Rule 424(b)(3)
File No. 33-42179 of Registration Statement
MULTIMEDIA, INC.
SUPPLEMENT NO. 1 TO PROSPECTUS
DATED DECEMBER 20, 1991
This Supplement No. 1 supplements the Prospectus, dated December 20, 1991
(the "Original Prospectus"), of Multimedia, Inc. (the "Company") respecting
shares of Common Stock ("Common Stock") of the Company which may be offered and
sold by Phillip J. Donahue ("Donahue" or the "Selling Shareholder").
The following information supplements the information set forth in, or
previously incorporated by reference into, the Original Prospectus:
Additional Option Granted to Donahue
By letter dated October 11, 1994, the Company granted an additional option
(the "1994 Option") to Donahue for an aggregate of 50,000 shares of Common
Stock, exercisable at a price of $29.50 per share. 136.6120218 shares covered
by the 1994 Option become exercisable on each calendar day between September 1,
1995 and August 31, 1996 (inclusive). To the extent exercisable, the 1994
Option may, subject to certain limitations, be exercised in whole or in part
(but only for whole shares) until September 30, 2004.
The 1994 Option was granted in connection with a 1994 Amendment, dated
October 1994 (the "1994 Amendment"), to the Contract for Services, as previously
amended, between Donahue and a subsidiary of the Company. Prior to the 1994
Amendment, the subsidiary and Donahue had entered into a 1993 Amendment, dated
July 19, 1993, to the Contract for Services, as previously amended, that had
extended the term of the Contract for Services, as amended, until August 31,
1995. The 1994 Amendment further extended the term of the Contract for
Services, as amended, until August 31 1996.
In the event that Donahue ceases to be affiliated with the Phil Donahue
show while produced by the Company or one of its subsidiaries or a comparable
consistent major production produced by the Company or one of its subsidiaries
for any reason (including without limitation retirement, termination or non-
renewal of the contract in effect immediately prior to such event between
Donahue and the Company or any of its subsidiaries, death or permanent and total
disability), any portion of the 1994 Option which, on the date of such
cessation, was not exercisable shall immediately terminate and be of no further
force and effect.
In the event that during Donahue's lifetime he ceases to be affiliated with
the Phil Donahue show while produced by the Company or one of its subsidiaries
or a comparable consistent major production produced by the Company or one of
its subsidiaries for any reason, including retirement or termination or non-
renewal of the contract in effect immediately prior to such event between
Donahue and the Company or any of its subsidiaries (but not including death or
permanent and total disability), the portion of the 1994 Option that is exercis-
able immediately prior to such cessation may be exercised within a period of 2
years from the date on which Donahue ceases to be so affiliated, but in no event
after the expiration of the fixed term of the 1994 Option. If Donahue shall die
while affiliated with the Phil Donahue show while produced by the Company or one
of its subsidiaries or a comparable consistent major production produced by the
Company or one of its subsidiaries or if Donahue shall have ceased such affilia-
tion by reason of having become permanently and totally disabled, the 1994
Option may be exercised by Donahue or his personal representative during a
period not exceeding 1 year after the date of termination of his affiliation
(but no later than the end of the fixed term of such option) for up to the
number of whole shares for which the 1994 Option could have been exercised at
the time he ceased to be so affiliated.
Upon the occurrence of a "change in control" (as defined in the 1994
Option), the 1994 Option, to the extent it has not terminated, shall become
immediately exercisable in full.
The shares that Donahue could acquire upon exercise of the 1994 Option are
not covered by the Original Prospectus, as supplemented by this Supplement No.
1.
Management's Discussion and Analysis of
Financial Condition and Results of
Operations for the Period Ended
December 31, 1994
RESULTS OF OPERATIONS
The Company had net earnings for 1994 of $90.0 million compared with $99.9
million for 1993. Net earnings per share for 1994 were $2.35 compared with $2.60
for 1993. The 1994 results include net after-tax gains of $16.2 million or $.42
per share from the sales of the Company's wireless cable systems and radio
stations in three markets offset by losses associated with the closing of its
made-for-television movie production business. The results also include $4.5
million or $.12 per share in after-tax start-up costs associated with NEWSTALK
TELEVISION (previously The Talk Channel), the Company's cable channel launched
in October 1994. Earnings from ongoing operations in 1994 (excluding the above
items) were $78.3 million or $2.05 per share. The 1993 net earnings reflect a
net benefit of $14.3 million resulting from the cumulative effect of the adop-
tion of Statements of Financial Accounting Standards ("SFAS") No. 109, "Account-
ing for Income Taxes" and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." In addition, net earnings in 1993 reflect a net
reduction in income tax expense of approximately $12.0 million due to the
resolution of the IRS examination of the Company's 1982 through 1986 consoli-
dated federal income tax returns and the changes in tax rates and amortization
of intangible assets resulting from the Budget Reconciliation Act of 1993. The
1993 earnings also included an after-tax gain of approximately $1.4 million
resulting from the sale of the Company's mobile video production unit in January
1993. 1993 earnings from ongoing operations (excluding the above items) were
$72.2 million or $1.88 per share.
OPERATING REVENUES
The following table shows the percentage increases (decreases) in the Company's
revenues for the years 1994 and 1993.
Division 1994 vs. 1993 1993 vs. 1992
Newspapers 10% 3%
Broadcasting 7% (3%)
Cable --- 14%
Entertainment (9%) 25%
Security 47% 63%
Total operating revenues 3% 11%
Newspapers
The increase in newspaper revenues for 1994 and 1993 resulted from increases in
circulation revenues, advertising revenues and other revenues. Circulation
revenues increased 6% in both 1994 and 1993, principally due to price increases.
Advertising revenues increased 12% in 1994 and 1% in 1993. Advertising revenues
represent approximately 75% of total newspaper operating revenues. Linage
increased 13% in 1994 and 2% in 1993. The 1994 annual average net paid
circulation decreased 1% for daily publications to 327,000 and increased 1% for
Sunday papers to 362,000. At December 31, 1994, daily circulation was 321,000,
a 1% decrease from the prior year, and Sunday circulation was 357,000, a 1%
increase. The 1993 annual average net paid circulation increased 2% for daily
papers to 330,000, and 1% for Sunday papers to 359,000. At December 31, 1993,
daily circulation was 323,000, a slight decrease from the prior year, and Sunday
circulation was 352,000, flat with the prior year. The Company's three largest
newspapers, which are in Greenville, South Carolina, Asheville, North Carolina,
and Montgomery, Alabama, account for approximately 75% of the division's
revenues.
Broadcasting
Broadcasting revenues increased 7% in 1994. Local and national revenues
increased $8.2 million, and political revenues increased $7.0 million. In
addition, revenues decreased by $3.9 million as a result of the sale of the
Company's Milwaukee, Wisconsin, and Shreveport, Louisiana, radio stations.
Broadcasting revenues decreased 3% in 1993. Local and national revenues
increased approximately $5.2 million in 1993, and political revenues were
approximately $6.6 million less than in 1992. The 1993 revenues decreased by
approximately $3.4 million as a result of the sale of the Company's mobile video
production unit. Television operating revenues represent over 95% of the total
broadcasting revenues. Local time sales account for approximately 50% and
national time sales account for approximately 33% of the total television
operating revenues. The remainder of television operating revenues is accounted
for by political, network and other revenues.
Cable
Cable revenues increased less than 1% in 1994. Excluding the impact of the sale
of the wireless cable operations, cable revenues rose 1%. Increases in revenue
resulting from continued subscriber growth were offset by a decline in the
average monthly revenue per subscriber as a result of the FCC's second round of
cable rate regulations, which began on July 15, 1994.
Cable revenues increased 14% in 1993, of which 7% related to the acquisi-
tion of the Indiana Cable systems; 4% related to rate increases; 1% related to
subscriber growth; and 2% related to growth in ancillary services. The average
monthly revenue per cable subscriber at the end of 1994 was $32.56 versus $33.29
in 1993 and $32.13 in 1992. Multimedia Cablevision increased its basic cable
subscriber counts to 432,000 in 1994 from 417,000 in 1993 and 410,000 in 1992.
Entertainment
Entertainment revenues decreased 9% or $14.1 million in 1994. The Company's
made-for-television movie business, Multimedia Motion Pictures (MMP), which was
closed during the year, accounted for a decrease in revenues of $19.9 million.
Revenues from the Company's talk shows increased $3.3 million. Increases in
revenues from the SALLY JESSY RAPHAEL show, JERRY SPRINGER show, RUSH LIMBAUGH,
THE TELEVISION SHOW and two new shows, DENNIS PRAGER and SUSAN POWTER, offset a
reduction in revenues from the DONAHUE show. Revenues from the DONAHUE show
decreased 9% for the year. Revenues from other sources increased $2.7 million.
Entertainment revenues increased 25% in 1993 primarily due to increases in
revenues from the SALLY JESSY RAPHAEL show, the first full year of revenues for
the division's new talk television shows, JERRY SPRINGER and RUSH LIMBAUGH, THE
TELEVISION SHOW, and an increase in movie production from six hours in 1992 to
16 hours in 1993.
Excluding the impact of MMP and new shows in 1994 and 1993, the revenue
increase would have been 3% and 5%, respectively.
The DONAHUE and SALLY JESSY RAPHAEL shows account for virtually all of the
division's profit and represent approximately 45% and 30%, respectively, of the
entertainment division's revenues.
In 1994, Phil Donahue signed a new contract with the Company to host the
DONAHUE show through August 1996. Rush Limbaugh signed a new contract in 1994 to
continue RUSH LIMBAUGH, THE TELEVISION SHOW through 1998. Sally Jessy Raphael
signed a new contract in 1993 to continue to host the SALLY JESSY RAPHAEL show
through August 1998.
The entertainment division's primary business is the production of talk
shows for syndication to television stations across the country. There has been
a significant increase in competition in this area. At the end of 1994, there
were over 15 talk shows in syndication with more scheduled to debut in 1995. The
increase in the number of shows increases competition not only for viewers but
also for advertising dollars, station clearances, guests and production talent.
The impact has been a decline in ratings for many talk shows. The DONAHUE and
SALLY JESSY RAPHAEL shows have experienced ratings declines from 15-30%. These
declines have resulted in station license renewals at lower amounts than in
years past and lower advertising revenues.
In October 1994, the Company launched NEWSTALK TELEVISION, a cable channel
in the news-talk format, to diversify the entertainment division so that results
are not as dependent on personality-driven talk shows. This venture will require
several years of investment before it is expected to achieve profitability. The
Company's current projections are to invest approximately $20 million in
NEWSTALK TELEVISION in 1995 compared with $7.7 million in 1994.
The Company expects the above two factors to result in a reduction in
operating profit of approximately 50% for the Company's entertainment division
for 1995.
Security
Security revenues increased 47% in 1994 and 63% in 1993 primarily due to the
increase in the number of security subscribers. The number of security
subscribers at year-end increased to 65,000 in 1994 from 52,400 in 1993 and
35,300 in 1992. Of the increase in the number of subscribers in 1994, 43% was
due to acquisitions, and 57% was due to internally generated sales. Monitoring
fees from security customers represent approximately 80% of the division's
operating revenues. Installation and maintenance fees account for the remainder
of the division's operating revenues.
OPERATING COSTS AND EXPENSES
Operating costs and expenses are comprised of production costs, selling, general
and administrative expenses, and depreciation and amortization expenses. The
following table shows the percentage increases (decreases) in the Company's
operating costs and expenses for the years 1994 and 1993.
Division 1994 vs. 1993 1993 vs. 1992
Newspapers 7% 4%
Broadcasting (3%) (5%)
Cable 5% 15%
Entertainment (3%) 34%
Security 44% 77%
Total operating costs 3% 12%
Newspapers
The majority of the operating costs and expenses increases in 1994 and 1993 were
due to increases in newsprint costs and production and selling costs associated
with increased advertising revenue. Newsprint represents approximately 20% of
the total newspaper division's operating costs and expenses. Newsprint costs are
expected to increase approximately 20% in 1995.
Broadcasting
The 1994 decrease in broadcasting operating expenses was principally due to
decreases in programming costs and a reduction of approximately $4.1 million
resulting from the sale of the Company's radio stations.
The 1993 decrease in broadcasting operating costs and expenses was
principally due to decreases in programming costs and a reduction of approxi-
mately $2.4 million in costs due to the sale of the Company's mobile video
production unit.
Cable
The 1994 increase in cable operating costs and expenses is primarily attribut-
able to increases in depreciation expense associated with cable rebuilds and
increases in programming expenses.
The 1993 costs and expenses include the results of the Indiana Cable
systems purchased in December 1992. Excluding the results of the Indiana Cable
systems, operating costs and expenses would have increased approximately 6% in
1993, principally due to increases in programming costs.
Entertainment
The 1994 decrease in entertainment operating costs and expenses is primarily due
to the closing of MMP, offset by $7.7 million in start-up costs associated with
the launch of NEWSTALK TELEVISION and costs associated with the two new talk
shows.
The 1993 increase is primarily attributable to the costs related to the
increase in the number of hours of programming by MMP and increases in costs
associated with the first full year of the production of JERRY SPRINGER and RUSH
LIMBAUGH, THE TELEVISION SHOW. The number of hours of programming produced and
sold by MMP increased from six hours in 1992 to 16 hours in 1993.
Excluding the effect of the specific costs mentioned above, operating costs
increases for 1994 and 1993 would have been approximately 7% and 6%,
respectively.
Security
The security operating costs and expenses increases in 1994 and 1993 were
principally due to the expansion of the Company's security alarm business. The
majority of the costs and expenses increases in 1994 and 1993 were due to the
opening of new full-service offices and the increases in central station
monitoring costs and depreciation and amortization expense related to the
subscriber growth. The division opened two full-service offices during 1993 and
three additional full-service offices in 1994. The start-up costs associated
with the opening of offices and the increase in depreciation and amortization
expense are more than offset by the related revenue increases.
OPERATING PROFIT
The above changes in operating revenues and operating costs and expenses
resulted in the following increases (decreases) in the Company's operating
profits for the years 1994 and 1993.
Division 1994 vs. 1993 1993 vs. 1992
Newspapers 21% ---
Broadcasting 33% 2%
Cable (7%) 12%
Entertainment (18%) 13%
Security 66% 1%
Total operating profit 3% 7%
INTEREST EXPENSE
Interest expense was $59 million in 1994, $62 million in 1993 and $72 million in
1992. The decreases in expense in 1994 and 1993 were principally due to interest
savings from debt payments offsetting a slight increase in interest rates
related to the Company's floating rate debt.
The Company's debt financing included a $457 million unsecured bank
facility, under which $135.5 million was outstanding at December 31, 1994, and
$400 million of unsecured Senior Notes. The borrowings under the bank facility
bear a floating interest rate over applicable prime, CD or LIBOR rates based on
the Company's debt to annualized operating cash flow ratio. The Senior Notes
bear interest at a composite rate of 10.7%.
The Company has interest rate swap agreements which effectively fix LIBOR
on $75 million of its floating rate debt at approximately 5.7%. The interest
rate swap agreements expire at various times from June 1996 through November
1996. The Company has an interest rate cap agreement which caps LIBOR at 7% on
$25 million, which expires in December 1995, and an interest rate cap agreement
which caps LIBOR at 7% on $25 million, which begins in 1996 and expires in 1997.
The bank Credit Agreement required the Company to maintain interest rate
protection agreements until December 31, 1993, of not less than 40% of the out-
standing balance under the bank credit facility.
The Company's Board of Directors approved interest rate guidelines in
October 1990 to maintain interest rate protection on a minimum of 70% of
outstanding debt. The purpose of the Company's involvement in interest rate
swaps and caps is to minimize the Company's exposure to interest rate fluctua-
tions on its floating rate debt. The Company believes that it has no material
concentration of credit or market risk with respect to these interest rate
protection agreements.
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 the note ($36.8 million) which bears
interest at a rate of 10% and is due in full on December 26, 1997.
The composite interest rate on all debt was 10.3%, 9.2% and 8.6% at the end
of 1994, 1993 and 1992, respectively.
INCOME TAXES
The effective income tax rates were 41%, 32% and 41% for 1994, 1993 and 1992,
respectively. The resolution of the Internal Revenue Service ("IRS") examination
of the Company's 1982 through 1986 consolidated federal income tax returns and
changes in tax rates and amortization of intangible assets from the Budget
Reconciliation Act of 1993 occurred in the third quarter of 1993. The cumulative
effect of the above mentioned items was a decrease in tax expense of
approximately $12 million. The Company expects the 1995 tax rate to be between
41% and 42%.
The Company is contesting certain proposed deficiencies for 1987 through
1989. The deficiencies principally involve various acquisition issues related
primarily to the cable division. The Company is continuing 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.
MINORITY INTEREST
Minority interest represents the minority shareholders' proportionate share of
the income or loss of certain consolidated subsidiaries, primarily WKYC-TV, Inc.
INFLATION
Historically, the Company has competitively priced its products and services to
more than offset price increases to the Company by vendors and others. The
Company was able to implement price increases for many of its products and
services in 1994, 1993 and 1992, during periods of low inflation. The Company
anticipates this trend of price increases to be sustained through 1995.
The FCC released guidelines in late March of 1994 relating to its second
round of cable rate regulation. While these regulations did not have a material
negative impact on the Company's cable operations, certain planned rate
increases could not be implemented. In November 1994, the FCC issued "going
forward" rules with regard to future rates. The Company will be allowed to
increase cable rates under these regulations as it adds new services.
LIQUIDITY AND CAPITAL RESOURCES
The Company defines liquidity in terms of its ability to fund its current
operations, make capital expenditures and service its debt. Internally generated
funds and the bank Credit Agreement are the Company's primary sources of
liquidity. In addition, in 1994 the Company generated $48.5 million in proceeds
from the sale of its wireless cable business and radio stations in Milwaukee,
Wisconsin; Shreveport, Louisiana; and Greenville, South Carolina. The primary
uses of funds have been for capital expenditures, taxes, acquisitions, debt
repayments and program rights payments.
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)
incurrence of indebtedness; (iv) acquisitions outside the Company's current
lines of business; (v) liens; (vi) investments; (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 the Company is in compliance with all covenants.
Principal payment schedules for the Credit Agreement and Senior Notes are
provided in Note 6 of the Notes to Consolidated Financial Statements. For 1995,
the Company estimates its cash interest expense requirements to be approximately
$60 million, capital expenditure requirements to be approximately $103 million
and the required principal payments to be approximately $30 million. At December
31, 1994, the Company had approximately $230 million unused availability under
the bank Credit Agreement.
The bank facility provides, among other things, working capital funds and
additional available funds for future acquisitions and repurchase of the
Company's stock within certain limitations.
During the first quarter of 1995, the Company completed 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.
ACCOUNTING CHANGES
As is more fully explained in the Notes to Consolidated Financial Statements,
effective January 1, 1993, the Company adopted SFAS No. 106, "Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for
Income Taxes." A net gain, after tax, of $14.3 million, representing the
cumulative effect of these changes in accounting principles, was reported in
1993. Financial statements for 1992 were not restated to apply the provisions of
these statements.
SUBSEQUENT EVENT
On February 22, 1995, the Company announced that its board of directors had
authorized management, together with Goldman, Sachs & Co., to explore strategic
alternatives to enhance shareholder value, including the sale of Multimedia,
Inc., the spin-off of one or more of its divisions, a business combination or
any similar transaction.
* * *
This Supplement No. 1 is dated March 15, 1995.
