SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report: October 23, 1995
GANNETT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 1-6961 16-0442930
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
1100 Wilson Boulevard, Arlington, Virginia 22234
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code (703) 284-6000
ITEM 5. OTHER EVENTS
In conformity with the requirements of the Integrated
Disclosure System, Gannett Co., Inc. ("Gannett") has elected to
file by this Report on Form 8-K certain exhibits and certain
information required under Rule 3-05 and Article 11 of Regulation
S-X in connection with Gannett's Registration Statement No.
33-58686 on Form S-3.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
(1) Audited consolidated balance sheets of Multimedia, Inc.
And Subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three
years ended December 31, 1994, 1993, and 1992 (incorporated by
reference to Multimedia's Annual Report on form 10-K for the year
ended December 31, 1994 and filed as an exhibit hereto).
(2) Unaudited consolidated balance sheet of Multimedia, Inc.
And Subsidiaries as of June 30, 1995 and unaudited consolidated
statements of operation and cash flows for the six months ended
June 30, 1995 and June 30, 1994 (incorporated by reference to
Multimedia's Quarterly Report on form 10Q for the quarterly
period ended June 30, 1995 and filed as an exhibit hereto).
(b) Pro Forma Financial Information.
The following pro forma combining financial statements of Gannett
and its pending acquisition is included in this report:
(1) Unaudited pro forma consolidated condensed balance sheet
as of June 25, 1995 and the unaudited pro forma consolidated
condensed statements of operation for the year ended December 25,
1994 and the six months ended June 25, 1995 (filed as an exhibit
hereto).
(c) Exhibits.
See Exhibit Index for list of exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
GANNETT CO., INC.
Dated: October 23, 1995
By: /s/ Thomas L. Chapple
-----------------------
Thomas L. Chapple,
General Counsel and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit
Number Title or Description
- ----- --------------------
23-1 Consent of KPMG Peat Marwick LLP
99-1 Audited consolidated balance sheets of
Multimedia, Inc. And Subsidiaries as of
December 31, 1994 and 1993, and the
related consolidated statements of
operations, changes in stockholders'
equity, and cash flows for each of the
the three years ended December 31, 1994,
1993, and 1992 (pages 24 - 38 of
Multimedia's Annual Report on form 10-K
for the year ended December 31, 1994)
99-2 Unaudited consolidated balance sheet of
Multimedia, Inc. And Subsidiaries as of
June 30, 1995 and unaudited consolidated
statements of operations and cash flows
for the six months ended June 30, 1995 and
June 30, 1994
99-3 Unaudited pro forma consolidated condensed
balance sheet as of June 25, 1995 and the
unaudited pro forma consolidated condensed
statements of operations for the year
ended December 25, 1994 and June 25, 1995.
Exhibit 23-1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Multimedia, Inc.
We consent to the inclusion of our report dated February 10, 1995,
with respect to the consolidated balance sheets of Multimedia, Inc.
and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of earnings, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended
December 31, 1994, which report appears in the Form 8-K of Gannett
Co., Inc. dated October 23, 1995.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Greenville, South Carolina
October 23, 1995
Exhibit 99-1
<TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<CAPTION>
(In thousands except per-share data) 1994 1993 1992
<S> <C> <C> <C>
Operating revenues:
Newspapers $150,140 135,920 132,485
Broadcasting 142,841 133,035 137,188
Cable 165,406 164,598 144,383
Entertainment 147,512 161,588 129,122
Security 24,584 16,750 10,262
Total operating revenues 630,483 611,891 553,440
Operating costs and expenses:
Production 229,390 229,385 202,865
Selling, general and administrative 158,248 147,903 134,488
Depreciation and amortization 53,402 50,200 42,982
Total operating costs and expenses 441,040 427,488 380,335
Operating profit 189,443 184,403 173,105
Interest expense 59,142 61,996 71,820
Other income (expense), net 25,584 1,494 (447)
Earnings before income taxes, minority
interest and cumulative effect of
changes in accounting principles 155,885 123,901 100,838
Income taxes 64,693 38,703 41,343
Minority interest in subsidiaries' losses (income), net (1,163) 320 1,009
Earnings before cumulative effect of change in
accounting principles 90,029 85,518 60,504
Cumulative effect of changes in accounting principles 14,332
Net earnings $ 90,029 99,850 60,504
Earnings per share before cumulative effect of
change in accounting principles $ 2.35 2.23 1.61
Cumulative effect of changes in accounting principles .37
Earnings per share $ 2.35 2.60 1.61
Weighted average shares 38,279 38,374 37,593
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Common Stock:
Balance at beginning of year $ 3,721 3,680 3,507
Stock options exercised 41 41 173
Balance at end of year 3,762 3,721 3,680
Additional paid-in capital:
Balance at beginning of year 177,689 164,367 140,435
Stock options exercised 4,453 6,882 7,676
Tax benefit from exercise of employee stock
options 2,691 2,084 12,875
Amortization of stock options 3,391 4,356 3,381
Balance at end of year 188,224 177,689 164,367
Retained earnings (deficit):
Balance at beginning of year (358,930) (458,780) (519,284)
Net earnings 90,029 99,850 60,504
Balance at end of year (268,901) (358,930) (458,780)
Total stockholders' equity $ (76,915) (177,520) (290,733)
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 90,029 99,850 60,504
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 53,402 50,200 42,982
Amortization of program rights 13,189 14,035 18,277
Amortization of debt issue costs 1,112 1,117 1,058
Cumulative effect of changes in accounting
principles (14,332)
Minority interest in subsidiaries' (losses)
income, net 1,163 (320) (1,009)
Amortization of stock options 3,391 4,356 3,381
Gain on disposal of assets, net (25,001) (739) 0
Increase (decrease) in deferred income taxes 9,559 (3,516) 788
(Increase) decrease in current assets:
Trade accounts receivable (9,075) (6,276) (6,830)
Inventories, deferred income tax benefits,
deferred program costs and prepaid
expenses and other (4,670) (7,972) 12
Increase (decrease) in current liabilities:
Accounts payable, accrued payroll
and accrued expenses 10,514 8,144 6,133
Accrued interest (328) (5,412) (1,887)
Income taxes payable (2,539) 17,199 7,884
Unearned income 1,354 1,714 1,299
Net cash flows provided by operating
activities 142,100 158,048 132,592
Cash flows from investing activities:
Additions to property, plant and equipment (83,028) (47,378) (37,493)
Proceeds from disposal of assets 48,475 4,678 0
Acquisitions of properties (11,045) (13,170) (78,710)
Other (1,077) (4,485) 1,224
Net cash (used for) investing activities (46,675) (60,355) (114,979)
Cash flows from financing activities:
Addition (reduction) in revolving credit, net (28,000) (59,000) 20,500
Long-term debt retired (64,440) (21,998) (31,630)
Program rights payments (12,777) (17,454) (16,463)
Proceeds from exercise of employee stock options 4,363 6,923 7,849
Other 597 272 10
Net cash (used for) financing activities (100,257) (91,257) (19,734)
Increase (decrease) in cash and cash equivalents (4,832) 6,436 (2,121)
Cash and cash equivalents, beginning of year 11,034 4,598 6,719
Cash and cash equivalents, end of year $ 6,202 11,034 4,598
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<CAPTION>
(In thousands except share data) 1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,202 11,034
Trade accounts receivable, less allowances for
discounts and uncollectible accounts of
$4,818 in 1994 and $3,713 in 1993 93,426 85,756
Inventories 4,643 4,408
Deferred income tax benefits 9,581 8,856
Program rights 7,570 8,476
Deferred program costs 10,923 9,670
Prepaid expenses and other 6,795 5,516
Total current assets 139,140 133,716
Property , plant and equipment, at cost:
Land and land improvements 5,295 5,313
Buildings 42,701 39,155
Broadcasting equipment 52,294 53,898
Publishing equipment 60,857 58,599
Cable equipment 309,718 272,899
Other equipment and fixtures 83,698 68,559
Construction in progress 4,186 1,710
Total 558,749 500,133
Less accumulated depreciation 283,522 259,371
Net property, plant and equipment 275,227 240,762
Intangible assets, net 242,078 251,356
Other assets 27,533 29,340
$ 683,978 655,174
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt $ 30,254 393
Accounts payable 24,512 20,557
Accrued interest 2,671 2,999
Accrued payroll 8,386 5,884
Accrued expenses 38,148 30,465
Income taxes payable 10,202 15,432
Program rights payable 7,793 8,540
Unearned income 20,556 19,416
Total current liabilities 142,522 103,686
Long-term debt, excluding current installments 542,303 664,604
Deferred income taxes 54,090 44,046
Other liabilities 3,294 2,837
Minority interest 18,684 17,521
Stockholders' equity (deficit):
Common stock of $.10 par value per share.
Authorized 100,000,000 shares and issued
37,620,000 shares in 1994 and 37,210,000
shares in 1993 3,762 3,721
Additional paid-in capital 188,224 177,689
Retained earnings (deficit) (268,901) (358,930)
Total stockholders' equity (deficit) (76,915) (177,520)
$ 683,978 655,174
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
MULTIMEDIA, INC. AND SUBSIDIARIES
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts
of Multimedia, Inc. and subsidiaries. Significant inter-
company items are eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when programming and advertising
are aired or printed, or when services are rendered.
CASH EQUIVALENTS
Cash equivalents include investments with banks with original
maturities of three months or less. Cash investments
totaled $11,345,000 at December 31, 1994. Cash investments
with banks totaled $11,135,000 at December 31, 1993.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out)
or market (net realizable value) and include newsprint
and supplies.
DEPRECIATION
Depreciation for financial reporting purposes is calculated
principally on a straight-line basis over the estimated useful
lives of the respective assets. Depreciation expense for 1994,
1993 and 1992 was $39,025,000, $35,422,000 and
$31,710,000, respectively.
OTHER ASSETS
DEFERRED LOAN COSTS
Deferred loan costs include amounts incurred in connection
with raising bank and Senior Note debt. The costs are
amortized using the interest method over periods up
to 10 years.
DEFERRED COSTS
Deferred costs include amounts deferred during the start-
up and prematurity periods for cable systems under
development and costs associated with the acquisition of
security accounts. These costs are amortized on a straight-
line basis over periods up to 15 years.
PROGRAM RIGHTS
Program rights represent agreements with programming
syndicators for television program material. When the
program or film becomes available for telecasting, the cost
of the contract is recorded as an asset and the corresponding
contractual obligation as a liability. The cost is
amortized over the expected number of telecasts. The
portion of the cost to be amortized within one year and after
one year is reflected in the consolidated balance sheets as
current and noncurrent assets, respectively. The payments
under these contracts due within one year and after one year
are similarly classified as current and noncurrent liabilities.
INTANGIBLE ASSETS
Intangible assets, which include cable television franchise
rights, represent the excess of the cost of properties acquired
over the amounts assigned to the net tangible assets at
dates of acquisition. Intangible assets arising from acquisitions
after October 31, 1970, are amortized on a
straight-line basis over periods up to 40 years. Intangibles
acquired prior to October 31, 1970, will be amortized only
to the extent there is a permanent decline in value. The
Company assesses the recoverability of these intangible
assets by determining whether the amortization of the
balance over its remaining life can be recovered through
projected undiscounted future cash flows.
INTEREST RATE SWAP AND CAP AGREEMENTS
The interest rate swap agreements are being 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. The net swap settlement
amounts for 1994, 1993 and 1992 resulted in charges to
interest expense of $1.1 million, $2.1 million and $7.8
million, respectively.
The interest rate swap and cap agreements expire at
various times from 1995 through 1997. The Company
believes that the sellers of the swap and cap agreements will
be able to meet their obligations under the agreements. The
purpose of the Company's involvement in interest rate
swaps and caps is to minimize the Company's exposure to
interest rate fluctuations on its floating rate debt. The
Company believes that it has no material concentration of
credit or market risks with respect to these interest rate
protection agreements.
INCOME TAXES
Effective January 1, 1993, the Company adopted SFAS
No. 109, "Accounting for Income Taxes." Deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income
tax assets and liabilities are measured using enacted tax
MULTIMEDIA, INC. AND SUBSIDIARIES
28
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rates in effect for the year in which those temporary differ-
ences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
In 1992, pursuant to APB Opinion 11, deferred
income taxes were recognized for income and expense items
that were reported in different years for financial reporting
purposes and income tax purposes using the tax rate applic-
able for the year of the calculation.
EARNINGS PER SHARE
Earnings per share are computed based on the weighted
average number of shares of common stock and common
stock equivalents outstanding during each year. Common
stock equivalents are dilutive stock options determined
by using the treasury stock method.
MINORITY INTEREST
Minority interest represents the minority shareholders'
proportionate share of the equity and the income or loss of
certain consolidated subsidiaries, primarily WKYC-TV,
Inc. The Company owns 51% of WKYC-TV, Inc.
ACCOUNTING CHANGES
Effective January 1, 1993, the Company adopted SFAS
No. 109, "Accounting for Income Taxes." SFAS No. 109
required a change from the deferred method, under
APB Opinion 11, to the asset and liability method of
accounting for income taxes. The cumulative effect of this
change in accounting ($15.4 million) was determined as of
January 1, 1993.
The Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than
Pensions," as of January 1, 1993, which requires accrual,
during an employee's active years of service, of the expected
costs of providing postretirement benefits to employees
and their beneficiaries and dependents. The Company's
accumulated postretirement benefit obligation as of
December 31, 1992, based upon calculations performed
by the Company's actuarial consultant, was $1.1 million,
net of tax.
The net cumulative effect of the above changes
($14.3 million) is reported separately in the 1993 consoli-
dated statement of earnings. The effect of these changes on
earnings before cumulative effect of changes in accounting
principles in 1993 was not material. Financial statements
for years prior to 1993 have not been restated.
Beginning January 1, 1994, the Company began
reporting operating revenues for its television and radio
stations net of agency commissions and national represen-
tation fees. The prior years' consolidated statements of
earnings have been restated to reflect this change. This
change has no impact on net earnings or earnings per share.
(2) RECAPITALIZATION MERGER
On September 20, 1985, the Company's shareholders
approved a Recapitalization Agreement and Plan of Merger
(the "Recapitalization Merger"). The Recapitalization
Merger was consummated on October 1, 1985, and was
accounted for as a redemption not subject to purchase
accounting. This resulted in a charge to retained earnings
of approximately $887 million.
(3) ACQUISITIONS
In 1994, the Company purchased the accounts of existing
security alarm monitoring companies for approximately
$7,200,000 in cash. The purchase price has been assigned
to property, plant and equipment ($3,500,000) and
other assets ($3,700,000). Other acquisitions for 1994
included a small cable television system and the purchase
of the remaining 20% interest in certain Illinois cable
franchises. The purchase price of these other acquisitions is
considered immaterial.
In 1993, the Company purchased the accounts of
existing security alarm monitoring companies for approx-
imately $12,100,000 in cash. The purchase price has been
assigned to property, plant and equipment ($6,100,000)
and other assets ($6,000,000). Other acquisitions for 1993
included the purchase of the remaining 20% interest in an
existing Illinois cable television franchise. The purchase
price is considered immaterial.
On December 3, 1992, the Company purchased
Indiana cable television systems with approximately
28,000 subscribers for approximately $58,000,000 in cash.
The purchase price has been assigned to property, plant and
equipment ($18,700,000), intangibles ($37,100,000) and
other assets ($2,200,000).
The following unaudited pro forma summary
presents the results as if the acquisition of Indiana cable
television systems had occurred on January 1, 1992, after
giving effect to certain adjustments including interest
expense on the acquisition debt. The pro forma results do
not necessarily represent results which would have occurred
MULTIMEDIA, INC. AND SUBSIDIARIES
29
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) ACQUISITIONS (CONTINUED)
if the acquisition had occurred on the date indicated nor
does it indicate results which may occur in the future.
<TABLE>
<CAPTION>
(In thousands except per-share data) 1992
<S> <C>
Total operating revenues $585,878
Net earnings 58,105
Earnings per share 1.55
</TABLE>
In February 1992, the Company also purchased an
Illinois cable television system with approximately 5,000
subscribers for approximately $9,500,000 in cash. The pur-
chase price has been assigned to property, plant and
equipment ($8,400,000) and intangibles ($1,100,000).
In 1992, the Company also purchased the accounts of
existing security alarm monitoring companies for approx-
imately $8,500,000 in cash. The purchase price has been
assigned to property, plant and equipment ($4,200,000)
and other assets ($4,300,000). Other acquisitions for 1992
included purchases of the remaining 20% interest in two
existing Illinois cable television franchises. The purchase
price of these interests is considered immaterial.
The operations of all acquired businesses for the
three year period ended December 31, 1994, have been
included in the consolidated statements of earnings since
the dates of acquisition. Other than the Indiana cable tele-
vision systems, the pro forma effects of the acquisitions on
operating revenues, net earnings and net earnings per share
for the year of acquisition and for the year immediately
preceding the year of acquisition are not significant and are
not presented.
(4) OTHER ASSETS
Other assets include:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Deferred loan costs, net of accumulated
amortization of $5,505 in 1994 and
$4,372 in 1993 $ 5,646 6,780
Deferred costs, net of accumulated
amortization of $12,232 in 1994
and $9,995 in1993 14,740 14,376
Program rights 56 318
Other 7,091 7,866
Total $27,533 29,340
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets include:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Excess of cost over net tangible assets:
30-40 year life $205,597 209,149
10-20 year life 7,810 7,804
Franchise costs:
30-40 year life 43,986 41,266
10-20 year life 38,867 37,899
Less accumulated amortization (73,038) (63,803)
Amounts not being amortized 18,856 19,041
Total $242,078 251,356
</TABLE>
(6) LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Bank credit facility:
Term loan $102,000 166,000
Revolving credit 33,500 61,500
Senior notes 400,000 400,000
Note payable 36,750 36,750
Notes payable in quarterly or annual
installments through June 1998 307 747
Total long-term debt 572,557 664,997
Less current installments 30,254 393
Long-term debt, excluding
current installments $542,303 664,604
</TABLE>
BANK CREDIT FACILITY
The bank credit facility is comprised of a $355 million
revolving credit line and a $102 million term loan. The
commitment levels which remain in effect during the years
ended are as follows:
<TABLE>
<CAPTION>
(In thousands) Revolving Term
Date Credit Loan Total
<S> <C> <C> <C>
December 31,1994 $355,000 102,000 457,000
December 31,1995 290,000 76,000 366,000
December 31,1996 225,000 50,000 275,000
December 31,1997 160,000 24,000 184,000
December 31,1998 90,000 90,000
December 31,1999 30,000 30,000
June 30, 2000
</TABLE>
The bank credit facility has a floating interest rate
based on the Company's debt to annualized operating cash
flow ratio. At December 31, 1994, the interest rate (approx-
imately 6.8%) for these bank notes was the LIBOR rate
plus 5/8% or the prime rate. A commitment fee of 3/8% per
annum on the unused portion of the revolving credit
MULTIMEDIA, INC. AND SUBSIDIARIES
30
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
commitment must be paid quarterly. The Company has the
option under the bank Credit Agreement to seek bids
from the various banks for alternative interest rates. The
Company has interest rate swap agreements which effec-
tively fix the LIBOR rate on $75 million of its floating rate
debt at approximately 5.7%. These interest rate swap agree-
ments expire at various times between June 1996 and
November 1996. The Company also has an interest rate cap
agreement which effectively caps LIBOR on $25 million of
its floating rate debt at approximately 7.0%, which expires
in December 1995. In addition, the Company has an inter-
est rate cap which caps LIBOR at 7% on $25 million,
which begins in 1996 and expires in 1997.
SENIOR NOTES
The Senior Notes are comprised of five series which have
maturities from 1995 through 2005 with an original aver-
age life of 10 years and bear interest at a composite rate of
approximately 10.7%. The remaining average life is 5.5
years. Information regarding each series follows:
<TABLE>
<CAPTION>
Principal Interest
(In thousands) Due Dates Amount Rate 2
<S> <C> <C> <C>
Series A June 29,1995 $ 30,000 10.23%
Series B June 29,1996 30,000 10.36%
Series C June 29,1997 30,000 10.50%
Series D June 29,1998 70,000 10.61%
Series E1 June 29,1999 240,000 10.92%
through
June 29, 2005
$400,000
</TABLE>
1 One-seventh of the principal amount due each June 29 for the years
1999 to 2005.
2 Interest is payable semi-annually on June 29 and December 29.
COVENANTS
The bank Credit Agreement and/or Senior Notes contain
covenants which limit (i) payment of dividends;
(ii) purchase of capital stock of the Company; (iii) incur-
rence of indebtedness; (iv) acquisitions outside of the
Company's current lines of business; (v) liens; (vi) invest-
ments; (vii) transactions with affiliates; (viii) sales of assets;
and (ix) certain extraordinary transactions. In addition, one
or both of the agreements require the Company to maintain
specific ratios of debt to annualized operating cash flow,
annualized operating cash flow to interest expense and
annualized operating cash flow to fixed charges.
Management believes it is in compliance with all covenants.
NOTE PAYABLE
In 1990, in addition to purchasing a 51% equity interest in
WKYC from NBC, the Company purchased a 51% interest
in a $75 million principal promissory note of WKYC
which was held by NBC. As a result, 51% of the note is
now due to the Company, and NBC retained a 49% interest
in that note ($36.8 million), which bears interest at a rate of
10% payable semi-annually on January 15 and July 15. The
principal amount is due in full on December 26, 1997.
OTHER
The other notes payable include a $20,000,000 commit-
ment to the Company which expires on July 28, 1995.
There were no outstanding borrowings at December 31,
1994, under this commitment. The interest rate on this
commitment is the overnight Federal Funds rate plus
1.50% or competitive bid rates, as available. A commit-
ment fee of 1/16% per annum on the unused portion of
the commitment must be paid quarterly. The remaining
notes payable have fixed interest rates ranging from
8% to 11.25%.
The minimum aggregate annual repayments of
long-term debt during the next five years, excluding the
bank credit facility, are as follows (in thousands): 1995,
$30,254; 1996, $30,062; 1997, $66,777; 1998, $70,012;
1999, $34,286.
(7) DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, trade
accounts receivable, accounts payable and accrued expenses
approximates fair value because of the short maturity of
these instruments. The fair value of the interest rate swaps
or caps is the estimated amount that the Company would
receive or pay to eliminate the swap or cap agreements at
the reporting date, taking into account current interest
rates and the current credit-worthiness of the swap
counterparties. The fair value of the Company's long-term
debt is based on estimates of market prices for the same or
similar issues and on the current rates offered to the
Company for debt of the same remaining maturities. The
fair value of program rights payable is the present value of
the future obligations.
MULTIMEDIA, INC. AND SUBSIDIARIES
31
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS (CONTINUED)
Estimated fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
(In thousands) 1994
Carrying Fair
Assets: Amount Value
<S> <C> <C>
Interest rate cap agreements $ 524 654
Interest rate swap agreements - 2,564
Liabilities:
Long-term debt:
Bank credit facility 135,500 135,500
Senior notes 400,000 429,638
Note payable 36,750 37,856
Other notes payable 307 307
Program rights payable 7,793 7,514
</TABLE>
(8) INCOME TAXES
Total income tax expense for the years ended December 31,
1994 and 1993 was allocated as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Income from continuing operations $64,693 38,703
Cumulative effect of change in
accounting principle- adoption
of SFAS No. 106 - (755)
Stockholders' equity- additional paid-in
capital for compensation expense
for tax purposes in excess of
amounts recognized for financial
reporting purposes (2,691) (2,084)
Total income tax expense $62,002 35,864
</TABLE>
Income tax expense (benefit) includes:
<TABLE>
<CAPTION>
(In thousands)
1994 1993 1992
<S> <C> <C> <C>
Federal:
Current $46,260 28,905 33,821
Deferred 7,827 1,844 263
54,087 30,749 34,084
State:
Current 9,114 7,783 7,369
Deferred 1,492 171 (110)
10,606 7,954 7,259
Total $64,693 38,703 41,343
</TABLE>
The items comprising the difference in taxes on
income computed at the U.S. statutory rates (35% in
1994 and 1993 and 34% in 1992) and the amounts
provided follow:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Computed expected tax expense $54,560 43,365 34,285
Increase (reduction) in tax expense
resulting from:
State income taxes, net of
Federal income tax benefit 6,894 5,170 4,791
Amortization 1,822 1,796 1,756
Reduction for settlement
of IRS exam (12,372)
Additional provision for
(reduction in) income taxes 902 (365) 799
Other, net 515 1,109 (288)
Actual tax expense $64,693 38,703 41,343
</TABLE>
The significant components of deferred income tax
expense attributable to income from continuing opera-
tions for the years ended December 31, 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Deferred tax expense (exclusive of
the effect of the following item) $9,319 1,195
Adjustment to deferred tax assets
and liabilities for enacted
changes in tax laws and rates 820
$9,319 2,015
</TABLE>
For the year ended December 31, 1992, deferred
income tax expense (benefit) of $153,000 resulted from
timing differences in the recognition of income and expense
for income tax and financial reporting purposes. The
sources and tax effects of these timing differences are
presented below:
<TABLE>
<CAPTION>
(In thousands) 1992
<S> <C>
Accelerated depreciation $ 304
Amortization (1,108)
Accrued expenses and allowances (717)
Other, net 1,674
$ 153
</TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
32
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give
rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1994 and 1993 are
presented below:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Deferred tax assets:
Amortization of stock options $ 4,225 3,214
Accrued expenses and allowances 10,249 10,294
Total gross deferred tax assets 14,474 13,508
Less-valuation allowance
Net deferred tax assets 14,474 13,508
Deferred tax liabilities:
Accelerated depreciation 51,661 38,911
Amortization 6,856 9,018
Other, net 466 769
Total gross deferred tax liabilities 58,983 48,698
Net deferred tax liability $44,509 35,190
</TABLE>
Management believes that a valuation allowance
is not necessary based upon the level of historical tax-
able income and the projections for future taxable income
over the periods during which the deferred tax assets
are deductible.
The Internal Revenue Service (IRS) has examined the
Company's federal consolidated income tax returns through
1989. In 1993 the Company reached an agreement with the
IRS as to the 1982 through 1986 tax liabilities. The agreed
to settlement principally involved purchase price alloca-
tions related to cable acquisitions and characterization of
professional fees incurred in 1985 and was less than the
amounts previously accrued. This agreement resulted in a
reduction in income taxes.
The IRS has issued notices of deficiency with regard
to the Company's tax returns for 1987 through 1989. The
Company is contesting these deficiencies. The deficien-
cies principally involve various acquisition issues related
primarily to the cable division. The Company is continu-
ing to vigorously contest the assessments, but the ultimate
resolution of these matters cannot be ascertained at this
time. The Company believes that it has adequately
provided for agreed-upon and potential deficiencies,
including interest.
(9) COMMON STOCK, STOCK OPTIONS
AND PREFERRED STOCK
The Company has adopted five stock option plans (the
Restricted Option Plan, Performance Option Plan, New
Key Executive Plan, 1991 Stock Option Plan and Director's
Option Plan) and signed stock option agreements with
Phillip J. Donahue and Sally Jessy Raphael. Each option is
for one share of common stock.
All of the 1,513,494 authorized options, exercisable
at $.33 per share, under the Restricted Option Plan were
granted in 1985. Fair market value of the stock on the
date of grant was $3.33 per share. Options for 679,810
shares were outstanding on December 31, 1991, all of
which were exercised in 1992. There were no outstanding
options under the Restricted Option Plan as of the end
of 1994.
All of the 1,032,498 authorized options, exercisable
at $3.33 per share, under the Performance Option Plan
were granted in 1985. Fair market value of the stock on the
date of grant was $3.33 per share. The Performance
Options became exercisable as defined operating cash flow
goals of the Company were equaled or exceeded. Options
for 264,555 shares were outstanding on December 31,
1991. Options for 64,555 shares were exercised in 1992,
and options for 200,000 shares were exercised in 1994. No
options remain outstanding under this plan.
The forfeited shares from the Restricted Option Plan
and the Performance Option Plan are now available for
options which may be granted under the New Key
Executive Plan.
The New Key Executive Plan, 1991 Stock Option
Plan, Director's Stock Option Plan and agreements with
Phillip J. Donahue and Sally Jessy Raphael authorize the
granting of 8,085,372 options. Generally, options granted
under these plans are exercisable to the extent of 20% per
year, beginning approximately one year following date of
grant, provided the holder of the option is still an employee
of or is rendering services to the Company at such time.
Option prices, which are established by the Board of
Directors or a committee thereof, have been determined
based on the market values on dates of grant, except for
1,542,400 options granted in 1987 through 1992 at prices
ranging from $3.33 to $23.00 per share. Information
regarding options under the New Key Executive Plan,
MULTIMEDIA, INC. AND SUBSIDIARIES
33
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) COMMON STOCK, STOCK OPTIONS
AND PREFERRED STOCK (CONTINUED)
1991 Stock Option Plan, Director's Stock Option Plan and
Donahue and Sally Jessy Raphael agreements follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Outstanding at January 1:
Options 2,555,640 2,755,700 3,340,173
Price $ 3.33- $ 3.33- $ 3.33-
$ 35.00 $ 29.00 $ 28.67
Granted:
Options 827,500 385,000 448,000
Price $ 26.25- $ 32.13- $ 15.00-
$ 34.25 $ 35.00 $ 29.00
Forfeited or canceled:
Options 162,300 178,280 38,550
Price $ 15.00- $ 3.33- $ 15.21-
$ 34.25 $ 35.00 $ 27.10
Exercised:
Options 200,560 406,780 993,923
Price $ 9.92- $ 3.33- $ 3.33-
$ 29.00 $ 27.10 $ 27.10
Outstanding at December 31:
Options 3,020,280 2,555,640 2,755,700
Price $ 3.33- $ 3.33- $ 3.33-
$ 35.00 $ 35.00 $ 29.00
Exercisable at December 31:
Options 1,685,347 1,365,698 1,171,770
Price $ 3.33- $ 3.33- $ 3.33-
$ 34.75 $ 35.00 $ 28.67
</TABLE>
Compensation expense of $3,390,750, $4,356,000
and $3,381,000 is included in selling, general and admin-
istrative expense in 1994, 1993 and 1992, respectively,
related to the amortization of the deferred compensation on
the options issued under the above plans.
The Company has 600,000 shares of authorized but
unissued 5% convertible cumulative preferred stock of
$20 par value per share.
(10) SHAREHOLDER RIGHTS PLAN
In September 1989, the Company declared a dividend
distribution of one common share purchase Right for each
outstanding share of the Company's common stock. The
Rights are designed to assure that all the Company's share-
holders, other than an acquiring shareholder, receive equal
treatment in the event of any proposed takeover of the
Company. Each Right will entitle shareholders to buy one
share of common stock at an exercise price of $133.33.
The Rights will be exercisable only if a person or
group acquires 15% or more of the Company's common
stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of
15% or more of the common stock. If a person or group
acquires 15% or more of the Company's outstanding
common stock, each holder of a Right, other than Rights
beneficially owned by the acquiring person, will have the
right to purchase common shares of the Company having a
market value of twice the exercise price of the Right. If the
Company is acquired in a merger or other business combi-
nation transaction, each holder of a Right will thereafter
have the right to purchase common shares of the acquiring
company which at the time of such transaction will have a
market value of twice the exercise price of the Right.
Prior to the acquisition by a person or group of bene-
ficial ownership of 15% or more of the Company's common
stock, the Rights are redeemable for one-third of one cent
per Right at the option of the Board of Directors. If unexer-
cised, the Rights expire September 6, 1999.
(11) OTHER INCOME (EXPENSE)
Other income (expense) includes:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Gain on disposal of assets , net $25,001 739 ---
Interest income 779 904 82
Other, net (196) (149) (529)
$25,584 1,494 (447)
</TABLE>
In August 1994, the Company sold its wireless cable
operations for $35.1 million resulting in a gain of $22.0
million before taxes. In addition, throughout 1994, the
Company sold its radio properties in Milwaukee,
Wisconsin; Shreveport, Louisiana; and Greenville, South
Carolina. The proceeds from these transactions were $13.3
million resulting in gains of $8.1 million before taxes.
The Company also discontinued its made-for-television
movies business in 1994, resulting in losses of $3.4 million
before taxes.
In January 1993, the Company sold its mobile video
production business for $4.5 million, which resulted in a
gain of $2.3 million before taxes.
Gain on disposal of assets, net, is net of approxi-
mately $3.0 and $1.0 million in 1994 and 1993,
respectively, in writeoffs of cable equipment related to
rebuilds. Interest income includes $.5 and $.8 million,
respectively, in 1994 and 1993, in refunds received from the
IRS related to the settlement of its audits of the Company's
1982 through 1986 federal consolidated income tax returns.
MULTIMEDIA, INC. AND SUBSIDIARIES
34
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company and its subsidiaries have noncontributory
pension plans which cover substantially all employees who
meet age and service requirements. The pension plans
provide defined benefits that are based on years of credited
service, average compensation (as defined) and the primary
social security benefit. Contributions to the plans are based
on the Entry Age Normal actuarial funding method and are
limited to amounts that are currently deductible for tax
reporting purposes. Assets held by the pension plans
include equity securities, corporate and government bonds,
and cash and short term assets.
The weighted average discount rate and the rate of
increase in future compensation levels used in determining
the actuarial present value of the projected benefit obliga-
tion were 8.0% and 6.5%, respectively, in 1994, and 7.25% and
6.5%, respectively, in 1993. The expected long-term rate of
return on assets was 8% in 1994 and 1993.
The following tables set forth the pension plans'
funded status and amounts recognized in the Company's
consolidated financial statements at December 31, 1994,
and 1993:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation, including vested
benefits of $35,218 in 1994 and
$36,308 in 1993 $36,846 37,854
Projected benefit obligation $48,698 50,603
Plan assets at fair value 57,127 59,817
Excess of plan assets over the
projected benefit obligation $ 8,429 9,214
Unrecognized net gain (2,341) (2,704)
Unrecognized net asset being amortized
over an average of 17 years (4,605) (5,180)
Other (1,601) (1,298)
Prepaid (accrued) pension costs
included in other assets $ (118) 32
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Net pension expense (income)
included the following
components:
Service cost $ 2,183 2,206 1,942
Interest cost 3,528 3,312 3,029
Actual return on plan assets 583 (5,310) (3,547)
Net deferral and amortization (6,099) 20 (1,654)
Net pension expense (income) $ 195 228 (230)
</TABLE>
THRIFT PLAN
The Company and its subsidiaries have a salary deferral
thrift plan for all eligible employees. The Company and
its subsidiaries match contributions by employees up to 2%
of their salaries. Company contributions charged to
operations in 1994, 1993 and 1992 were $1,405,000,
$1,359,000 and $1,216,000, respectively. Thrift plan costs
are funded biweekly.
OTHER POSTRETIREMENT BENEFITS
The Company sponsors unfunded postretirement benefit
plans that provide health care, life insurance and other
postretirement benefits to certain retired employees. The
health care plans generally include participant contribu-
tions, co-insurance provisions, limitations on the Company's
obligation and service-related eligibility requirements. The
net postretirement benefit liability and periodic post-
retirement benefit cost associated with these plans are
not material.
SUPPLEMENTAL RETIREMENT PROGRAM
The Company has an unfunded Supplemental Retirement
Program ("SERP"), not included in the above table, for
certain executive officers. The actuarial present value of
accumulated benefit obligation at December 31, 1994 and 1993
was $2,058,000, $1,355,000, respectively. The expense for
1994, 1993 and 1992 was $703,000, $606,000 and $519,000,
respectively.
MULTIMEDIA, INC. AND SUBSIDIARIES
35
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's quarterly operating results for 1994 and 1993 are
presented below.
<TABLE>
<CAPTION>
(In thousands except per-share data)
Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1994
Operating revenues $146,419 159,231 152,650 172,183
Operating profit 40,918 49,851 47,713 50,961
Net earnings 17,334 19,443 30,469 22,783
Net earnings per share .45 .51 .80 .59
1993
Operating revenues $139,521 157,062 147,816 167,492
Operating profit 38,130 46,605 45,737 53,931
Earnings before cumulative effect of changes in accounting
principles 15,198 18,267 30,241 21,812
Net earnings 29,530 18,267 30,241 21,812
Earnings per share be ore cumulative effect
of changes in accounting principles .40 .48 .79 .56
Net earnings per share .77 .48 .79 .56
</TABLE>
(14) INDUSTRY SEGMENTS
Financial information by industry segment for each of the years
in the three-year period ended December 31, 1994, is summarized below:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Operating revenues:
Newspapers $150,140 135,920 132,485
Broadcasting 142,841 133,035 137,188
Cable 165,406 164,598 144,383
Entertainment 147,512 161,588 129,122
Security 24,584 16,750 10,262
$630,483 611,891 553,440
Operating profit:
Newspapers 45,427 37,667 37,698
Broadcasting 51,756 38,816 38,191
Cable 52,555 56,645 50,692
Entertainment 52,074 63,285 55,841
Security 3,048 1,838 1,818
204,860 198,251 184,240
Less corporate expenses (15,417) (13,848) (11,135)
$189,443 184,403 173,105
Depreciation and amortization:
Newspapers 5,868 6,049 5,962
Broadcasting 8,600 9,031 9,888
Cable 31,569 28,817 22,387
Entertainment 1,158 2,024 1,960
Security 6,050 4,140 2,640
53,245 50,061 42,837
Corporate 157 139 145
$ 53,402 50,200 42,982
</TABLE>
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Additions to property, plant
and equipment:
Newspapers 6,542 4,611 6,785
Broadcasting 4,892 4,025 5,142
Cable 57,724 32,413 22,159
Entertainment 1,603 497 574
Security 11,881 5,704 2,739
82,642 47,250 37,399
Corporate 386 128 94
$ 83,028 47,378 37,493
Identifiable assets:
Newspapers 91,902 89,473 90,872
Broadcasting 189,344 192,596 200,679
Cable 278,168 256,990 251,700
Entertainment 51,840 50,222 35,792
Security 60,543 47,336 31,894
671,797 636,617 610,937
Corporate 12,181 18,557 17,008
$683,978 655,174 627,945
</TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
36
<PAGE>
1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company operates principally in five industries:
newspapers, broadcasting, cable television, entertainment
and security alarms. Newspaper operations involve the
publication and distribution of both daily and non-daily
newspapers from which revenues are derived primarily
from circulation and the sale of advertising linage.
Broadcasting operations involve the sale of time to adver-
tisers and network revenue. Cablevision operations involve
the provision of broadcast signals of television and radio
stations owned by others to subscribers whose monthly
payments are the primary source of revenues.
Entertainment operations generate revenue from program-
ming, talent and production operations. Security operations
involve the monitoring, installation and servicing of secu-
rity systems. Operating profit is total revenues less
operating expenses. Interest expense, net other income
(expense) and income taxes have been excluded in comput-
ing operating profit. Identifiable assets by industry
segment represent those assets used in the Company's oper-
ations in that segment.
(15) CASH FLOW INFORMATION
Net cash provided by operating activities is further
analyzed as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
<S> <C> <C> <C>
Operating profit plus depreciation,
amortization and amortization
of stock options:
Newspapers $ 51,295 43,716 43,660
Broadcasting 60,356 47,847 48,079
Cable 84,124 85,462 73,079
Entertainment 53,232 65,309 57,801
Security 9,098 5,978 4,458
Corporate (11,869) (9,354) (7,609)
246,236 238,958 219,468
Cash payments for interest (58,358) (61,636) (72,649)
Cash payments for taxes,
net of refunds (58,431) (32,016) (33,275)
Amortization of program rights 13,189 14,035 18,277
Other (536) (1,293) 771
Net cash flows provided by
operating activities $142,100 158,048 132,592
</TABLE>
The Company entered into contracts for program
rights totaling $12,052,000, $12,977,000 and $14,218,000
for 1994, 1993 and 1992, respectively, which are not
reflected in the consolidated statements of cash flows or the
above schedule.
(16) COMMITMENTS
At December 31, 1994, the Company had commitments for
purchases of syndicated television programming of $27.2
million through 2000 and commitments for purchases of
property, plant and equipment of $17.0 million ($13.9
million relates to construction of a new production facility
at the Company's Montgomery, Alabama, newspaper oper-
ation). Commitments relating to rebuilds and upgrades to
cable franchises to be performed through 1996 were approx-
imately $12.7 million at year-end.
In addition, the Company periodically enters into
contractual agreements with talent in the entertainment
and broadcasting businesses.
During the first quarter of 1995, the Company com-
pleted the trade of certain of the Company's cable systems
in Oklahoma and Illinois with 40,500 cable subscribers for
Telecommunications, Inc.'s cable systems in Wichita,
Kansas, with 50,400 subscribers. The Company paid $12.4
million in cash as part of this transaction. The transaction
will be accounted for as a nonmonetary transaction.
MULTIMEDIA, INC. AND SUBSIDIARIES
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
MULTIMEDIA, INC.:
We have audited the accompanying consolidated
balance sheets of Multimedia, Inc. and subsidiaries as of
December 31, 1994 and 1993 and the related consolidated
statements of earnings, stockholders' equity (deficit) and
cash flows for each of the years in the three year period
ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's manage-
ment. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with gener-
ally 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 assess-
ing the accounting principles used and significant estimates
made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Multimedia, Inc. and subsidiaries
at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the
three year period ended December 31, 1994 in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, the Company changed its method of account-
ing for income taxes in 1993 to adopt the provisions of the
Financial Accounting Standards Board's SFAS No. 109,
ACCOUNTING FOR INCOME TAXES. As discussed in Note 1, the
Company also adopted in 1993 the provisions of the
Financial Accounting Standards Board's SFAS No. 106,
EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER
THAN PENSIONS.
(KPMG Peat Marwick LLP signature appears here)
KPMG Peat Marwick LLP
Greenville, South Carolina
February 10, 1995
Exhibit 99-2
<TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<CAPTION>
Three Months Six Months
(Unaudited) (In thousands except per-share data) 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Operating revenues:
Newspapers $ 41,304 37,447 78,355 71,101
Broadcasting 41,762 37,535 75,212 66,855
Cable 43,550 41,979 85,450 83,202
Entertainment 36,903 36,188 74,377 72,855
Security 6,808 6,082 13,380 11,637
Total operating revenues 170,327 159,231 326,774 305,650
Operating costs and expenses:
Production 64,321 55,700 125,996 108,879
Selling, general and administrative 39,877 39,036 79,768 76,679
Depreciation 9,899 10,811 20,449 21,631
Amortization 3,660 3,833 7,237 7,692
Total operating costs and expenses 117,757 109,380 233,450 214,881
Operating profit 52,570 49,851 93,324 90,769
Interest expense 14,399 14,902 28,862 29,775
Other income (expense), net (62) (1,100) (105) 2,177
Earnings before income taxes and minority
interest 38,109 33,849 64,357 63,171
Income taxes 15,816 14,047 26,709 26,216
Minority interest in subsidiaries' income, net 1,128 359 1,637 178
Net earnings $ 21,165 19,443 36,011 36,777
Per share of common stock:
Net earnings $ .54 .51 .93 .96
Cash dividends - - - -
Weighted average shares 38,886 38,191 38,708 38,280
</TABLE>
<PAGE>
<TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
<CAPTION>
June 30, December 31,
(Unaudited) (In thousands) 1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,299 6,202
Net trade accounts receivable 94,789 93,426
Inventories 7,782 4,643
Deferred income tax benefits 9,941 9,581
Program rights 2,762 7,570
Deferred program costs 7,088 10,923
Prepaid expenses and other 7,388 6,795
Total current assets 143,049 139,140
Property , plant and equipment, at cost 607,764 558,749
Less accumulated depreciation 301,246 283,522
Net property , plant and equipment 306,518 275,227
Intangible assets, net 249,026 242,078
Other assets 30,533 27,533
$ 729,126 683,978
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt $ 30,254 30,254
Accounts payable 19,173 24,512
Accrued interest 2,669 2,671
Accrued payroll 6,354 8,386
Accrued expenses 40,804 38,148
Income taxes payable 18,137 10,202
Program rights payable 3,108 7,793
Unearned income 21,365 20,556
Total current liabilities 141,864 142,522
Long-term debt 548,001 542,303
Deferred income taxes 53,574 54,090
Other liabilities 3,247 3,294
Minority interest 20,321 18,684
Stockholders' equity (deficit):
Common stock 3,786 3,762
Additional paid-in capital 191,223 188,224
Retained earnings (deficit) (232,890) (268,901)
Total stockholders' equity (deficit) (37,881) (76,915)
$ 729,126 683,978
</TABLE>
<PAGE>
<TABLE>
MULTIMEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<CAPTION>
(Unaudited) (In thousands) 1995 1994
<S> <C> <C>
Net cash provided by operating activities $ 72,294 73,766
Additions to property, plant and equipment (47,990) (33,116)
Acquisitions of properties (21,180) (8,824)
Other 1,307 4,726
Net cash used for investing activities (67,863) (37,214)
Addition (reduction) in revolving credit, net 46,754 (23,999)
Long-term debt retired (41,056) (12,111)
Other (3,032) (4,239)
Net cash provided by (used for) financing activities 2,666 (40,349)
Increase (decrease) in cash and cash equivalents 7,097 (3,797)
Cash and cash equivalents, beginning of year 6,202 11,034
Cash and cash equivalents, end of period $ 13,299 7,237
NOTE: NET CASH PROVIDED BY OPERATING ACTIVITIES IS FURTHER
ANALYZED AS FOLLOWS:
Operating profit plus depreciation and amortization
and amortization of stock options:
Newspapers $ 26,792 23,532
Broadcasting 36,540 26,731
Cable 43,374 42,739
Entertainment 15,509 30,570
Security 4,696 4,354
Corporate (5,753) (6,055)
121,158 121,871
Interest expense less amortization of debt
issue costs (28,318) (29,216)
Change in current assets and liabilities 2,407 (2,260)
Other (22,953) (16,629)
Net cash provided by operating activities $ 72,294 73,766
</TABLE>
<PAGE>
<TABLE>
THREE MONTHS HIGHLIGHTS
<CAPTION>
(Unaudited)(In thousands) 1995 1994
<S> <C> <C>
REVENUES:
Newspapers $ 41,304 37,447
Broadcasting 41,762 37,535
Cable 43,550 41,979
Entertainment 36,903 36,188
Security 6,808 6,082
$ 170,327 159,231
OPERATING PROFITS:
Newspapers $ 13,177 11,524
Broadcasting 18,971 13,689
Cable 14,363 12,631
Entertainment 8,150 15,497
Security 1,046 800
Corporate (3,137) (4,290)
$ 52,570 49,851
</TABLE>
Exhibit 99-3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial
statements give effect to the exchange of $45.25 in cash by
Gannett Co., Inc. (the Company) for each share of issued and
outstanding common stock of Multimedia, Inc. (Multimedia)
pursuant to the Merger Agreement. As a result of the merger,
Gannett will also assume or incur the long-term debt of
Multimedia. The purchase price is subject to adjustment if
Multimedia's long-term debt (including the current portion of
long-term debt) at December 31, 1995 exceeds a specified level.
This transaction will be accounted for as a purchase.
The unaudited pro forma combined balance sheet presents the
financial position of Gannett and Multimedia as of that June 25,
1995, assuming that the proposed merger with Multimedia occurred
as of that date. Such pro forma information is based on the
historical balance sheets of the Company at June 25, 1995 and of
Multimedia at June 30, 1995.
As required by rule 11-02 of regulation S-X, the unaudited
pro forma combined statements of income have been prepared
assuming that the proposed merger occurred as of the beginning
of the periods presented. The unaudited combined statements of
income reflect the historical results of operations for Gannett
and Multimedia for their respective 1994 fiscal years and first
six-months of 1995.
The unaudited pro forma combined financial statements give
effect to certain pro forma adjustments which are described in
the notes to these statements. Nonrecurring charges, including
legal fees, investment banker fees, and other professional fees
directly attributable to the merger with Multimedia are not
included in the unaudited pro forma combined financial
statements. In addition, there will be certain other
nonrecurring charges that will result from the merger which are
not included in the unaudited pro forma combined financial
statements. These consist primarily of severance costs and debt
prepayment penalties. The Company does not believe that the
aggregate amount of such nonrecurring charges will be material
in relation to the purchase price. As the nonrecurring charges
are incurred, most will be reflected as part of the purchase
price, others will be included in the expenses of the combined
operations.
The unaudited pro forma combined financial statements do
not reflect any synergies anticipated by the Company as a result
of the merger.
The unaudited pro forma data is presented for informational
purposes only and is not necessarily indicative of the results
of operations or financial position which would have been
achieved had the transaction been completed as of the beginning
of the earliest period presented, nor is it necessarily
indicative of Gannett's future results of operations or
financial position.
The unaudited pro forma combined financial statements
should be read in conjunction with the historical financial
statements of the Company and of Multimedia, including the
related notes thereto.
<PAGE>
<TABLE>
GANNETT CO., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 25, 1995
<CAPTION>
(In thousands) Gannett Multimedia(*) Pro forma Pro forma
Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Cash and marketable securities $ 12,778 $ 13,299 $ 67,000 (1) $ 93,077
Accounts receivable, net 481,026 94,789 575,815
Inventories 79,989 7,782 87,771
Prepaid expenses and other
current assets 57,017 27,179 84,196
--------- ------- --------- ---------
Total current assets 630,810 143,049 67,000 840,859
Property, plant and equipment, net 1,412,358 306,518 318,341 (2) 2,037,217
Excess of acquisition cost over
the value of assets acquired 1,450,020 249,026 1,628,997 (3) 3,328,043
Other assets 189,745 30,533 (30,533)(3) 189,745
--------- ------- --------- ---------
Total assets $3,682,933 $729,126 $1,983,805 $6,395,864
========= ======= ========= =========
LIABILITIES & SHAREHOLDERS' EQUITY
Current maturities of long-term
debt $ 61,476 $ 30,254 $ 91,730
Accounts payable and current
portion of film contracts payable 199,772 22,282 222,054
Accrued expenses and other current
liabilities 234,269 71,192 305,461
Dividends payable 47,608 47,608
Income taxes 43,650 18,137 (18,000)(4) 43,787
--------- ------- --------- ---------
Total current liabilities 586,775 141,865 (18,000) 710,640
Deferred income taxes 155,840 53,574 128,924 (5) 338,338
Long-term debt, less current portion 553,725 548,000 1,835,000 (6) 2,936,725
Postretirement medical and life
insurance liability 308,324 2,230 310,554
Other long-term liabilities 108,561 21,338 129,899
Total shareholders' equity 1,969,708 (37,881) 37,881 (7) 1,969,708
--------- ------- --------- ---------
Total liabilities and
shareholders' equity $3,682,933 $729,126 $1,983,805 $6,395,864
========= ======= ========= =========
</TABLE>
* For comparability, Multimedia amounts, which as of June 30, 1995, have been
reclassified to conform with Gannett's presentation.
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
<PAGE>
<TABLE>
GANNETT CO., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
JUNE 25, 1995
<CAPTION>
(In thousands except Pro forma Pro forma
per share data) Gannett Multimedia(*) Adjustments Combined
<S> <C> <C> <C> <C>
Net Operating Revenues:
Newspapers $1,590,714 $78,355 $1,669,069
Broadcasting 217,863 75,212 293,075
Outdoor 119,164 119,164
Cable 85,450 85,450
Entertainment 74,377 74,377
Security 13,380 13,380
--------- ------- ------ ---------
Total 1,927,741 326,774 0 2,254,515
--------- ------- ------ ---------
Operating Expenses:
Cost of sales and operating
expenses, exclusive of
depreciation 1,076,594 125,996 1,202,590
Selling, general and
administrative expenses,
exclusive of depreciation 346,583 79,768 426,351
Depreciation 78,242 20,449 $(20,449)(1) 101,647
23,405 (2)
Amortization of intangible assets 22,756 7,237 (7,237)(3) 47,736
24,980 (4)
--------- ------- ------ ---------
Total 1,524,175 233,450 20,699 1,778,324
--------- ------- ------ ---------
Operating income 403,566 93,324 (20,699) 476,191
--------- ------- ------ ---------
Non-operating income (expense):
Interest expense (22,610) (28,862) (54,867)(5) (106,339)
Other income (expense) (1,727) (105) (1,832)
--------- ------- ------ ---------
Total (24,337) (28,967) (54,867) (108,171)
--------- ------- ------ ---------
Income before income taxes 379,229 64,357 (75,566) 368,020
Provision for income taxes 153,600 26,709 (23,100)(6) 157,209
Minority interest, net (1,637) (1,637)
--------- ------- ------ ---------
Net income $ 225,629 $ 36,011 $(52,466) $ 209,174
========= ======= ====== =========
Net income per share $1.61 $0.93 $1.49
Average number of outstanding shares 140,065 140,065
</TABLE>
* For comparability, Multimedia amounts, which are for the first six months
of June 30, 1995 have been reclassified to conform with Gannett's
presentation.
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
<PAGE>
<TABLE>
GANNETT CO., INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
DECEMBER 25, 1994
<CAPTION>
(In thousands except
Per share date) Pro forma Pro forma
Gannett Multimedia(*) Adjustments Combined
<S> <C> <C> <C> <C>
Net Operating Revenues:
Newspaper $3,176,787 $150,140 $3,326,927
Broadcasting 406,608 142,841 549,449
Outdoor 241,128 241,128
Cable 165,406 165,406
Entertainment 147,512 147,512
Security 24,584 24,584
--------- ------- ------- ---------
Total 3,824,523 630,483 4,455,006
--------- ------- ------- ---------
Operating Expenses:
Cost of sales and operating
expenses, exclusive of
depreciation 2,106,810 229,390 2,336,200
Selling, general and
administrative expenses,
exclusive of depreciation 696,139 158,248 854,387
Depreciation 163,242 39,025 $(39,025)(1) 207,382
44,140 (2)
Amortization of intangible assets 45,554 14,377 (14,377)(3) 95,514
49,960 (4)
--------- ------- ------- ---------
Total 3,011,745 441,040 40,698 3,493,483
--------- ------- ------- ---------
Operating income 812,778 189,443 (40,698) 961,523
--------- ------- ------- ---------
Non-operating income (expense):
Interest expense (45,624) (59,142) (77,070)(5) (181,836)
Other income (expense) 14,945 25,584 40,529
--------- ------- ------- ---------
Total (30,679) (33,558) (77,070) (141,307)
--------- ------- ------- ---------
Income before income taxes 782,099 155,885 (117,768) 820,216
Provision for income taxes 316,700 64,693 (32,900)(6) 348,493
Minority interest, net (1,163) (1,163)
--------- ------- ------- ---------
Net income $ 465,399 $ 90,029 $(84,868) $ 470,560
========= ======= ======= =========
Net income per share $3.23 $2.35 $3.26
Average number of outstanding shares 144,276 144,276
</TABLE>
* For comparability, Multimedia amounts, which are for the year-ended
December 31, 1994, have been reclassified to conform with Gannett's
presentation.
See accompanying notes to Unaudited Pro Forma Combined Financial Statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The unaudited combined pro forma balance sheet has been prepared
to reflect the acquisition of Multimedia for an aggregate price
of approximately $1.8 billion plus the assumption of
approximately $578 million of Multimedia's long-term debt.
The unaudited pro forma combined balance sheet presents the
financial position of the Company and Multimedia as of June 25,
1995 assuming that the transaction occurred as of June 25, 1995.
Such pro forma information is based on the historical balance
sheets of Gannett as of June 25, 1995 and of Multimedia as of
June 30, 1995.
As required by rule 11-02 of regulation S-X, the unaudited pro
forma condensed combined statements of income assume that the
transaction occurred as of the beginning of the periods
presented. The unaudited pro forma condensed combined statements
of income reflect Multimedia's historical results of operations
for the most recent 12 month period ended December 31, 1994 and
for the six months ended June 30, 1995.
The Company believes that the assumptions used in preparing the
unaudited pro forma combined financial statements provide a
reasonable basis for presenting all of the significant effects
of the merger (other than any synergies anticipated by Gannett,
nonrecurring charges directly attributable to the merger and
nonrecurring charges that will result from combining
operations), and that the pro forma adjustments give effect to
those assumptions in the unaudited pro forma combined financial
statements.
Note 2 - Pro forma Adjustments
A. Pro forma adjustments to the unaudited condensed combined
balance sheet are made to reflect the following:
(1) Proceeds from exercise of all outstanding Multimedia stock
options.
(2) Adjustment to record the fixed assets of Multimedia at
estimated fair value at the acquisition date. The fair
value of fixed assets was estimated on a property-by-
property basis using certain information provided by
Multimedia, and in general consideration of the age,
condition and replacement value of the assets. Estimated
useful lives for depreciation purposes have been assigned
which give appropriate effect to the age, condition and
productiveness of the assets.
(3) Adjustment to record the excess of acquisition cost over the
fair value of net assets acquired (goodwill). The
acquisition cost was allocated to each business segment
based on the value of the segment, which was estimated by
The Company using internal and external valuation reports.
Goodwill for each business segment was calculated as the
excess of allocated purchase price over the estimated fair
value of the assets of the segment. For purposes of the
unaudited pro forma condensed combined statements of income,
goodwill is being amortized over various lives ranging from
ten to forty years.
(4) Tax benefit of options exercised. The effective tax rate
for this adjustment assumes that a portion of the
compensation element of the options exercised will be
deductible for federal and state income tax purposes.
(5) Deferred tax on step-up of fixed assets, using the Company's
combined federal and state tax rate of 40.5%.
(6) The issuance of $1.83 billion in commercial paper necessary
to finance the merger.
(7) The elimination of the shareholders' equity accounts of
Multimedia.
B. Pro forma adjustments to the June 25, 1995 unaudited
condensed combined income statement are made to reflect the
following:
(1) Elimination of Multimedia's historical depreciation expense.
(2) Depreciation expense based on estimated fair market value
and useful lives of Multimedia assets (see note A.2.)
(3) Elimination of Multimedia's historical amortization expense.
(4) Amortization expense on the estimated excess of acquisition
cost over fair value of assets, assuming lives ranging from
ten to forty years.
(5) Interest expense on amount assumed borrowed for
consideration paid ($1.83 billion). The rate used to
calculate interest expense, 5.98%, is based on the weighted
average rate paid by Gannett for commercial paper during the
six-month period ended June 25, 1995.
(6) Record income tax effect of pro forma adjustments. The
effective tax rate on pro forma combined income before taxes
of 42.4% differs from the Company's statutory tax rate of
35% due primarily to non-deductible goodwill and state
income taxes.
C. Pro forma adjustments to the December 25, 1994 unaudited
condensed combined income statement are made to reflect the
following:
(1) Elimination of Multimedia's historical depreciation expense.
(2) Depreciation expense based on estimated fair market value
and useful lives of Multimedia assets (see note A.2.)
(3) Elimination of Multimedia's historical amortization expense.
(4) Amortization expense on the estimated excess of acquisition
cost over fair value of assets, assuming lives ranging from
ten to forty years.
(5) Interest expense on amount assumed borrowed for
consideration paid ($1.83 billion). The rate used to
calculate interest expense, 4.2%, is based on the weighted
average rate paid by Gannett for commercial paper in 1994.
(6) Record income tax effect of pro forma adjustments. The
effective tax rate on pro forma combined income before taxes
of 42.5% differs from the Company's statutory tax rate of
35% due primarily to non-deductible goodwill and state
income taxes.
