subsidiaries, majority owned subsidiaries and equity investments in
interactive and on-line electronic media, cable television and satellite
network programming ventures, and other electronic media. Programming and
Electronic Media revenues are principally derived from subscriptions, service
fees and advertising. This segment currently consists of the Company's
controlling interests consolidated January, 1996 and May, 1996, respectively,
in AHN and TVFN (cable programming networks); interactive media investments:
Peapod and StarSight; its on-line electronic and information service, projo.com
(formerly, Rhode Island Horizons); its broadcast programming venture: Partner
Stations Network; and its wholly-owned cable news network: NorthWest Cable
News Network ("NWCN"). NWCN is a 24-hour regional cable news network serving
cable subscribers in the Pacific NorthWest.
31
<PAGE> 33
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating results and other financial data for the principal business segments
of the Company for 1996, 1995 and 1994 are presented in the table which
follows. Operating income (loss) by business segment is total revenue less
operating expenses. Other income (expense), income taxes and extraordinary
items have all been excluded from the computation of operating income (loss) by
segment. Identifiable assets by business segment are those assets used in
Company operations in each segment. Capital expenditures are reported exclusive
of acquisitions.
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Broadcasting ......................... $ 213,770 $ 180,547 $ 54,024
Publishing ........................... 130,486 128,491 127,893
Programming and Electronic Media ..... 15,343 3,468 2,300
--------- --------- ---------
$ 359,599 $ 312,506 $ 184,217
========= ========= =========
Operating income (loss):
Broadcasting ......................... $ 57,011 $ 42,535 $ 6,219
Publishing ........................... 12,709 (10,264) 9,270
Programming and Electronic Media ..... (52,880) (1,831) (315)
Corporate ............................ (30,128) (17,054) (26,750)
--------- --------- ---------
$ (13,288) $ 13,386 $ (11,576)
========= ========= =========
Identifiable assets
Broadcasting ......................... $ 493,929 $ 502,024 $ 84,278
Publishing ........................... 127,314 152,890 161,743
Programming and Electronic Media:
Investments in affiliated companies 4,735 17,315 2,708
Other ............................. 73,792 10,719 8,364
Discontinued operations, net ......... -- -- 369,790
Investments in affiliates - Other .... 3,591 4,856 80,699
Other ................................ 17,643 19,426 17,131
--------- --------- ---------
$ 721,004 $ 707,230 $ 724,713
========= ========= =========
Depreciation and amortization:
Broadcasting ......................... $ 27,359 $ 21,884 $ 7,856
Publishing ........................... 10,757 10,850 11,198
Programming and Electronic Media ..... 4,461 167 33
Other ................................ 940 1,068 896
--------- --------- ---------
$ 43,517 $ 33,969 $ 19,983
========= ========= =========
Capital expenditures
Broadcasting ......................... $ 12,289 $ 7,951 $ 1,587
Publishing ........................... 1,904 3,200 2,356
Programming and Electronic Media ..... 9,963 3,670 1,138
Other ................................ 892 455 1,400
--------- --------- ---------
$ 25,048 $ 15,276 $ 6,481
========= ========= =========
</TABLE>
32
<PAGE> 34
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 25 -- SUBSEQUENT EVENT (UNAUDITED)
On February 19, 1997, the shareholders of both the Company and Belo approved
the Belo Merger. Subsequently, on February 27, 1997, the FCC approved the
merger which was then completed on February 28, 1997.
33
<PAGE> 35
b. Pro Forma Financial Information.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
BELO / PROVIDENCE JOURNAL COMBINED COMPANY
The unaudited pro forma combined condensed statement of earnings for the year
ended December 31, 1996 gives effect to the Merger and certain related
transactions identified in the accompanying notes as if they had occurred at
the beginning of the year. The unaudited pro forma combined condensed balance
sheet at December 31, 1996 gives effect to the Merger and each such transaction
as if they had occurred on such date. The pro forma information is based on
the historical consolidated financial statements of Belo and Providence Journal
and their subsidiaries under the assumptions and adjustments set forth in the
accompanying Notes to Unaudited Pro Forma Combined Condensed Financial
Statements. The unaudited pro forma combined condensed financial statements
are presented for comparative purposes only and are not necessarily indicative
of the results of operations or financial position of the combined company that
would have occurred had the Merger been consummated at the beginning of the
year or on the date indicated, nor are they necessarily indicative of future
operating results or financial position.
These unaudited pro forma combined condensed financial statements should be
read in conjunction with the Belo audited consolidated financial statements
included in its annual report (Form 10-K) for the year ended December 31, 1996
and the Providence Journal audited consolidated financial statements which are
included elsewhere in this Form 8-K/A.
The Merger is being accounted for by the purchase method of accounting. Belo's
cost to acquire the outstanding shares of Providence Journal Common Stock was
approximately $1.5 billion. The amount will be allocated to the tangible
assets acquired and liabilities assumed according to their respective fair
values, with the excess being allocated to identifiable intangible assets and
goodwill. The adjustments in the accompanying pro forma combined condensed
financial statements are based on a preliminary purchase price allocation.
The future results of operations of Belo will reflect increased amortization of
such intangible assets and goodwill, increased interest expense and a higher
effective income tax rate, since a significant portion of the consideration
received by Providence Journal stockholders is non-deductible for tax purposes.
The future financial position of Belo will reflect increased intangible assets
as described above, increased borrowings and increased shareholders' equity
resulting from the issuance of Belo Series A Common Stock to stockholders of
Providence Journal.
34
<PAGE> 36
A.H. Belo Corporation
Unaudited Pro Forma Combined Condensed Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- -----------------------------------------
Providence
Providence Journal Elimination of
Belo Journal Adjustments AHN(f) Combined
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net Operating Revenues
Broadcasting $ 333,396 $ 213,770 $ -- $ -- $ 547,166
Newspaper Publishing 487,242 130,486 -- -- 617,728
Programming and Electronic Media 3,670 15,343 3,677 (e) (475) 22,215
----------- ----------- ----------- ----------- -----------
Total Net Operating Revenues 824,308 359,599 3,677 (475) 1,187,109
Operating Costs and Expenses 593,476 329,370 8,436 (e) (33,169) 898,113
Depreciation 45,408 25,295 454 (e) (1,367) 69,790
Amortization 19,775 18,222 27,354 (a) -- 65,351
----------- ----------- ----------- ----------- -----------
Earnings (Loss) From Operations 165,649 (13,288) (32,567) 34,061 153,855
Interest Expense (27,643) (18,892) (33,597)(b) -- (80,132)
Equity in Loss of Affiliated Companies -- (4,706) 1,078 (e) -- (80,132)
Other, Net 6,034 10,621 53 (e) (536) 16,172
----------- ----------- ----------- ----------- -----------
Earnings (Loss) Before Income Taxes and
Minority Interest 144,040 (26,265) (65,033) 33,525 86,267
Income taxes 56,535 (4,710) (4,255)(c) -- 47,570
----------- ----------- ----------- ----------- -----------
Earnings (Loss) From Continuing Operations
Before Minority Interest 87,505 (21,555) (60,778) 33,525 38,697
Minority interest -- 10,503 1,294 (e) (7,253) 4,544
----------- ----------- ----------- ----------- -----------
Earnings (Loss) From Continuing Operations
After Minority Interest $ 87,505 $ (11,052) $ (59,484) $ 26,272 $ 43,241
=========== =========== =========== =========== ===========
Earnings (Loss) Per Common and Common Equivalent Share:(d)
Earnings (Loss) From Continuing Operations
After Minority Interest $ 2.11 $ (0.26) $ 0.65
=========== =========== ===========
Weighted Average Shares Outstanding 41,510 42,970 66,905
=========== =========== ===========
</TABLE>
See accompanying notes.
35
<PAGE> 37
A. H. Belo Corporation
Unaudited Pro Forma Combined Condensed Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- -----------------------------------------
PROVIDENCE ELIMINATION OF
PROVIDENCE JOURNAL AHN NET BOOK
BELO JOURNAL ADJUSTMENTS VALUE(f) COMBINED
------------------------- -----------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Cash Equivalents $ 13.829 $ 19,141 $ (14,022)(a) $ (4,686) $ 14,262
Accounts Receivable, Net of Allowance
For Doubtful Accounts 129,976 63,374 -- (37) 193,313
Other Current Assets 28,120 39,954 -- (4,319) 63,755
Property, Plan and Equipment, Net 370,780 176,536 -- (8,530) 538,786
Intangible Assets, Net 582,248 363,019 1,448,694 (b) 11,308 2,405,269
Other Assts, Net 99,119 58,980 -- (6,844) 151,255
------------------------- --------------------------------------------
$ 1,224,072 $ 721,004 $ 1,434,672 $ (13,108) $ 3,366,640
========================= ============================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Total Currrent Liabilities $ 89,313 $ 81,442 $ (11,241)(d) $ (10,747) $ 148,767
Long-Term Debt 631,857 186,600 673,803 (c) -- 1,492,260
Other Long-Term Liabilities 132,419 98,353 250,930 (d) -- 481,702
Minority Interest -- 5,390 -- (2,361) 3,029
Shareholders' Equity 370,483 349,219 521,180 (e) -- 1,240,882
------------------------- --------------------------------------------
$ 1,224,072 $ 721,004 $ 1,434,672 $ (13,108) $ 3,366,640
========================= ============================================
Common Stock Outstanding 36,260 47,615 61,655
========================= ===========
Book Value Per Share $ 10.22 $ 7.33 $ 20.13
========================= ===========
</TABLE>
See accompanying notes.
36
<PAGE> 38
A. H. Belo Corporation
Notes to Unaudited Pro Forma Combined
Condensed Financial Statements (continued)
NOTE 1: GENERAL
The pro forma combined condensed financial statements reflect the following:
(i) Issuance of 25,395,000 shares of Belo Series A Common Stock at an assumed
price of $34.275 per share and the payment of $587,096,000 in cash to
acquire all of the issued and outstanding shares of Providence Journal;
(ii) Assumed disposition, following the Merger, of the Company's interest in
AHN by selling such interest or discontinuing funding;
(iii) Acquisition by Providence Journal of controlling interests in TVFN prior
to execution of the Merger Agreement;
Belo currently owns two television stations in the Seattle, Washington market
(KIRO and KING). According to FCC regulations, two competing television
stations in a market may not be owned by the same entity. In accordance with
these regulations, Belo has entered into an agreement to swap KIRO for KMOV in
St. Louis, Missouri. The transaction is expected to close June 1, 1997,
subject to regulatory approval. No effect has been given to this transaction
in these pro forma combined condensed financial statements.
Consideration exchanged in the Merger (based on the assumptions described in
(i) above) consisted of the following:
<TABLE>
<S> <C>
Belo Series A Common Stock $ 870,399
Cash 587,096
Settlement of obligations, net of tax benefit(1) 61,863
----------
Total 1,519,358
Less:
Providence Journal's net assets acquired as
of December 31, 1996 (349,219)
Add:
Deferred tax liabilities resulting from the Merger 278,555
----------
Excess of purchase price over net assets acquired $1,448,694
==========
</TABLE>
(1) Includes the following items: (a) cash-out of all Providence Journal
stock options and stock-based compensation plans; (b) settlement of
Providence Journal employment agreements; and (c) incurrence of
miscellaneous acquisition expenses. These amounts have been reduced by
certain accruals recorded by Providence Journal and the applicable tax
benefit.
Certain reclassifications have been made to Providence Journal's historical
consolidated financial statements to conform to Belo's presentation.
37
<PAGE> 39
A. H. Belo Corporation
Notes to Unaudited Pro Forma Combined
Condensed Financial Statements (continued)
NOTE 2: UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Pro forma adjustments giving effect to the Merger in the unaudited pro forma
combined condensed statements of operations reflect the following:
(a) Amortization of the excess of the purchase price over net tangible assets
acquired, on a straight-line basis over 40 years, net of elimination of
the Providence Journal historical amortization of excess acquisition
costs over the values assigned to net tangible assets acquired in prior
acquisitions.
(b) Increase in interest expense resulting from net borrowings incurred to
finance a portion of the purchase price. The interest rate on borrowings
is assumed to be 5.7% for 1996, which is based on Belo's weighted average
borrowing rates during the year. A change of 1/8 of 1% in the assumed
interest rate would change the pro forma annual interest expense by
approximately $1.8 million.
(c) Income tax effect of pro forma adjustments.
(d) Earnings per share based upon the weighted average number of shares of
Belo common and common equivalent shares outstanding, including
25,395,000 shares of Belo Series A Common Stock issued in connection with
the Merger, as if they had been issued at the beginning of the year.
(e) To reflect the pro forma impact of Providence Journal increasing its
investment in the Television Food Network, G. P. from approximately 21%
to 46% and obtaining control effective May 1, 1996 of TVFN prior to the
Merger as if the transaction had been made as of the beginning of the
year.
(f) Elimination of the results of the operations of AHN. See Note 1 (ii).
38
<PAGE> 40
A. H. Belo Corporation
Notes to Unaudited Pro Forma Combined
Condensed Financial Statements (continued)
NOTE 3: UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
Pro forma adjustments in the unaudited pro forma combined condensed balance
sheet giving effect to the Merger reflects the following:
(a) Liquidation of certain cash balances and short-term investments to fund
partial payment of the Aggregate Merger Consideration.
(b) Excess of purchase price over net assets acquired.
(c) Borrowings incurred to finance the cash portion of the Aggregate Merger
Consideration and the cash settlement of certain obligations of
Providence Journal.
(d) Liquidation of certain accrued liabilities upon settlement of obligations
and recording of net deferred tax liability from the purchase price
allocation.
(e) Elimination of Providence Journal's stockholders' equity, and issuance of
25,395,000 shares of Belo Series A Common Stock.
(f) Elimination of the assets and liabilities of AHN. See Note 1 (ii).
39
<PAGE> 41
c. Exhibits.
2.1 The Amended and Restated Agreement and Plan of Merger, dated
as of September 26, 1996, is incorporated by reference to Appendix A of the
Joint Proxy Statement/Prospectus of Belo and Providence Journal included in
Belo's Registration Statement on Form S-4 (Registration No. 333-19337) filed
with the Commission on January 8, 1997.
23.1 Consents of Independent Auditors.
*99.1 Press Release, dated February 13, 1997.
*99.2 Press Release, dated February 26, 1997.
*99.3 Press Release, dated February 28, 1997.
- ---------------
*Filed previously with the Current Report on Form 8-K of Belo dated February
28, 1997.
<PAGE> 42
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 hereunto duly authorized.
Dated: May 1, 1997 A. H. BELO CORPORATION
By: /s/ MICHAEL D. PERRY
--------------------------------
Michael D. Perry
Senior Vice President and
Chief Financial Officer
<PAGE> 43
EXHIBIT LIST
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1 The Amended and Restated Agreement and Plan
of Merger, dated as of September 26, 1996, is
incorporated by reference to Appendix A of
the Joint Proxy Statement/Prospectus of Belo
and Providence Journal included in Belo's
Registration Statement on Form S-4
(Registration No. 333-19337) filed with the
Commission on January 8, 1997.
23.1 Consents of Independent Auditors.
*99.1 Press Release, dated February 13, 1997.
*99.2 Press Release, dated February 26, 1997.
*99.3 Press Release, dated February 28, 1997.
</TABLE>
- -------------
*Filed previously with the Current Report on Form 8-K of Belo dated February
28, 1997.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITOR'S CONSENT
WE CONSENT TO THE INCORPORATION BY REFERENCE IN THE REGISTRATION STATEMENTS
(NOS. 33-30994, 33-32526, 33-18771, 33-61491, AND 33-61439) ON FORMS S-8 AND
REGISTRATION STATEMENT (NO. 333-25579) ON FORM S-3 OF A. H. BELO CORPORATION OF
OUR REPORT DATED FEBRUARY 10, 1997, WITH RESPECT TO THE CONSOLIDATED BALANCE
SHEETS OF THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES AS OF DECEMBER 31,
1996 AND 1995, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, CASH
FLOWS, AND STOCKHOLDERS' EQUITY FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD
ENDING DECEMBER 31, 1996, WHICH REPORT APPEARS IN THE FORM 8-K/A OF A. H. BELO
CORPORATION DATED MAY 2, 1997.
/S/ KPMG PEAT MARWICK LLP
PROVIDENCE, RHODE ISLAND
APRIL 28, 1997
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-25579 on Form S-3 and Registration Statement Nos. 33-18771, 33-30994,
33-32526, 33-61439, and 33-61491 each on Form S-8 of A.H. Belo Corporation of
our report dated February 10, 1995 (relating to the consolidated financial
statements of King Holding Corp. and subsidiaries for the year ended December
31, 1994 not presented separately herein), appearing in this Current Report on
Form 8-K/A.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 29, 1997
