Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 33-9443
OUTLET BROADCASTING, INC.
(Exact name of registrant as specified in its charter)
Rhode Island 05-0194550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 Kenney Drive 02920
Cranston, Rhode Island (Zip Code)
(Address of principal executive offices)
(401) 455-9200
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock September 30, 1994
- - - --------------------- -------------------
Class A Common Stock, par value $.01 per share 1,000,000 shares
<PAGE>
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
September 30, 1994 and December 31, 1993
Condensed Consolidated Statements of Operations --
Three Months and Nine Months Ended
September 30, 1994 and September 30, 1993
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1994 and
September 30, 1993
Notes to Condensed Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis
Part II. Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I. FINANCIAL INFORMATION
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30
1993 1994
------------ ------------
(Note) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,756,000 $ 4,286,000
Trade accounts receivable, less allowance
for doubtful accounts (December--$300,000;
September--$377,000) 10,840,000 10,455,000
Film contract rights 3,769,000 4,795,000
Other current assets 793,000 1,053,000
------------ ------------
TOTAL CURRENT ASSETS 17,158,000 20,589,000
OTHER ASSETS
Film contract rights 2,093,000 1,318,000
Deferred financing costs and other 3,385,000 3,117,000
------------ ------------
5,478,000 4,435,000
PROPERTY AND EQUIPMENT 43,797,000 49,511,000
Less accumulated depreciation 25,674,000 27,877,000
------------ ------------
18,123,000 21,634,000
INTANGIBLE ASSETS, less accumulated amortization
(December--$17,544,000;
September--$19,469,000) 76,852,000 77,596,000
------------ -----------
$117,611,000 $124,254,000
============ ============
<PAGE>
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
December 31, September 30
1993 1994
------------ ------------
(Note) (Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 153,000 $ 103,000
Accrued expenses 8,894,000 7,855,000
Film contracts payable 4,187,000 5,310,000
Deferred revenue 833,000
Federal and state income taxes 2,200,000 1,978,000
Current portion of long-term debt 3,500,000 4,250,000
------------ ------------
TOTAL CURRENT LIABILITIES 18,934,000 20,329,000
LONG-TERM DEBT
Senior bank loan 19,500,000 16,125,000
10 7/8% Senior Subordinated Notes 60,000,000 60,000,000
------------ ------------
79,500,000 76,125,000
OTHER LIABILITIES
Film contracts payable 2,754,000 1,439,000
Unfunded pensions 2,652,000 2,750,000
Deferred revenue 4,098,000
Deferred income taxes 4,554,000 4,854,000
Other 3,432,000 3,432,000
------------ ------------
13,392,000 16,573,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock 10,000 10,000
Contributed capital 32,482,000 32,527,000
Accumulated deficit (26,707,000) (21,310,000)
------------ ------------
5,785,000 11,227,000
------------ ------------
$117,611,000 $124,254,000
============ ============
Note: The balance sheet at December 31, 1993 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See accompanying notes.
<PAGE>
<TABLE>
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30
1993 1994 1993 1994
<S> <C> <C> <C> <C>
Net revenue $ 10,674,000 $ 13,695,000 $ 33,531,000 $ 39,981,000
Expenses:
Technical, programming and news 4,359,000 5,055,000 13,248,000 14,150,000
Selling, general and administrative 2,303,000 2,790,000 6,866,000 7,849,000
Corporate expenses 568,000 578,000 1,607,000 1,649,000
Depreciation 632,000 821,000 1,896,000 2,203,000
Amortization of intangible assets 590,000 715,000 1,770,000 1,925,000
------------ ------------ ------------ ------------
8,452,000 9,959,000 25,387,000 27,776,000
------------ ------------ ------------ ------------
Operating income 2,222,000 3,736,000 8,144,000 12,205,000
Other income (expense):
Interest expense:
Loan and notes payable (2,438,000) (2,116,000) (5,220,000) (6,315,000)
Note payable to shareholder (293,000) (4,016,000)
------------ ------------ ------------ ------------
(2,731,000) (2,116,000) (9,236,000) (6,315,000)
Interest income 80,000 30,000 239,000 59,000
Other income 1,324,000 48,000 1,485,000 180,000
Other expense (95,000) (229,000) (349,000) (432,000)
------------ ------------ ------------ ------------
Income before income taxes, extraordinary loss and
cumulative effect of change in accounting
principle 800,000 1,469,000 283,000 5,697,000
Income taxes (benefit) 405,000 (1,529,000) 493,000 300,000
------------ ------------ ------------ ------------
Income (loss) before extraordinary loss and cumulative
effect of change in accounting principle 395,000 2,998,000 (210,000) 5,397,000
Extraordinary loss, net of income taxes (2,269,000) (2,269,000)
Cumulative effect of change in method of accounting
for income taxes 4,434,000
------------ ------------ ------------ ------------
Net income (loss) $ (1,874,000) $ 2,998,000 $ 1,955,000 $ 5,397,000
============ ============ ============ ============
Income (loss) per share:
Before extraordinary loss and cumulative effect of
change in accounting principle $ 0.40 $ 3.00 $ (0.21) $ 5.40
Extraordinary loss, net of income taxes (2.27) (2.27)
Cumulative effect of change in method of accounting
for income taxes 4.44
------------ ------------ ------------ ------------
Net income (loss) per share $ (1.87) $ 3.00 $ 1.96 $ 5.40
============ ============ ============ ============
Weighted average number of
common shares outstanding 1,000,000 1,000,000 1,000,000 1,000,000
============ ============ ============ ============
<FN>
See accompanying notes.
</TABLE>
<PAGE>
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30, September 30
1993 1994
------------ ------------
Cash from operations $ 271,000 $13,552,000
Investing activities:
Capital expenditures-net of disposals (5,622,000) (1,908,000)
Investment in local marketing agreements (1,061,000)
Investment in station acquisition (5,473,000)
------------ ------------
(5,622,000) (8,442,000)
Financing activities:
Issuance of 10 7/8% Senior Subordinated Notes 60,000,000
Proceeds from senior bank loan - net 26,000,000
Redemption of note payable of shareholder (43,895,000)
Redemption of 13 1/4% Senior Subordinated Notes (44,150,000)
Debt refinancing costs (3,145,000)
Premium on debt redemption (2,207,000)
Payment of term loan (2,625,000)
Other 17,000 45,000
------------ ------------
(7,380,000) (2,580,000)
------------ ------------
Net (decrease) increase in cash and cash
equivalents $(12,731,000) $ 2,530,000
============ ============
See accompanying notes.
<PAGE>
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1994
Note 1 - Basis of Presentation
- - - -------------------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine month
period ended September 30, 1994 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1994. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1993.
Deferred revenue represents a one-time payment received upon renewal of
the Company's affiliation with a broadcasting network which will be amortized
into revenue over the six year term of the affiliation. The amount of
deferred revenue to be amortized over the ensuing period of twelve months is
included in current liabilities.
Note 2 - Income (Loss) Per Share
- - - ---------------------------------
Income (loss) per share has been computed by dividing net income (loss)
by the weighted average number of shares of common stock and common stock
equivalents outstanding (when dilutive).
Note 3 - Acquisition
- - - ---------------------
On August 10, 1994 the Company purchased the assets and broadcast license
of television station WYED from Group H Broadcasting Corp. and George G.
Beasley for an aggregate price of $5,372,500. The transaction was accounted
for using the purchase method of accounting.
Note 4 - Contingent Liabilities and Commitments
- - - -----------------------------------------------
The Company has commitments to acquire up to $10,027,000 of film contract
rights at September 30, 1994.
At September 30, 1994, the Company remains contingently liable on
approximately $13,519,000 of store leases associated with its retail division
which was sold as of the fiscal year ended January 31, 1983. All of the
leases have been assumed by others and management believes that future
payments, if any, would not be material to the Company's financial statements.
<PAGE>
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1994
Note 4 - Contingent Liabilities and Commitments - Continued
- - - ------------------------------------------------------------
The Company sold two UHF television stations in March 1990 to third
parties. In connection with those sales, the Company's wholly-owned
subsidiary, Atlin Communications, Inc., remains contingently liable for
outstanding film contracts and commitments in the amount of $541,000. The
film contracts and commitments have been assumed by these third parties and
management believes that future payments it might be required to make, if any,
would be offset by the value of the contracts and would not be material to the
Company's financial statements.
The Company also remains contingently liable on approximately $4,739,000
of building and tower leases related to radio and television stations sold in
March 1990.
The Company may be subject to litigation arising from its normal business
operations. Any liability which may result therefrom, to the extent not
provided by insurance or accruals, would not have a material effect on the
Company's financial position.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
The Company's operations consist of three owned television stations along
with one television station operated under a local marketing agreement. The
owned stations include two VHF television stations, WJAR, which serves the
Providence, Rhode Island area and WCMH, which serves the Columbus, Ohio area.
The third owned television station is WYED, an independent UHF station
acquired in the 1994 third quarter, which serves the Raleigh-Durham-Goldsboro,
North Carolina market area.
The Company commenced operating independent UHF television station WWHO,
Chillicothe, Ohio in the 1994 second quarter. Pursuant to a local marketing
agreement entered into with the licensee of WWHO, the Company serves as a
broker for the sale of that station's advertising time and provides it with
certain programming and operating capabilities. In return, the Company
retains a substantial percentage of WWHO's net operating income to the extent
that it exceeds cumulative net operating losses.
Three Months Ended September 30, 1994 and September 30, 1993
The following table sets forth a comparison of total Company operating
results for the third quarters of 1993 and 1994.
Three Months Ended September 30
1993 1994 Increase(Decrease)
Percent Percent 1994 vs. 1993
of Net of Net Percentage
Dollars in thousands Amount Revenue Amount Revenue Amount Change
- - - --------------------- ------ -------- ------ -------- ------ ---------
Net revenue $10,674 100.0% $13,695 100.0% $3,021 28.3%
Expenses:
Technical, programming
and news 4,359 40.8 5,055 36.9 696 16.0
Selling, general and
administrative 2,303 21.6 2,790 20.4 487 21.1
Corporate expenses 568 5.3 578 4.2 10 1.8
Depreciation and
amortization 1,222 11.5 1,536 11.2 314 25.7
Operating income $ 2,222 20.8% $ 3,736 27.3% $1,514 68.1%
====== ====== ====== ====== =====
Net cash provided (used)
by operations (a) $(1,446) (13.5%) $ 7,993 58.4% $9,439
======= ====== ====== ====== =====
Operating cash
flow (a) $ 3,444 32.3% $ 5,272 38.5% $1,828 53.1%
====== ====== ====== ====== ===== =====
(a) "Net cash provided (used) by operations" includes all cash
flows (including working capital changes) other than cash
flows associated with investing or financing activities.
"Operating cash flow" means operating income plus depreciation
and amortization.
<PAGE>
Buoyed by a strong advertising market, net revenue of $13,695,000 in the
third quarter of 1994 increased by $3,021,000 or 28.3% compared with
$10,674,000 in the third quarter of 1993. Although political advertising
contributed to the revenue gain, non-political revenues were up by more than
20%. Increases occurred in both national spot and local time sales. There
was also an increase of more than 10% in network compensation. This was a
favorable consequence of the terms of the Company's renewed affiliation with
the NBC network which became effective September 1, 1994.
The Company's VHF television stations, WJAR and WCMH, had quarterly
revenue gains of 31.8% and 18.4%, respectively. Continuing strong viewer
ratings at these stations enabled them to raise their advertising rates
compared to those of a year ago. WCMH set a record high in third quarter
revenue. Political advertising provided a significant benefit to WJAR and
accounted for approximately 55% of its quarterly revenue increase. Recent
station additions, WWHO and WYED, added marginally to the revenue gain. Their
aggregate revenue amounted to less than 5% of the prior year's revenue total.
Technical, programming and news expenses in the 1994 third quarter of
$5,055,000 increased by $696,000 or 16.0% from $4,359,000 in the prior year.
Approximately 80% of the overall quarterly increase was caused by inclusion of
operating expenses for WWHO and WYED. Excluding the effect of these 1994
station additions, there was a 3.2% increase in technical, programming and
news expenses at the VHF stations. WJAR incurred additional costs due to its
television coverage of Rhode Island primary elections that were held during
September. WCMH incurred added costs upon telecasting the Little Brown Jug, a
prominent harness horse racing event. As a percent to revenue, technical,
programming and news expenses decreased from 40.8% in the 1993 third quarter
to 36.9% in the 1994 third quarter.
Selling, general and administrative expenses of $2,790,000 in the third
quarter of 1994 increased by $487,000 or 21.1% versus $2,303,000 in the prior
year period. Of the total increase, WWHO and WYED accounted for approximately
$410,000. The balance of the increase primarily reflected higher sales
commissions payable because of increased revenue. As a percentage of revenue,
selling, general and administrative expenses declined to 20.4% in the 1994
third quarter from 21.6% a year ago. Corporate expenses had a minor $10,000
increase in the 1994 third quarter as compared with the prior year. However,
such expenses decreased as a percent to revenue, to 4.2% in the current
quarter from 5.3% a year ago.
Depreciation expense and amortization of intangibles both increased in
the 1994 third quarter due to the Company's recent investments in television
stations WWHO and WYED. Depreciation expense also increased in 1994 because
of an increase in property and equipment resulting from the Company's April
1993 relocation of WJAR studios and corporate headquarters into a new
facility.
Total expenses of $9,959,000 in the third quarter of 1994 increased by
$1,507,000 or 17.8% from $8,452,000 in the prior year. The increase was
substantially attributable to the current year's station additions described
<PAGE>
above. As a percent to revenue, total quarterly expenses in 1994 were 72.7%.
This was a reduction of 6.5 percentage points from the prior year's third
quarter, wherein total expenses were at 79.2% of revenue.
Operating income of $3,736,000 in the 1994 third quarter increased by
$1,514,000 or 68.1% compared to $2,222,000 in the prior year. Operating
income also increased as a percent to revenue, from 20.8% in the third quarter
of 1993 to 27.3% in the third quarter of 1994. The improvement in operating
income was the result of a 28.3% increase in revenue which more than offset a
17.8% increase in total expenses.
The increased operating income also contributed to the Company's
improvement of $9,439,000 in net cash provided (used) by operations.
Similarly, operating cash flow of $5,272,000 increased by $1,828,000 or 53.1%
from last year's $3,444,000 and represented 38.5% of revenue compared to 32.3%
of revenue in the prior year.
In the third quarter of 1994, total interest expense of $2,116,000
decreased by $615,000 or 22.5% compared to $2,731,000 a year ago. The
decrease resulted from a debt refinancing undertaken in 1993 which served to
reduce the Company's outstanding debt as well as lower the rate of interest on
borrowed funds. Details of the refinancing are discussed later. As a result
of the refinancing, the note payable to shareholder was repaid in full. In
the 1994 third quarter, the ratio of operating cash flow - $5,272,000, to
interest expense - $2,116,000, improved to 2.5 to 1. In the third quarter of
1993, this ratio was 1.3 to 1.
Interest income declined in 1994 because of lower cash balances
maintained during the year. In the 1993 third quarter, upon settlement of
certain industry-wide litigation involving contested music license fees, the
Company reversed an accrual of $1,300,000 and credited other income in the
same amount.
The Company's 1994 third quarter income before income taxes totalled
$1,469,000. This was an improvement of $669,000 or 83.6% compared to pretax
income in the prior year period of $800,000. A 1994 third quarter income tax
benefit of $1,529,000, principally representing an adjustment of prior year
net operating losses, served to reduce deferred income taxes payable. For the
current quarter, net income was $2,998,000 or $3.00 per share. This compares
with 1993 third quarter income, before extraordinary loss, of $395,000 or $.40
per share. After an extraordinary loss in the amount of $2,269,000, arising
from a redemption premium and other costs associated with the above noted debt
refinancing, the 1993 third quarter net loss was $1,874,000 or $(1.87) per
share.
Net cash provided by operations in the third quarter of 1994 totalled
$7,993,000. This was an increase of $9,439,000 compared to net cash used by
operations of $1,446,000 in the third quarter of 1993. The increase reflects
the current quarter's improvement in operating income of $1,514,000 combined
with the effect of funds used in the 1993 third quarter for payment of accrued
expenses (primarily accrued interest on refinanced debt) in the amount of
$2,802,000. The current quarter's operations also included a one-time
payment of $5,000,000 received from NBC upon renewal of the Company's
<PAGE>
affiliation with that network. This amount has been reported as deferred
revenue and will be amortized into revenue over the six year duration of the
affiliation. The amount of deferred revenue to be amortized over the ensuing
period of twelve months is included in current liabilities.
The 1994 third quarter saw the Company increase its cash investment in
film contract rights by $1,471,000. This was primarily attributable to the
acquisition of WYED along with payment of film contract obligations during the
period. The film contract payments were effectively funded through accounts
receivable collections. After amortization of film contract rights in the
amount of $1,317,000, the increased net film investment during the quarter was
$154,000.
Because of the Company's increased volume of business activity, and added
stations, outstanding trade accounts receivable continued to trend higher in
the third quarter of 1994 compared with the same period a year ago.
In August 1994 the Company purchased the assets and broadcast license of
television station WYED for an aggregate price of $5,473,000 (including
miscellaneous acquisition costs totalling $100,000). Funds for the
acquisition were provided by internal operations.
Nine Months Ended September 30, 1994 and September 30, 1993
The following table sets forth a comparison of total Company operating
results for the third quarters of 1993 and 1994.
Nine Months Ended September 30
1993 1994 Increase(Decrease)
Percent Percent 1994 vs. 1993
of Net of Net Percentage
Dollars in thousands Amount Revenue Amount Revenue Amount Change
- - - -------------------- ------ ------- ------ ------- ------ ----------
Net revenue $33,531 100.0% $39,981 100.0% $ 6,450 19.2%
Expenses:
Technical, programming
and news 13,248 39.5 14,150 35.4 902 6.8
Selling, general and
administrative 6,866 20.5 7,849 19.7 983 14.3
Corporate expenses 1,607 4.8 1,649 4.1 42 2.6
Depreciation and
amortization 3,666 10.9 4,128 10.3 462 12.6
Operating income $ 8,144 24.3% $12,205 30.5% $ 4,061 49.9
====== ====== ======= ====== ======
Net cash provided
by operations (a) $ 271 .8% $13,552 33.9% $13,281
====== ====== ====== ====== ======
Operating cash
flow (a) $11,810 35.2% $16,333 40.9% $ 4,523 38.3%
====== ===== ====== ===== ====== =====
(a) "Net cash provided by operations" includes all cash flows
(including working capital changes) other than cash flows
associated with investing or financing activities.
"Operating cash flow" means operating income plus depreciation
and amortization.
<PAGE>
For the first nine months of 1994, net revenue totalled $39,981,000.
This was an increase of $6,450,000 or 19.2% versus $33,531,000 in the prior
year period. Improved economic conditions and strong viewer ratings continued
to contribute to the increased revenue performance. Both of the Company's VHF
television stations maintained higher unit advertising rates in the first nine
months of 1994 compared to 1993. The higher rates, along with political
advertising and two added stations, accounted for most of the increase in
year-to-date revenue.
Television stations WJAR and WCMH had year-to-date revenue gains of 23.2%
and 13.4% respectively. Revenues at these stations from local and national
advertising sources, exclusive of political, increased over the prior year by
14.5% and 15.9%, respectively. Total network compensation increased by more
than 3%. The revenue increase provided by television stations WWHO and WYED
amounted to approximately 2% of the prior year's revenue total.
Technical, programming and news expenses increased by $902,000 or 6.8% in
the first nine months of 1994 compared with the same period a year ago.
Virtually all of the increase resulted from the inclusion of expenses for WWHO
and WYED in the current year.
In the first nine months of 1994, selling, general and administrative
expenses increased by $983,000 or 14.3%. Approximately two-thirds of the
increase resulted from inclusion of WWHO and WYED. The remainder of the
increase primarily reflected higher sales commissions because of greater
revenues and increased legal (labor negotiations) and promotional expenses at
WJAR.
Both depreciation expense and amortization of intangibles increased in
the first nine months of 1994 because of the current year's investments in
WWHO and WYED. Depreciation expense also increased because of property
additions during 1993 that became subject to a full year of depreciation in
1994.
Total expenses of $27,776,000 in the first nine months of 1994 increased
by $2,389,000 or 9.4% compared to $25,387,000 in the same prior year period.
However, as a percent to revenue, total expenses for the 1994 year-to-date
were reduced to 69.5% from 75.7% in the first nine months of 1993.
The Company's operating income for the first nine months of 1994 of
$12,205,000 increased by $4,061,000 or 49.9%% when compared with operating
income of $8,144,000 in the first nine months of 1993. The improvement in
operating income resulted from the combined effect of a 19.2% increase in
revenues reduced by a 9.4% increase in total expenses.
<PAGE>
In comparison with the prior year, the current year's interest expense
decreased by $2,921,000 or 31.6% due to the effect of the debt refinancing
that occurred in 1993. Because of reduced cash balances, interest income in
1994 also declined.
In the first nine months of 1994, the ratio of operating cash flow -
$16,333,000, to interest expense - $6,315,000, was 2.6 to 1. In the first
nine months of 1993, this ratio was 1.3 to 1.
Income before income taxes for the first nine months of 1994 amounted to
$5,697,000. This was an improvement of $5,414,000 compared to income of
$283,000 in the prior year period. After a provision for income taxes of
$300,000, which increased deferred income taxes payable, 1994 net income was
$5,397,000 or $5.40 per share. This compares with a 1993 loss of $210,000 or
$(.21) per share before an extraordinary loss from debt extinguishment
(described above) and cumulative effect of change in accounting principle.
Effective January 1, 1993, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 109, "Accounting for Income Taxes", which
requires a change to the liability method of accounting for deferred income
taxes. Adoption of Statement 109 resulted in a cumulative effect of change in
accounting principle, in the amount of $4,434,000 or $4.44 per share,
representing the recognition of previously unrecognized tax benefits. After
giving effect to the extraordinary loss and change in accounting principle,
the 1993 first nine months net income amounted to $1,955,000 or $1.96 per
share.
Net cash provided by operations in the first nine months of 1994 totalled
$13,552,000. This was an increase of $13,281,000 compared to net cash
provided by operations of $271,000 in the first nine months of 1993. The
improvement primarily reflects the Company's increased operating income and
decreased interest expense along with the effect of funds used in the 1993
third quarter for payment of accrued interest on refinanced debt. Year-to-
date operations in 1994 also included the one-time payment of $5,000,000
received from NBC as described above.
During the first nine months of 1994, the Company increased its cash
investment in film contract rights by $4,159,000. This was primarily
attributable to the added television stations along with payment of film
contract obligations. After giving effect to the period's amortization of
film contract rights in the amount of $3,753,000, the increased net investment
in film contract rights was $406,000. This compares with a cash investment in
film contract rights of $4,059,000 during the first nine months of 1993 and a
net increased investment in film contract rights of $192,000 for that period.
Cash required by investing activities totalled $8,442,000 in the first
nine months of 1994. This included capital expenditures of $1,908,000 and an
investment of $1,055,000 pursuant to a local marketing agreement entered into
with the licensee of television station WWHO. The Company is allowed to
recover its aggregate capital expenditure investment in WWHO from operating
profits of WWHO and will share any remaining net operating profits with that
<PAGE>
station's licensee. During 1994, the Company has incurred capital
expenditures totalling approximately $750,000 in connection with WWHO.
Investing activities also include the purchase of television station
WYED, Goldsboro, North Carolina for an aggregate price of $5,473,000. The
Company expects to incur additional capital expenditures during 1994 of
approximately $500,000 for this station.
The Company anticipates that it will finance the capital expenditure
requirements for WWHO and WYED from internally generated funds from operations
and, if necessary, amounts available under its revolving credit facility with
a bank. In this connection, and for added flexibility, the Company may seek
to increase the limit of its revolving credit facility from $5,000,000 to
$10,000,000.
In 1993, cash required by investing activities totalled $5,622,000, for
capital expenditures, which included construction of new corporate
headquarters and WJAR broadcast studios.
Cash used by financing activities in the first nine months of 1994
amounted to $2,580,000. This included payment of required quarterly
installments totalling $2,625,000 due on a term loan with the Company's senior
bank lender.
Financing activities in 1993 were marked by a third quarter refinancing
of long-term debt. On June 28, 1993 the Company entered into a Credit and
Guaranty Agreement with a bank under which the bank agreed to provide a
secured senior credit facility consisting of a term loan in the principal
amount of $25,000,000 and revolving loans in the maximum principal amount of
$5,000,000.
On July 15, 1993, in a public offering, the Company issued
10 7/8% Senior Subordinated Notes due 2003 in the principal amount of
$60,000,000. The proceeds of the offering were used to repay in full a note
payable to shareholder at its carrying value at the time of repayment (which
was $43,895,000 at June 30, 1993) plus accrued interest.
On August 17, 1993 the Company redeemed in full its 13 1/4% Senior
Subordinated Notes having a principal amount outstanding of $44,150,000, plus
accrued interest. The redemption, at 105% of par, required a premium payment
of $2,207,000. Funds for the redemption included $28,000,000 provided by the
senior credit facility, along with funds remaining from the public offering
and available cash. During the 1993 third quarter, the Company subsequently
repaid $2,000,000 of its senior bank borrowings. Total fees and costs
incurred in the debt refinancing, $3,145,000, were capitalized.
In the first nine months of 1994, the Company was able to fund cash used
by both investing and financing activities from cash provided by operations.
Because of the significant improvement in cash provided by operations, the
Company was yet further able to increase its cash on hand by $2,530,000.
<PAGE>
As a result of the improved operations, the Company increased its net
current assets during the period by $2,036,000. This occurred notwithstanding
that current liabilities included $833,000 as a deferred revenue item and
there was an increase of $750,000 in current portion of long-term debt.
The ratio of current assets to current liabilities improved from .9 to 1
at December 31, 1993 to 1.0 to 1 at September 30, 1994. The Company is
benefitting from improved operating results and a reduced annual requirement
for interest expense. It is expected that continuation of this favorable
trend, combined with amounts available under the revolving credit facility
(currently at $5,000,000), will provide adequate liquidity for the Company to
meet its ongoing operating and capital expenditure needs.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- - - --------------------------
There are no pending legal proceedings or actions against the Company or
its subsidiaries which would have a material effect on the business or
financial condition of the Company except for the legal proceedings and
contingent lease and film obligations as described in Note 3 to the
consolidated condensed financial statements on page 7 of this report.
Item 5. Other Information
- - - ---------------------------
On November 2, 1994 the Company announced that it had reached an
understanding with the National Broadcasting Company Inc. for television
station WYED, serving the Raleigh-Durham-Goldsboro, North Carolina market, to
become the NBC affiliate in that market as of October 1, 1995.
Item 6. Exhibits and Reports on Form 8-K
- - - ------------------------------------------
(a) Exhibits -- None.
(b) Reports on Form 8-K -- None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTLET BROADCASTING, INC.
(Registrant)
Date November 10, 1994 /s/ James G. Babb
---------------------- -------------------------------
James G. Babb
Chairman of the Board,
President and
Chief Executive Officer
Date November 10, 1994 /s/ Felix W. Oziemblewski
---------------------- -------------------------------
Felix W. Oziemblewski
Vice President-
Chief Financial Officer
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