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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Fiscal Year Ended:
DECEMBER 31, 1995
( ) 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 0-26928
THE PROVIDENCE JOURNAL COMPANY
(Exact name of registrant as specified in its charter)
Delaware 05-0481966
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
75 Fountain Street, Providence, RI 02902-9985
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 277-7000.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, $1.00 Par Value
Class B Common Stock, $1.00 Par Value
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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
No established public trading market exists for the Common Stock; accordingly,
the aggregate market value of the voting stock of the registrant held by
nonaffiliates of the registrant is not ascertainable.
As of February 29, 1996, there were 38,519 shares of Class A Common Stock and
46,817 shares of Class B Common Stock outstanding.
Documents incorporated by reference:
<TABLE>
<S> <C>
Document Location in Form 10-K in which incorporated
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Portion of the Registrant's Proxy Statement relating Portion of Part III
to the Annual Meeting of Stockholders
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ITEM 1. BUSINESS
GENERAL
The Registrant ("The Providence Journal Company") and its consolidated
subsidiaries are herein collectively referred to as the "Company". The
Company's principal executive offices are located at 75 Fountain Street,
Providence, Rhode Island, and its telephone number is (401) 277-7000.
The Company is a diversified communications company with operations in
television broadcasting ("Broadcasting"), newspaper publishing ("Publishing")
and programming and new media ventures ("Programming and New Media"). In
television broadcasting, the Company owns and operates or provides programming
and marketing services for eleven television stations in nine geographically
diverse markets, including five stations serving areas that are among the fifty
largest domestic television markets. The Company's published newspapers known
collectively as the Journal, have the largest circulation in the Rhode Island
and Southeastern Massachusetts market. The Company was a founding partner of
the Television Food Network, is the key investor in America's Health Network,
launched the NorthWest Cable News Channel and Rhode Island Horizons (an
electronic on-line information service) in 1995, and is involved in various
other programming and new media ventures.
Recent Developments
Pursuant to the transactions described below, on October 5, 1995, the Company
acquired its joint venture partner's 50% interest in five television
broadcasting stations owned and operated by King Holding Corp. ("KHC") and
disposed of all its cable operations.
Prior to the consummation of the Merger (defined below) on October 5, 1995 and
other transactions described below, Broadcasting, Publishing and Programming and
New Media were conducted by Old PJC (as defined below), which was also engaged
in the ownership and operation of cable television systems ("PJC Cable
Business"). The Company was incorporated in the State of Delaware on November
15, 1994 and is successor to Providence Journal Company ("Old PJC") which
reorganized itself and disposed of its cable operations on October 5, 1995 in a
series of transactions as described below. Old PJC was incorporated in the
State of Rhode Island in 1884.
On October 5, 1995, Old PJC completed the acquisition of its joint venture
partner's interest in KHC for $265 million, including $5 million in transaction
fees (the "Kelso Buyout"), completed the transfer of all non-cable operations
from Old PJC to the Company in a substantially tax-free reorganization pursuant
to which the shares of capital stock of the Registrant were distributed to the
shareholders of Old PJC (the "PJC Spin-Off"), and, following the PJC Spin-Off,
at which point it held only Old PJC's cable television businesses and assets,
Old PJC was merged ("the Merger") with and into Continental Cablevision, Inc.
("Continental"). Immediately prior to the Kelso Buyout, Continental purchased
for $405 million all of the stock of King Videocable Company ("KVC"), a wholly
owned subsidiary of King Broadcasting Company ("KBC"), which is wholly owned by
KHC. As a result of these transactions, the Company, in substance, became
successor to Old PJC, in the same lines of businesses, simultaneously disposing
of its cable operations. These transactions are more fully discussed in Note 2
of the Consolidated Financial Statements. Since the Company is in substance
the successor to Old PJC, the remainder of this Annual Report on Form 10-K will
not distinguish between Old PJC and the Company except when such distinction is
necessary for clear disclosure.
Segment Financial Information
Financial information about the Company's segments in addition to that
provided in the description of the businesses which immediately follows, is
provided in item 7 of this Form 10-K and in Note 18 of the Consolidated
Financial Statements of the Company included herein.
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EBITDA
Earnings before interest, taxes, depreciation, amortization, stock-based
compensation and pension expense ("EBITDA") is considered by the Company to be
a good indicator in evaluating performance and is used throughout this
document. EBITDA should not, however, be considered by the reader as an
alternative to operating or net income computed in accordance with generally
accepted accounting principles ("GAAP") as an indicator of performance or as an
alternative to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity.
DESCRIPTION OF BROADCASTING BUSINESS
THE STATIONS
The Company owns and operates nine network-affiliated television stations (the
''Stations'') in geographically diverse markets, including five in the fifty
largest domestic television markets, as measured by the number of television
households. The Company also provides programming and marketing services for
two television stations (one in Honolulu and one in Tucson) under "Local
Marketing Agreements" ("LMA"), as discussed below. Seven of the television
stations extend their reach through satellite stations, low power television
stations and translators. For the year ended December 31, 1995, the Company had
net revenues from its broadcast operations of $181 million, or 58% of
consolidated revenues of the Company. EBITDA for broadcasting was $64.4 million
of consolidated EBITDA of $65.2 million.
The following table sets forth general information for each of the Stations and
the markets they serve, based on the Nielsen Station Index as of November 1995.
The Stations are listed in order of the ranking of their Designated Marketing
Area ("DMA").
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NUMBER OF 1995
COMMERCIAL TV STATION MARKET
CHANNEL/ DMA STATIONS IN RANK IN STATION TV HOUSEHOLDS
STATION/MARKET AREA AFFILIATION FREQUENCY RANK(1) MARKET(2) MARKET(3) SHARE(4) (IN THOUSANDS)(5)
- ------------------- ----------- --------- ------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
KING-TV . . . . . . NBC 5/VHF 12 10 1 18 1,464
Seattle, WA
KGW(TV) . . . . . . NBC 8/VHF 24 8 2 16 933
Portland, OR
WCNC-TV . . . . . . NBC 36/UHF 28 7 3 10 802
Charlotte, NC
KASA-TV . . . . . . Fox 2/VHF 48 8 4 10 553
Albuquerque/Santa Fe, NM
WHAS-TV . . . . . . ABC 11/VHF 50 7 1 21 543
Louisville, KY
KHNL(TV) . . . . . NBC 13/VHF 70 9 4 9 381
Honolulu, HI (6)
KREM-TV . . . . . . CBS 2/VHF 74 4 3 17 366
Spokane, WA
KMSB-TV . . . . . . Fox 11/VHF 80 6 4 10 344
Tucson, AZ
KTVB(TV) . . . . . NBC 7/VHF 127 5 1 28 233
Boise, ID
<FN>
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(1) Ranking of DMA served by the Station among all DMA's, measured by the
number of television households.
(2) Represents the number of television stations broadcasting in the DMA,
excluding public stations. Does not include national cable channels.
(3) Station share ranking among all commercial television broadcast stations
in its DMA, as measured by from the November 1995 Nielsen Station Index.
(4) Represents the number of television sets tuned to the Station as a
percentage of the number of television sets in use for Sunday-Saturday
6:00 a.m.-2:00 a.m. from the November 1995 Nielsen Station Index.
(5) As reported in the November 1995 Nielsen Station Index.
(6) KHNL station share and rank are shown as the Honolulu Fox affiliate. KHNL
switched to the NBC affiliation on January 1, 1996.
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KING-TV-Seattle, WA. KING operates in the Seattle/Tacoma market, the twelfth
largest television market in the United States, with approximately 1.46 million
television households and a population of approximately 3.8 million. In 1995,
the Seattle/Tacoma market totaled approximately $258 million in television
advertising revenue. There are ten licensed commercial television stations in
Seattle/Tacoma (six VHF stations and four UHF stations) and three public
stations. All four network affiliates are VHF (including KING), two
independents are VHF and the other four independents are UHF. KING has been an
NBC affiliate since 1959, and its current affiliation agreement expires in
2001.
KGW(TV)-Portland, OR. KGW operates in the Portland market, the twenty-fourth
largest television market in the United States, with approximately 933,000
television households and a population of approximately 2.4 million. In 1995,
the Portland market totaled approximately $142 million in television
advertising revenue. There are eight licensed commercial television stations
in the Portland market (four VHF stations and four UHF stations) and one public
station. Three network affiliates are VHF (including KGW), the Fox station is
UHF, one independent station is VHF and the other three independent stations
are UHF. KGW has been an NBC affiliate since 1959, and its current affiliation
agreement expires in 2001.
WCNC-TV-Charlotte, NC. WCNC operates in the Charlotte market, the
twenty-eighth largest television market in the United States, with
approximately 802,000 television households and a population of approximately
2.1 million. In 1995, the Charlotte market totaled approximately $119 million
in television advertising revenue. There are seven licensed commercial
television stations in Charlotte (two VHF and five UHF stations) and one public
station. Two network affiliates are VHF stations, two network affiliates are
UHF stations (including WCNC), and three independent stations are UHF stations.
WCNC has been an NBC affiliate since 1978, and its current affiliation
agreement expires in 2001.
KASA-TV-Albuquerque/Santa Fe, NM. KASA operates in the Albuquerque/Santa Fe
market, the forty-eighth largest television market in the United States, with
approximately 553,000 television households and a population of 1.5 million.
In 1995, the Albuquerque/Santa Fe market totaled approximately $71 million in
television advertising revenue. There are eight licensed commercial television
stations in Albuquerque/Santa Fe (five VHF stations and three UHF stations) and
two public stations. All four networks affiliates are VHF stations (including
KASA), one independent is a VHF station and three independents are UHF
stations. KASA has been a Fox affiliate since 1986, and its current
affiliation agreement expires in 1998. KASA is the Fox affiliate for New
Mexico and Southern Colorado.
WHAS-TV-Louisville, KY. WHAS operates in the Louisville market, the fiftieth
largest television market in the United States, with approximately 543,000
television households and a population of approximately 1.4 million. In 1995,
the Louisville market totaled approximately $82 million in television
advertising revenue. There are seven licensed commercial television stations
in Louisville (two VHF and five UHF stations) and one public station. Two
network stations are VHF (including WHAS), two network stations are UHF and
the three independent stations are UHF. WHAS has been an ABC affiliate since
1990, and its current affiliation agreement expires in 2000.
KHNL(TV)-Honolulu, HI. KHNL operates in the Honolulu market, the seventieth
largest market in the United States, with approximately 381,000 television
households and a population of approximately 1.2 million. In 1995, the
Honolulu market totaled approximately $58 million in television advertising
revenue. There are nine licensed commercial television stations in Honolulu
(five VHF stations and four UHF stations) and one public station. All four
network stations are VHF (including KHNL). One independent station is VHF
(KFVE) and four independent stations are UHF. KHNL became an NBC affiliate on
January 1, 1996, and its affiliation agreement with NBC will expire in 2002.
For a description of KHNL's local marketing agreement with KFVE, see "Local
Marketing Agreements".
KREM-TV-Spokane, WA. KREM operates in the Spokane market, the seventy-fourth
largest television market in the United States, with approximately 366,000
television households and a population of approximately 925,000. In 1995, the
Spokane market totaled approximately $43 million in television advertising
revenue. There are four licensed commercial television stations in Spokane
(three VHF stations and one UHF station) and three public stations. Three
network affiliates are VHF stations (including KREM) and the Fox affiliate is a
UHF station. KREM has been a CBS affiliate since 1977, and its current
affiliation agreement expires in 1996 and it is anticipated it will be extended
to 2002.
KMSB-TV-Tucson, AZ. KMSB operates in the Tucson market, the eightieth largest
television market in the United States, with approximately 344,000 television
households and a population of approximately 860,000. In 1995, the Tucson
market totaled approximately $50 million in television advertising revenue.
There are six licensed commercial television stations in Tucson (four VHF
stations and two UHF stations) and two public stations. All four network
affiliates are VHF stations (including KMSB), and two independent stations are
UHF stations. KMSB has been a Fox affiliate since 1986, and its current
affiliation agreement expires in 1998.
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For a description of KMSB's local marketing agreement with KTTV, see "Local
Marketing Agreements".
KTVB(TV)-Boise, ID. KTVB operates in the Boise market, the one hundred
twenty-seventh largest television market in the United States, with
approximately 233,000 television households and a population of 475,000. In
1995, the Boise market totaled approximately $26 million in television
advertising revenue. There are five licensed commercial television stations in
Boise (all VHF stations) and one public station. KTVB has been an NBC
affiliate since 1953, and its current affiliation agreement expires in 2001.
KTVB's programming is simulcast through its low power television station,
KTFT-LP, located in Twin Falls, Idaho. KTVB is the market leader in Boise,
with news ratings and audience shares which are nearly double those of its
nearest competitor.
COMPETITION IN THE TELEVISION INDUSTRY
Competition in the television industry is on several levels: competition for
audience, competition for programming (including news) and competition for
advertisers. Additional factors that are material to a television station's
competitive position include signal coverage and assigned frequency. The
broadcasting industry is continually faced with technological change and
innovation, the possible rise in popularity of competing entertainment and
communications media, and governmental restrictions or actions of federal
regulatory bodies, including the Federal Communications Commission ("FCC") and
the Federal Trade Commission, any of which could have a material effect on
Broadcasting.
AUDIENCE. Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the daily
programming on the Stations is supplied by the network with which each Station
is affiliated. In those time periods, the Stations are totally dependent upon
the performance of the network programs in attracting viewers. There can be no
assurance that such programming will achieve or maintain satisfactory
viewership levels in the future. Non-network time periods are programmed by the
Station with a combination of self-produced news, public affairs and other
entertainment programming, including news and syndicated programs purchased for
cash, cash and barter, or barter only.
Independent stations, whose number has increased significantly over the past
decade, have also emerged as viable competitors for television viewership. In
addition, each of Warner Brothers and Paramount has launched a new television
network. The Company is unable to predict the effect, if any, that either
network or future networks will have on the future operating results of
Broadcasting.
In addition, the development of methods of television transmission of video
programming other than over-the-air broadcasting, and in particular the growth
of cable television, has significantly altered competition for audience in the
television industry. These other transmission methods can increase competition
for a broadcasting station by bringing into its market distant broadcasting
signals not otherwise available to the station's audience and also by serving
as a distribution system for non-broadcast programming originated on the cable
system. Through the 1970s, television broadcasting enjoyed virtual dominance in
viewership and television advertising revenues because network-affiliated
stations competed only with each other in most local markets. Although cable
television systems were initially used to retransmit broadcast television
programming to paid subscribers in areas with poor broadcast signal reception,
significant increases in cable television penetration occurred throughout the
1970s and 1980s in areas that did not have signal reception problems. As the
technology of satellite program delivery to cable systems advanced in the late
1970s, development of programming for cable television accelerated
dramatically, resulting in the emergence of multiple, national- scale program
alternatives and the rapid expansion of cable television and higher subscriber
growth rates. Historically, cable operators have not sought to compete with
broadcast stations for a share of the local news audience. Recently, however,
certain cable operators have elected to compete for such audiences, and the
increased competition could have an adverse effect on the advertising revenues
of Broadcasting.
Other sources of competition include home entertainment systems (including
VCRs and playback systems, videodisks and television game devices), ''wireless
cable'' services, satellite master antenna television systems, low power
television stations, television translator stations and low-powered DBS video
distribution services, telephone company video systems, computer on-line
services, and other entertainment and advertising media. The Stations also
face competition from medium and high-powered DBS services, which transmit
programming directly to homes equipped with special receiving antennas.
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Further advances in technology may increase competition for household audiences
and advertisers. Video compression techniques, now in use with direct
broadcast satellites and in development for cable and "wireless cable," are
expected to permit greater numbers of channels to be carried with existing
bandwidth. These compression techniques, as well as other technological
developments, are applicable to all video delivery systems, including
over-the-air broadcasting, and have the potential to provide vastly expanded
programming to highly targeted audiences. Reduction in the cost of creating
additional channel capacity could lower entry barriers for new channels and
encourage the development of increasingly specialized ''niche'' programming.
This ability to reach very narrowly defined audiences is expected to alter the
competitive dynamics for advertising expenditures. The Company is unable
to predict the effect that these or other technological changes will have on
the broadcast television industry or the future results of The Company's
operations.
PROGRAMMING. Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. The Stations compete against in-market broadcast station
competitors for exclusive access to off-network first-run products (such as
Oprah) and reruns (such as Roseanne) in their respective markets. Cable
systems generally do not compete with local stations for programming, although
various cable networks from time to time have acquired programs that might have
otherwise been purchased by local television stations. Competition for
exclusive news stories and features is also endemic to the television industry.
ADVERTISING. Advertising rates are based upon the size of the market in which
the Station operates, a program's popularity among the viewers that an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market served by the Station, the
availability of alternative advertising media in the market area, aggressive
and knowledgeable sales forces, and development of projects, features and
programs that tie advertiser messages to programming. In addition to competing
with other media outlets for audience share, the Stations also compete for
advertising revenues, which comprise their primary source of revenues. The
Stations compete for such advertising revenues with other television stations
in their respective markets, as well as with other advertising media, such as
newspapers, radio stations, magazines, outdoor advertising, transit
advertising, yellow page directories, direct mail and local cable systems.
Competition for advertising dollars in the broadcasting industry occurs
primarily within individual markets. The Stations are located in competitive
markets.
LOCAL MARKETING AGREEMENTS
Independent stations sometimes do not have the management expertise or
operating efficiencies available to the Company as a multiple-station group
broadcaster. Accordingly, these stand-alone stations often operate at minimal
profit or at a loss. In Tuscon and Honolulu, the Company has entered into LMAs
with the owners of such stand-alone stations pursuant to which the Company
provides operational and marketing services and programming to such stations
for its own account (subject to certain FCC requirements regarding licensee
control of the station) and pays the station owner an agreed upon fee.
The Company's LMA strategy, in part, is intended to permit stations that
otherwise might "go dark" or operate marginally to add programming and public
affairs coverage and contribute to diversity in their respective markets.
In 1991 and 1993 respectively, the Company entered into 10-year LMA's, pursuant
to which KMSB-TV provides marketing services and programming to KTTU-TV in
Tucson, Arizona and KHNL(TV) provides marketing services and programming to
KFVE(TV) in Honolulu, Hawaii. Under its LMA in Tucson, the Company is required
to pay a fixed periodic fee and incur programming and operating costs relating
to the LMA station, but retains all advertising revenues. Under its LMA in
Honolulu, the Company incurs programming and most operating costs and is
required to pay a percentage of revenue to KFVE(TV). In consultation with the
respective LMA station owners, the Company in 1994 arranged for both KTTU and
KFVE to become affiliates of the new United Paramount Network.
SATELLITE, LOW POWER AND TRANSLATOR STATIONS
The Company owns and operates, or is constructing, satellite, low-power or
translator stations in seven of its markets. By operating these facilities, a
television station is able to achieve coverage of all, or nearly all, of a
market that is difficult to cover because of its large size or its terrain
features. Low power television stations and translators broadcast at a lower
transmitting power and cover a smaller geographic area than a full-power
station. A satellite station operates as a full-power television station.
Translators or low-power television stations are operated by WCNC-TV, KMSB-TV,
KASA-TV, KGW(TV), KREM-TV, KTVB(TV) and KHNL(TV). Additionally, KHNL(TV)
operates two satellite stations KHBC-TV, Channel 2, Hilo, Hawaii; and KOGG(TV),
Channel 15, Wailuku, Hawaii.
LICENSING AND REGULATION
The following is a brief discussion of certain provisions of the Communications
Act and of FCC regulations and policies that affect Broadcasting. Reference
should be made to the Communications Act, FCC rules and the public notices and
rulings of the FCC, on which this discussion is based, for further information
concerning the nature and extent of FCC regulation of television broadcasting
stations.
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LICENSE RENEWAL, ASSIGNMENTS AND TRANSFERS. Television broadcasting licenses
are granted for a maximum of eight years (five years prior to 1996) and are
subject to renewal upon application to the FCC. The FCC prohibits the
assignment of a license or the transfer of control of a broadcasting license
without prior FCC approval. In determining whether to grant or renew a
broadcasting license, the FCC considers a number of factors pertaining to the
applicant, including compliance with limitations on alien ownership, common
ownership of broadcasting, cable and newspaper properties, and compliance with
character and technical standards. The Telecommunications Act of 1996
("Telecommunications Act"), which has been enacted, but not yet fully
implemented by the FCC, eliminates the comparative renewal process and
simplifies license renewal. During certain limited periods when a renewal
application is pending, petitions to deny a license renewal may be filed by
interested parties, including members of the public. Such petitions may raise
various issues before the FCC. The FCC is required to hold evidentiary,
trial-type hearings on renewal applications if a petition to deny renewal
raises a "substantial and material question of fact" as to whether the grant of
the renewal application would be inconsistent with the public interest,
convenience and necessity. The FCC is required to renew a broadcast license
if the FCC finds that the station has served the public interest, convenience
and necessity; there have been no serious violations by the licensee of either
the Communications Act or the FCC's rules; and there have been no other
violations by the licensee which taken together would constitute a pattern of
abuse. If the incumbent licensee fails to meet the renewal standard, and if
it does not show other mitigating factors warranting a lesser sanction, the FCC
then has the authority to deny the renewal application and consider a competing
application.
Failure to observe FCC rules and policies, including, but not limited to, those
discussed herein, can result in the imposition of various sanctions, including
monetary forfeitures, the grant of short-term (i.e., less than the full
eight-years) license renewals or, for particularly egregious violations, the
denial of a license renewal application or revocation of a license.
The FCC license for WCNC-TV expires on December 1, 1996. The license for
WHAS-TV expires on August 1, 1997. The licenses for KMSB-TV, KASA-TV and
KTVB(TV) expire on October 1, 1998. The licenses for KING-TV, KREM-TV, KGW(TV)
and KHNL(TV) expire on Feb. 1, 1999.
MULTIPLE OWNERSHIP RULES AND CROSS OWNERSHIP RESTRICTIONS. The FCC generally
applies its ownership limits to ''attributable'' interests held by an
individual, corporation, partnership or other association. In the case of
corporations holding broadcast licenses, the interests of officers, directors
and those who, directly or indirectly, have the right to vote 5% or more of the
corporation's stock (or 10% or more of such stock in the case of insurance
companies, mutual funds, bank trust departments and certain other passive
investors that are holding stock for investment purposes only) are generally
deemed to be attributable, as are positions as an officer or director of a
corporate parent of a broadcast licensee. On a national level, pursuant to the
Telecommunications Act, the FCC has eliminated the restrictions on the number
of television stations in which a person or entity may have an attributable
interest. The Telecommunications Act establishes a national television audience
reach limit of 35%. The Telecommunications Act requires the FCC to conduct a
rulemaking proceeding to determine whether the local "duopoly" television
ownership rules should be retained, modified or eliminated. The present
"duopoly" rules prohibit attributable interests in two or more television
stations with overlapping service areas. The Telecommunications Act
grandfathers existing LMAs and permits future LMAs that are in compliance with
FCC rules. The FCC may, however, consider the adoption of new restrictions on
television LMAs, including the treatment of an LMA as an attributable interest
in the future. Further, if the FCC were to find that a licensee of an LMA
station failed to maintain control over its operations, the licensee of the LMA
station and/or the operator be subject to sanctions. The Telecommunications Act
directs the FCC to extend its liberal waiver policy of the one-to-a-market
restrictions (allowing radio-television combinations) to the top 50 markets,
consistent with the public interest, convenience and necessity.
The statutory prohibition against television station/cable system
cross-ownership is repealed in the Telecommunications Act, but the FCC's
parallel cross-ownership rule remains in place. The FCC intends to conduct a
proceeding on repeal of this cross-ownership restriction. The television
station/daily newspaper cross-ownership prohibition in the FCC rule was not
repealed by the Telecommunications Act. The FCC, however, intends to conduct a
rulemaking proceeding on whether to repeal the restriction. The
Telecommunications Act requires the FCC to review its ownership rules
biennially as part of its regulatory reform obligations.
The Company is unable to predict the ultimate outcome of possible
changes to these FCC rules and the impact such changes may have on its
broadcasting operations.
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ALIEN OWNERSHIP. Under the Communications Act, broadcast licenses may not be
granted to or held by any corporation having more than one-fifth of its capital
stock owned of record or voted by non-U.S. citizens (including a non-U.S.
corporation), foreign governments or their representatives (collectively,
''Aliens'') or having an Alien as an officer or director. The Communications
Act also prohibits a corporation, without an FCC public interest finding, from
holding a broadcast license if that corporation is controlled, directly or
indirectly, by another corporation, any officer of which is an Alien, or more
than one-fourth of the directors of which are Aliens, or more than one-fourth
of the capital stock of which is owned of record or voted by Aliens. The FCC
has issued interpretations of existing law under which these restrictions in
modified form apply to other forms of business organizations, including general
and limited partnerships. As a result of these provisions, and without an FCC
public interest finding, the Company, which serves as a holding company
for its various television station licensee subsidiaries, cannot have more than
25% of its capital stock owned of record or voted by Aliens, cannot have an
officer who is an Alien and cannot have more than one-fourth of the Company's
Board of Directors consisting of Aliens.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the ''public interest.'' Since the late 1970s, the FCC gradually relaxed
or eliminated many of the more formalized procedures it had developed to
promote the broadcast of certain types of programming responsive to the needs
of a station's community of license. Broadcast station licensees continued,
however, to be required to present programming that is responsive to community
problems, needs and interests and to maintain certain records demonstrating
such responsiveness. Complaints from viewers concerning a station's
programming may be considered by the FCC when it evaluates license renewal
applications, although such complaints may be filed, and generally may be
considered by the FCC, at any time. Stations also must follow various rules
promulgated under the Communications Act that regulate, among other things,
children's television programming, political advertising, sponsorship
identifications, contest and lottery advertising, obscene and indecent
broadcasts, and technical operations, including limits on radio frequency
radiation. In addition, broadcast licensees must develop and implement
affirmative action programs designed to promote equal employment opportunities,
and must submit reports to the FCC with respect to these matters on an annual
basis and in connection with a license renewal application.
SYNDICATED EXCLUSIVITY/TERRITORIAL EXCLUSIVITY. Effective January 1, 1990,
the FCC reimposed syndicated exclusivity rules and expanded the existing
network non-duplication rules. The syndicated exclusivity rules allow local
broadcast stations to require that cable operators black out certain
syndicated, non-network programming carried on ''distant signals'' (i.e.,
signals of broadcast stations, including so-called superstations, that serve
areas substantially removed from the local community).
PRIME TIME ACCESS RULE. The FCC's prime time access rule (the ''PTAR'') also
places programming restrictions on affiliates of ''networks''. The PTAR
restricts affiliates of ''networks'' in the 50 largest television markets (as
defined by the PTAR) from broadcasting more than three hours of network
programming during the four hours of prime time. Five of the Stations are
located in the nation's 50 largest television markets. In a Report and Order
released on July 31, 1995, the FCC decided to repeal the PTAR effective August
30, 1996. The Company cannot predict the effect any modification or
elimination of the PTAR would have on Providence Journal's programming or
operations.
RESTRICTIONS ON BROADCAST ADVERTISING. The advertising of cigarettes on
broadcast stations has been banned for many years. The broadcast advertising of
smokeless tobacco products has more recently been banned by Congress. Certain
Congressional committees have in the past examined legislative proposals to
eliminate or severely restrict the advertising of beer and wine. Providence
Journal cannot predict whether any or all of such proposals will be enacted
into law and, if so, what the final form of such law might be. The elimination
of all beer and wine advertising would have an adverse effect on the Stations'
revenues and operating income as well as the revenues and operating income of
other stations that carry beer and wine advertising.
OTHER PROGRAMMING RESTRICTIONS. The Telecommunications Act requires that any
newly manufactured television set with a picture screen of 13 inches or greater
be equipped with a feature designed to enable viewers to block all programs
with a certain violence rating (the "v-chip"). The FCC, after consulting with
the TV manufacturing industry, shall specify the effective date of this
requirement, which may not be less than two years after enactment of the law.
The FCC is directed to oversee the adoption of standards for this blocking
technology. If the television industry has not voluntarily devised a violence
rating system within one year, the FCC is directed to prescribe a rating
system. Industry efforts to adopt a rating system, similar to the motion
picture rating system, are now underway. The Company cannot predict
whether the v-chip and a ratings system will have any significant effect on the
operations of Broadcasting.
CABLE "MUST-CARRY" OR "RETRANSMISSION CONSENT" RIGHTS. The 1992 Cable Act
requires television broadcasters to make an election to exercise either
certain "must-carry" or "retransmission consent" rights in connection with
carriage by cable television systems of its programming in the station's local
market. If a broadcaster chooses to exercise its must-carry rights, it may
demand
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carriage on a specified channel on cable systems within its market. Must-carry
rights are not absolute, and their exercise is dependent on variables such as
the number of activated channels on and the location and size of the cable
system and the amount of duplicative programming on a broadcast station. Under
certain circumstances, a cable system may decline to carry a given station. If
a broadcaster chooses to exercise its retransmission consent rights, it may
prohibit cable systems from carrying its signal, or permit carriage under a
negotiated compensation arrangement.
On April 8, 1993, a three-judge panel of the United States District Court for
the District of Columbia upheld the constitutionality of the must-carry
provisions of the 1992 Cable Act. In 1994, the Supreme Court ruled that the
must-carry provisions were ''content neutral'' and thus not subject to strict
scrutiny and that Congress' stated interests in preserving the benefits of
free, over-the- air local broadcast television, promoting the widespread
dissemination of information from a multiplicity of sources and promoting fair
competition in the market for television programming all qualify as important
governmental interests. However, the Court remanded the case to a lower federal
court with instructions to hold further proceedings with respect to evidence
that lack of the must-carry requirements would harm local broadcasting. In
late 1995, on remand, the three-judge panel of the United States District Court
for the District of Columbia upheld the constitutionality of the must-carry
requirements. The case is now again before the Supreme Court. A decision is
likely in the first half of 1997.
PROPOSED LEGISLATION AND REGULATIONS. The FCC has proposed the adoption of
rules for implementing Advanced Television (''ATV'') in the United States.
Implementation of ATV will improve the technical quality of over-the-air
broadcast television. Under certain circumstances, however, conversion to ATV
operations may reduce a station's geographical coverage area. The FCC is
considering the implementation of a proposal that would allot a second
broadcast channel to each regular commercial television station for ATV
operation. Stations would be required to phase in their ATV operations on the
second channel, with a three-year period to build necessary ATV facilities and
a consecutive three-year period in which to begin operations. Such stations
would be required to surrender their non-ATV channel 15 years after the
commencement of the first three-year period. Implementation of ATV will impose
additional costs on television stations providing the new service due to
increased equipment and operating costs. The Company estimates that the
adoption of ATV would require average capital expenditures of approximately
$8-10 million per Station to provide facilities and equipment necessary to
broadcast an ATV signal. The introduction of this new technology will require
that consumers purchase new receivers (television sets) for ATV signals or, if
available by that time, adapters for their existing receivers. The FCC has
also proposed to assign to full-power ATV stations the channels currently
occupied by LPTV stations, which could adversely affect the Company's LPTV
channels. When the Telecommunications Act was passed, certain leaders in
Congress asked the FCC to postpone issuing ATV licenses pending consideration
of possible future legislation that might require broadcasters to bid at
auction for ATV channels or which might require that the current conventional
channels be returned to the government on an expedited schedule. In the course
of the debate on the federal budget, some leaders in Congress have proposed
various plans that might require the auctioning of the spectrum which
broadcasters will need in order to provide ATV. Various plans for raising
revenue also include provisions to require the auctioning of radio frequencies
in bands which encompass those currently licensed for use by broadcasters,
including those channels used for "auxiliary" purposes, such as remote pickups
in electronic news gathering and studio-to-transmitter links. Hearings on
spectrum auctions and usage will be held by Congress beginning in the Spring of
1996. While the Company believes that the FCC will authorize ATV in the United
States, the Company cannot predict when such authorization might be given or
the effect such authorization might have on Broadcasting. The Company cannot
predict whether legislation requiring auctions for ATV spectrum will be
enacted or the effect of such legislation.
In addition, the FCC is conducting an inquiry to consider proposals to increase
broadcasters' obligations under its rules implementing the Children's
Television Act of 1990, which requires television stations to present
programming specifically directed to the ''educational and informational''
needs of children. Other matters that could affect the Stations include
technological innovations affecting the mass communications industry such as
technical allocation matters, including assignment by the FCC of channels for
additional broadcast stations, low-power television stations and wireless cable
systems and their relationship to and competition with full-power television
broadcasting service.
Congress and the FCC also have under consideration, or may in the future
consider and adopt, new laws, regulations and policies regarding a wide variety
of matters that could, directly or indirectly, affect the operation, ownership
and profitability of Broadcasting and the Stations, result in the loss of
audience share and advertising revenues of the Stations, and affect the
Company's ability to acquire additional broadcast stations or finance such
acquisitions. Such matters include, for example, (i) changes to the license
renewal process; (ii) imposition of spectrum use or other governmentally
imposed fees upon a licensee; (iii) proposals to expand the FCC's equal
employment opportunity rules and other matters relating to minority and female
involvement in broadcasting; (iv) proposals to increase the benchmarks or
thresholds for attributing ownership interest in broadcast media; (v) proposals
to change rules or policies relating to political broadcasting; (vi) technical
and frequency allocation matters, including those relative to the
implementation of ATV; (vii) proposals to restrict or prohibit the advertising
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of beer, wine and other alcoholic beverages on broadcast stations; (viii)
changes in the FCC's cross-interest, multiple ownership, alien ownership and
cross-ownership policies; (ix) changes to broadcast technical requirements; and
(x) proposals to limit the tax deductibility of advertising expenses by
advertisers.
The Company cannot predict what other matters might be considered in the
future, nor can it judge in advance what impact, if any, the implementation of
any of these proposals or changes might have on Broadcasting.
The foregoing does not purport to be a complete discussion of all of the
provisions of the Communications Act or other Congressional Acts or the
regulations and policies promulgated by the FCC thereunder. Reference is made
to the Communications Act, other Congressional Acts, such regulations, and the
public notices promulgated by the FCC, on which the foregoing discussion is
based, for further information. There are additional FCC regulations and
policies, and regulations and policies of other federal agencies, that govern
political broadcasts, public affairs programming, equal employment
opportunities and other areas affecting the Station's businesses and
operations.
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DESCRIPTION OF PUBLISHING BUSINESS
GENERAL
The Company publishes (i) the Providence Journal-Bulletin, Monday through
Saturday, and (ii) The Providence Sunday Journal (collectively the
"Journal") in Providence, Rhode Island. The Journal is primarily distributed
by home delivery throughout Rhode Island and Southeastern Massachusetts.
Founded in 1820, the Providence Journal is the oldest continuously published
daily newspaper in the United States. The largest newspaper in the Rhode Island
and Southeastern Massachusetts market, the Journal maintains its market
position through effective reporting, dedication to public service, quality
printing and efficient distribution. The Journal has received numerous awards
over the years for its coverage of both local and national issues, including a
Pulitzer Prize in 1994, its fourth.
The Publishing division generated approximately $128 million in revenues in
1995 or 41% of consolidated operating revenues. Publishing was $14.8 million of
consolidated EBITDA of $65.2 million.
On June 5, 1995, the Company consolidated the morning Providence Journal and
The Evening Bulletin as the Providence Journal-Bulletin, a morning newspaper.
Approximately $2 million of the $6 million in initial savings was reinvested to
improve local news coverage. Annual savings are expected to be $4 million. As a
result of the consolidation to a single cycle, daily circulation has dropped
5.0% from an average of approximately 177,500 for the month of July 1995 to
approximately 169,000 (as calculated by management) for the two months ended
February, 1996 and is expected to continue to fall somewhat in the first half
of 1996. However, a recent study conducted by the Company has indicated that
both daily and Sunday readership has remained constant over the past three
years with daily readership fluctuating between 56% and 58% of the total adults
in the market and Sunday readership remaining between 68% to 70% of total
adults in the market. In addition, management is making efforts to increase
circulation levels through expanded local coverage and continued improvement in
content and customer service. There can be no assurances, however, that
management will be successful in these efforts. Despite the decline in
circulation levels, circulation revenues of $32.2 million in 1995 were 4% ahead
of 1994 circulation revenues of $30.9 million as a result of price increases.
CIRCULATION AND PRICING
The following table shows the average net paid daily, Saturday and Sunday
circulation of the Journal for the 52 weeks ended on the last Sunday in March
in each of the years 1991 through 1994, as reported by the Audit Bureau of
Circulation (the ''Audit Bureau''), an independent agency that audits the
circulation of most U.S. newspapers and magazines on an annual basis. To
coincide with the consolidation discussed in the previous paragraph, the
auditing cycle at the "Audit Bureau" was changed to July 2, 1995, a 53-week
period. The 13 week interim period, March 27, 1994 to June 26, 1994, was
audited but is not shown below.
<TABLE>
<CAPTION>
AVERAGE NET PAID CIRCULATION
--------------------------------
52 WEEKS ENDED DAILY SATURDAY SUNDAY
-------------- --------- --------- ----------
<S> <C> <C> <C>
March 31, 1991 202,200 188,900 265,000
March 29, 1992 197,100 186,400 268,100
March 28, 1993 192,500 182,700 269,100
March 27, 1994 188,200 179,600 268,800
July 2, 1995 184,100 177,000 264,300
</TABLE>
The above numbers are before the consolidation of the morning and afternoon
newspapers. Circulation levels as calculated by management for the two
months ended February 29, 1996 are approximately 169,000 for Daily Circulation
and 251,900 for Sunday Circulation.
The suggested newsstand price of the Journal is $.50 on Monday through Saturday
and $2.00 on Sunday, which was increased from $1.75 on February 4, 1996. The
suggested rate charged to subscribers for home delivery of the daily and Sunday
newspapers is $4.05 per week, which was increased from $3.80 on February 4,
1996 and from $3.60 in October, 1995. Approximately 76% of the Monday through
Saturday circulation and approximately 68% of the Sunday circulation were
home-delivered in calendar year 1995.
ADVERTISING
Approximately three-quarters of the revenue of the Journal is derived from the
sale of advertising (historically between 70% and 80% of the Journal's
revenues). In recent years, retail advertising has accounted for approximately
60%, classified advertising approximately 30%, and national advertising
approximately 10% of the total advertising revenue for the Journal. Reail
advertising appears throughout the Journal and is comprised of display
advertising from local merchants, such as grocery and departments stores, and
national retail advertisers that have local outlets. Classified advetising is
comprised for display and agate line advertisements which are listed together
in sequence by the nature of the advertisement, such as automobile, employment
and real estate and appear in the classified section of the Journal. National
advertising is comprised of advertisements from national distributors and
manufacturers that appear throughout the Journal. The Journal also contains
preprint advertisements which are advertising inserts that are provided to the
Journal for distribution both in the Journal and at times through the mail.
Preprint advertising revenue is derived primarily from retail and national
advertisers and accounted for approximately 20% of the total Journal
advertising revenue in calendar year 1995.
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The Journal increased advertising rates for most major categories of retail and
classified advertising by at least 3% in 1993, 1994 and 1995.
Production and Raw Materials
In 1987, the Company began operations of its newly constructed flexographic
printing and distribution plant in Providence, Rhode Island. The use of
flexography, a water-based printing process, improves printing quality and
prevents newspaper ink from rubbing off onto the reader's hands. The
facility is also equipped with computer control-driven systems, which shut down
presses within five copies of the specified production number, thereby
significantly reducing the number of unusable copies.
Newprint costs, which are the largest component of direct expenses, have in
recent years accounted for between 16% to 24% of the Journal's total operating
expenses. In 1995, the Journal incurred total newprint costs of $21.5 million,
or 20% of total Journal operating expenses, and used approximately 33,000
metric tons of newsprint. Management reduced the number of newsprint suppliers
to five from eight in 1992 and has entered into contracts with these
suppliers resulting in favorable pricing and continuity of supply. The Journal
currently receives modest discounts off list price for newsprint supplies.
Additional cost savings have been achieved by the implementation of quality
controls.
Newsprint expenses are considered variable to the extent that usage varies
depending on advertising linage. Newsprint prices move in cycles associated
with the capacity of paper mills and newspaper demand. When national
advertising linage levels declined beginning in 1988, suppliers began offering
substantial discounts of between 10% and 18% from list price, which grew over
time to 40% discounts. Newsprint prices then increased significantly because
of increased demand and constricted supply. Newsprint prices per ton paid by
the Company increased approximately 45% in 1995 over 1994 levels. Recently,
the major paper producers withdrew their planned increase of 7% for 1996. The
Company believes that newprint prices will decline somewhat as a result of
market trends reflected in this withdrawn price increase.
OTHER PUBLISHING ACTIVITIES
The Journal has also developed a number of fax-on-demand services providing
material ranging from old Journal newspaper articles to current information on
sports, weather and other subjects of general interest. The Journal has also
developed and expanded Journal Line, a voice information service; the New
England Wire Service, which electronically provides editorial content to area
newspapers; and Journal Telemarketing, a telemarketing sales division providing
services to a range of customers.
In 1990, the Company provided financing to Lowell Sun Publishing Company (the
publisher of the Sun, a daily newspaper serving the Lowell, Massachusetts area)
and Lowell Sun Realty Company (collectively, the ''Lowell Sun Companies'') in
the
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amount of approximately $26 million, and agreed to provide a $6.5 million
revolving credit facility to the Lowell Sun Companies. These loans are secured
by a lien on the assets of Lowell Sun Companies, plus a pledge of a controlling
interest in the stock of such companies. In connection with this financing,
the Company received a warrant to acquire up to a 41.67% interest in the
Lowell Sun Companies which it chose not to exercise. The loan and credit
facility which were originally due in March, 1996 are subject to a forebearance
until January 2, 1997.
In 1993, the Company launched the Town Crier, a weekly newspaper referred to
in the industry as a "shopper", containing coupons and advertisements directed
at consumers, in fourteen communities adjacent to Providence, Rhode Island. In
connection with this project, the Company entered into a multi-year management
contract with Shopper Enterprises, Inc., a firm based in Minnesota. In 1995,
the Company made a decision to discontinue this project and in December, 1995
ceased publication.
COMPETITION
The Journal has five daily newspaper competitors in the Rhode Island: The Times
(Pawtucket, RI), Woonsocket Call, Daily News (Newport, RI), Westerly Sun, and
Kent County Daily Times each with net paid circulation levels under 20,000.
The Journal also encounters competition in varying degrees from Boston and
other Massachusetts newspapers, nationally circulated newspapers, television,
radio, magazines, electronic publishing services, and other advertising media,
including direct mail advertising and yellow pages. The competition from
electronic information services may be increased in the future as a result of
the Telecommunications Act which allows the Regional Bell Holding Companies to
provide such services, subject to certain safeguards.
DESCRIPTION OF PROGRAMMING AND NEW MEDIA BUSINESS
The Company has interests in a number of developing entertainment and
information businesses which are closely related to the Company's traditional
media businesses. The Company's strategy in these businesses is to apply its
expertise in the production and distribution of content to new media formats as
they arise. In particular, the Company has focused on cable television
programming services and interactive on-line media.
CABLE TELEVISION PROGRAMMING
The Company continually reviews opportunities to participate in the creation
and development of new cable television programming services. The Company
seeks to enter into partnerships and other relationships with companies or
individuals having specialized expertise with regard to the content of the
programming. The Company's practice is to play the leading role in the
formation and management of the service and to increase its ownership interest
when appropriate.
Television Food Network
As of December 31, 1995, the Company controlled a 20% interest in Television
Food Network, G.P. ("TVFN"). The Partnership was formed specifically to own
and operate the Television Food Network channel. TVFN is a 24-hour advertising
supported network service that provides television programming related to the
preparation, enjoyment and consumption of food, as well as programs focusing on
nutrition and topical news areas. TVFN is a general partnership consisting of
eight media companies with cable television, broadcast television and
programming holdings. TVFN is distributed predominantly through cable
television stations to approximately 15.4 million subscribers throughout the
United States. The Company is the general partner of the managing partner of
TVFN and has invested approximately $12.6 million through December 31, 1995.
In addition, the Company is negotiating with three of its partners to purchase
interests which, when combined with the Company's current interest, would give
the Company majority ownership of TVFN. TVFN is based in New York, NY.
Programming. TVFN's programming effectively targets a mostly female audience.
TVFN's schedule consists of an eight hour block of programming, approximately
90% of which is original and exclusive programming owned by the network.
Generally, each hour of programming is repeated multiple times throughout each
week. During its first two years of operations, TVFN has created a library of
valuable programming assets of cooking shows, restaurant reviews, nutrition
shows, and other food-related programming that can be re-edited and repurposed
in multiple ways.
Distribution. TVFN's full-time equivalent subscriber base grew 57% in 1995 to
15.4 million, from 9.9 million at year end 1994. At present, TVFN has
affiliation agreements with 42 of the top 50 multiple system operators and is
carried in 26 of the top 50 cable
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systems in the United States. TVFN has not charged distributors for carriage
of its service since its inception. However, as regulatory changes evolve,
TVFN will consider license fees as an additional revenue stream opportunity.
TVFN originally benefited from the distribution capabilities of its partners
through cable carriage and retransmission consent agreements. To date, TVFN
partners have contributed 11.8 million subscribers, or 76% of the current
subscriber base. TVFN is pursuing distribution agreements with all appropriate
cable, telephone, direct broadcast satellite and multi-channel, multi-point
distribution systems. Three minutes of local spots are currently made available
to the distributor for the sale of advertising time. Approximately 30% of TVFN
subscribers are in cable systems which insert advertising locally on the
network. The network promotes the advantage of local insertion in order to
drive further subscriber penetration.
Viewership. TVFN's programming strategy is to broadcast programming to reach a
target audience of women, particularly young and working women, in order to
attract advertisers. The network reaches 34% more working women than the
average of all other cable networks. Additionally, TVFN viewers are highly
interactive with the network. TVFN receives approximately 40,000 letters per
month from viewers requesting recipes, critiquing the network, and writing to
chefs and hosts.
Merchandising. A significant part of the network's strategy going forward is
to tap into the high interest and involvement of its viewers by creating and
marketing merchandise related to the network, its programs and its talent. In
1996, TVFN will introduce several on-air direct merchandising projects
which allow the network to share in the revenues from the on-air sale of
merchandise. In each of these segments, products will be presented for sale by
the network in both short and long form programming formats. This strategy
will allow TVFN to play the role of retailer and participate in the retail
margin of the product sales effort. Among the product selection will be TVFN
branded items, product from third party suppliers and advertiser-related
products. As TVFN's merchandising plan develops and as success dictates, a
strategic partner with fulfillment, customer service and warehousing
capabilities may be desired.
America's Health Network
On April 5, 1995, the Company entered into an agreement to purchase an interest
of up to 37% in America's Health Network, Inc. ("AHN, Inc."), a development
stage cable programming network service that provides health-related
information and products. The channel launched on March 25, 1996 with 750,000
subscribers. In early 1996, AHN, Inc. was reorganized and became America's
Health Network, L.L.C. ("AHN LLC"), a limited liability corporation which is
the general partner in AHN Partners, L.P. ("AHN Partners"), a limited
partnership formed to carry on the operations of the network. The Company has
invested approximately $15.3 million collectively in AHN LLC and AHN Partners
as of March 25, 1996, representing a 59% interest, which is considered
temporary until the full funding by investors is completed, which is expected
to occur in the second quarter of 1996. It is anticipated that the Company's
overall interest in this venture at that time will be approximately 50%.
Although consolidation is not material to the Company's financial statements,
to the extent the Company has control over this investment, it will be
consolidated in 1996. AHN is based in Orlando, Florida.
American's Health Network ("AHN") is a basic cable television programming
service principally featuring viewer call-in programs designed for
health-conscious adults who are active participants in their own health care
and the health care of spouses, parents and children. AHN's Ask the Doctor
programs are hosted by health care professionals whose responses to viewers'
questions are extensively visualized. AHN's programming also includes brief
Health Mall segments during which health-related products will be offered for
sale to viewers, and Health IQ quizzes which test the viewer's level of health
knowledge and Health News Segments which provide daily updates on the areas of
health, medicine, wellness and nutrition. In addition, a limited number of
commercials from national and local advertisers are shown.
The network has assembled a group of strategic partners that management
believes significantly enhances its prospects for success. Mayo Foundation for
Medical Education and Research ("Mayo") and IVI Publishing, Inc., Mayo's
electronic publisher and an AHN LLC investor, have entered into a comprehensive
and exclusive program content relationship with AHN. National Call Center,
Inc., a wholly-owned subsidiary of Home Shopping Network, Inc., provides
telemarketing, order processing, warehousing and fulfillment services related
to the sale of merchandise on AHN's Health Mall segments and through the
network's database marketing programs through an exclusive agreement.
Universal Studios Florida ("USF"), a joint venture of MCA, Inc., and Rank,
P.L.C., has built a 16,500 square foot production facility for AHN's exclusive
use immediately adjacent to the USF theme park in Orlando, and USF recruits its
theme park visitors to participate in AHN's live productions. AHN also has an
exclusive programming agreement with Massachusetts Medical Society and Reuters
to provide Health News segments to AHN for airing on the network.
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NorthWest Cable News
On December 18, 1995, the Company, through its wholly-owned subsidiary, King
News Corporation, launched the NorthWest Cable News Network ("NWCN"), a 24-hour
regional cable news network serving cable subscribers in the Pacific Northwest.
NWCN is based in Seattle and combines advanced digital news-gathering and
editing systems with resources of the Company's four television stations in the
area: KGW(TV) - Portland, KREM-TV - Spokane, KING-TV - Seattle and KTVB(TV) -
Boise. The Company receives monthly payments from contracting cable systems
based on the number of subscribers of such cable systems receiving the service,
as well as advertising revenues generated by this new programming service.
NWCN currently reaches 1.2 million subscribers. NWCN is based in Seattle,
Washington.
NWCN was launched as a strategic business opportunity in order to grow and
protect the Company's valuable news franchises in the Pacific Northwest. As
part of retransmission consent agreements with local cable operators, the
Company agreed to provide a 24- hour news network service focusing on that
region of the United States in exchange for an agreement to carry the network
and to pay certain subscriber fees. The Company's research indicated that
this region of the country felt isolated and removed from the other parts of
the country. Moreover, a survey of the region's population indicated that a
24-hour news channel would have a high degree of receptivity.
INTERACTIVE AND ON-LINE MEDIA
The Company continually reviews opportunities to participate in the creation
and development of interactive and on-line media ventures. The Company seeks
to enhance its current media portfolio with incremental investment in these
areas. The Company seeks to enter into partnerships and other relationships
with companies or individuals having this specialized expertise. The Company
has the following interactive and on-line media investments.
Rhode Island Horizons
During 1994, the Company entered into a two year agreement with Prodigy
Services Company providing for the creation of a local on-line service owned by
the Company to be offered in conjunction with the national Prodigy service. The
local on-line service includes news, features, and advertising for Rhode Island
and certain areas in Massachusetts, similar to that appearing in the Journal.
The new service, called Rhode Island Horizons, began operations in the
second quarter of 1995 and is based in Providence, Rhode Island.
Peapod, L.P.
On July 27, 1995, the Company purchased a 17.1% interest in Peapod, L.P., which
currently provides an interactive computer on-line grocery ordering, shopping
and delivery service in Chicago and San Francisco. Such services are expected
to be expanded to several additional cities, including Boston and Providence,
in 1996. Total investments in the partnership during 1995 were $5.3 million.
The Company has committed to invest $1.0 million in 1996 as part of a $15
million private placement. No other commitments have been made. Trygve E.
Myhren, a member of the Board of Directors of the Company, is on the Board of
Peapod, L.P.
StarSight
In 1993, the Company purchased a 4.85% interest for $5.5 million in StarSight
Telecast, Inc., ("StarSight") a company engaged in developing and marketing an
on-screen interactive television program guide designed to facilitate the
identification, selection and recording of television programming. Jack C.
Clifford, Vice President-Broadcasting, is a member of the Board of Directors of
StarSight. In 1995, the Company invested an additional $.4 million, for a
total interest of approximately 5% as of February 29, 1996. The Company has
no formal commitments to invest additional amounts as of December 31, 1995.
StarSight's shares are traded through the National Association of Security
Dealers Automated Quotation ("NASDAQ") National Market. StarSight is based in
Fremont, California.
Telecommunications Act of 1996
While the effects of the Telecommunications Act of 1996 on the Company's
programming and new media operations cannot be fully determined at this time,
various provisions of the new law create an environment that is favorable for
the development and distribution of new programming services and new
interactive services. The Telecommunications Act allows telephone companies to
provide cable television service and cable television companies to provide
local telephone service. Thus, a regulatory framework is established which
encourages expanded competition and new outlets for the distribution of
programming and interactive services. Distribution outlets available for
programming and interactive services may include current cable systems,
telephone company owned video systems, DBS, MMDS, incumbent local telephone
networks and the Internet.
The changes in cable television rate regulation contained in the
Telecommunications Act will facilitate the expansion of channel capacity on
cable systems and the addition of new programming services. The new law
deregulates the rates for upper tiers of cable television service on March 31,
1999. In the meantime, in addition to the existing tests for "effective
competition," under which rates are deregulated, a new test is added. A cable
system will be deemed subject to "effective competition" and not subject to any
rate regulation if a telephone company offers comparable video programming to
subscribers by any means, other than DBS, including by means of a cable system,
an open video system or MMDS. The law also makes other favorable changes in
rate regulation. Cable operators now have certainty as to the end of upper
tier rate regulation and, in the interim, there is rate deregulation if
competition develops. These provisions will stimulate investment and
facilitate rebuilds of cable plant and the transition to digital. This
translates
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into greater channel capacity. Furthermore, rate deregulation eliminates the
regulatory constraints on the ability of cable operators to recoup the costs of
adding new programming networks which add value to service offerings.
OTHER INVESTMENTS
Partner Stations Network, L.P.
The Company is a limited partner with four other television group broadcasters
in Partners Stations Network, L.P. ("PSN"), a limited partnership formed in
1994 to develop and produce television programming for broadcast on their own
stations and for potential national distribution to other television broadcast
stations. Each limited partner has a 16% interest, and the general partner,
Lambert Television Management, Inc., has a 20% interest in PSN. The stations
owned by PSN's five limited partners serve markets accounting for approximately
20% of the television households in the United States. Each of PSN's limited
partners has a right of first access in its respective television markets to
the programs produced by PSN. The Company believes PSN to be a cost-effective
testing ground for new programs and a launch vehicle for successful syndicated
programming. As of December 31, 1995, the Company's total commitment,
consisting of amounts paid to date and current obligations, with respect to
PSN, was approximately $1.8 million.
Linkatel Pacific, L.P.
In July 1993, the Company, through its wholly-owned subsidiary Colony/Linkatel
Networks, Inc., invested in Linkatel Pacific, L.P. (a development stage
enterprise ), with two other communications companies. The Company has a 45%
limited interest in the partnership, which was formed to pursue the development
of alternative access networks. Through December 31, 1995, the Company has
invested $6.5 million in Linkatel Pacific, L.P. The Company intends to sell
this investment because it is no longer related to the Company's core business.
Although the Company intends to realize an amount at least equal to the amount
invested to date, there can be no assurances in this regard.
SEASONALITY OF THE BUSINESSES
The Company's revenues are generally highest in the fourth quarter of each
year. The seasonality is particularly attributable to increased expenditures by
advertisers in anticipation of holiday retail spending and an increase in
broadcast television viewership during the Fall/Winter season. Accordingly,
accounts receivable balances as of the end of the first three calendar
quarterly periods are generally less than the balances at the end of the year.
Each of the Stations and the Journal generally produce positive EBITDA on an
annual basis. Generally, Stations in larger markets contribute a larger
proportionate share of EBITDA.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 2,500 full-time
equivalents, of which approximately 1,075 worked in Broadcasting, approximately
1,255 worked in Publishing, and the remainder worked in Corporate headquarters
and Programming and New Media. Approximately 340 of the Broadcasting employees
are represented by independent, unaffiliated labor unions among the stations.
Approximately 50% of Publishing employees are represented by labor unions,
mostly under existing collective bargaining agreements. The Providence
Newspaper Guild agreement expires December 31, 1996. The Newspaper Printing
Pressman's Union is in the fifth year of a ten-year contract. The
Communications Workers of America, Local 33, is in the last year of a ten-year
contract. The International Brotherhood of Teamsters, Local 64, was elected on
February 29, 1996 as the bargaining agent for 172 Distribution Department
employees. The Company contributes to and maintains various employee benefit
or retirement plans for eligible employees and contributes to some union plans
pursuant to its collective bargaining agreements. The Company considers its
relations with its employees to be good.
As discussed in Note 8 (b) of the Consolidated Financial Statements, management
of the Company adopted a plan of reorganization and restructuring of most
departments of Publishing. Under the plan, the Company has targeted a
reduction in workforce of approximately 100 full-time equivalents, or 7.9% of
the Publishing workforce.
ITEM 2. PROPERTIES.
The Company's corporate headquarters and various operating departments and
administrative departments of Broadcasting, Publishing, and Programming and New
Media are located at 75 Fountain Street, Providence, Rhode Island, an historic
building owned by the Company which has 205,635 square feet of working space.
In addition the Company has the following materially important physical
properties described below as of December 31, 1995. The Company believes that
its properties are generally in good condition and adequate and suitable for
the operations of Broadcasting, Publishing and Programming and New Media. The
Company has not received any notice that it is in default under any of its
property leases.
16
<PAGE> 17
BROADCASTING BUSINESS PROPERTIES
Each of the Stations also has facilities consisting of offices, studios, sales
offices and transmitter and tower sites. Transmitter and tower sites are
located to provide coverage of each Station's market. The Company owns the
offices where its Stations are located and owns or leases the property where
its towers and primary transmitters are located. The Company leases the
remaining properties, consisting primarily of other transmitter sites. While
none of the properties owned or leased by the Company are individually material
to the operations of Broadcasting, if the Company were required to relocate any
of its towers the cost could be significant because the number of sites in any
geographic area that permit a tower of reasonable height to provide good
coverage of the market is limited, and zoning and other land use restrictions,
as well as Federal Aviation Administration regulations, limit the number of
alternative sites or increase the cost of acquiring such properties for tower
sites.
PUBLISHING BUSINESS PROPERTIES
All of the following are owned facilities located in Providence, Rhode Island.
<TABLE>
<CAPTION>
Location and Use Square Footage
---------------------------------------- --------------
<S> <C>
210 Kinsley Avenue -- Production/Printing 142,000
119 Harris Avenue -- Printing & Storage . 67,500
135 Harris Avenue -- Storage . . . . . . . 52,000
204 Kinsley Avenue -- Paper Warehouse . . 21,000
280 Kinsley Avenue -- Inserting . . . . . 22,800
288 Kinsley Avenue -- Circulation . . . . 16,500
</TABLE>
The Journal also leases various regional distribution centers and news and
advertising offices.
ITEM 3. LEGAL PROCEEDINGS.
On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory
judgment action against Old PJC, Colony Communications, Inc. ("Colony") and
Dynamic Cablevision of Florida, Inc. ("Dynamic") in the Circuit Court of the
Eleventh Judicial Circuit in and for Dade County, Florida. Colony and Dynamic
were cable television subsidiaries of Old PJC, which became units of
Continental in connection with the Merger. This case relates to a partnership
(the "Dynamic Partnership"), in which Dynamic is the general partner with an
89.8% interest, and Cable LP is the limited partner with a 10.2% interest. In
this action, Cable LP claims that Dynamic was obligated to offer to sell
Dynamic's general partnership interest to Cable LP before Old PJC entered into
the Merger Agreement with Continental. Cable LP further claims that Dynamic's
offer to purchase Cable LP's limited partnership interest for $13.1 million
triggered a right of first refusal entitling Cable LP to purchase the general
partnership interest for $115 million. Cable LP seeks a declaration by the
court that the right of first refusal it is asserting applies.
Old PJC, Colony and Dynamic made a motion to strike allegations against them of
bad faith and breach of fiduciary duty, which motion was granted by the court,
and they filed an Answer to the Complaint and a Counterclaim on March 16, 1995.
In their counterclaim, Colony and Dynamic seek a declaratory judgment that
Cable LP unreasonably refused consent to the transfer of the general partner's
interest to Continental and that a purported transfer of Cable LP's interest in
the Dynamic Partnership to a partnership to be managed by Adelphia
Communications, Inc. violates Dynamic's right of first refusal under the
Dynamic Partnership Agreement. The case was tried with testimony given on
December 11 through December 13, 1995 with final arguments heard on January 12,
1996. The decision of the Court is expected shortly. The Company's management
believes that the claims asserted by Cable LP are without merit and intends to
continue to vigorously defend this matter through the appeal process in the
event of an unfavorable ruling.
In the event that, as a result of such litigation, Dynamic is required to sell
its interest in the Dynamic partnership to Cable LP, the Merger Agreement
provides that the Company will pay to Continental simultaneously with the
closing of such sale an
17
<PAGE> 18
amount equal to the sum of (i) the amount (if any) by which the consideration
received by Dynamic for the sale of such interest is less than $115 million
plus (ii) the taxes which would have been payable assuming the purchase price
for such interest equaled $115 million.
The Company is party to various claims, legal actions and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are adequately covered by insurance or, if not so covered, are without merit or
are of such kind, or involve such amounts, that unfavorable disposition would
not have a material effect on the consolidated financial position or results of
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
No established public trading market exists for the Common Stock, and
accordingly no high and low bid information or quotations are available with
respect to the Common Stock. As of February 29, 1996, there were approximately
430 holders of record of Class A Common Stock and 260 holders of record of
Class B Common Stock. Since a number of holders own shares of both Class A
Common Stock and Class B Common Stock, the total number of stockholders is
approximately 471.
The annual cash dividend per share paid on all Class A Common Stock and
Class B Common Stock in 1994 and 1995 was $114.40. The Company currently
intends to pay in 1996 dividends at an annual rate equal to that paid in 1995.
However, following such payout it is expected that future dividends will be
reduced or eliminated, subject to the exercise by the Board of Directors of its
fiduciary obligations and the exercise of the Board's business judgment in
connection with, among other things, any and all requirements of Delaware law
or other applicable law, and all covenants, restrictions or limitations in
connection with any financing, future earnings, capital requirements, financial
condition and other factors.
18
<PAGE> 19
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated financial data has been derived from the
consolidated financial statements of The Providence Journal Company. The data
should be read in conjunction with ''Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto. The Statements of Operations for the years ended
December 31, 1995, 1994, 1993, 1992, and 1991 and the Balance Sheet Data as of
the same dates have been derived from the audited consolidated financial
statements of the Company. As more fully discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations", the Company,
among other transactions, disposed of its cable operations and completed the
Kelso Buyout on October 5, 1995. The results of operations for 1995 include
the results of operations of KHC since January 1, 1995 with appropriate
adjustments for minority interests from January 1, 1995 to October 5, 1995,
the date of the acquisition. As a result of these transactions, the years 1991
through 1994 are not comparable to 1995. Consequently, management has provided
"Adjusted Combined" information in a table following the historical information
presented below.
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $312,506 $184,217 $ 170,420 $ 163,797 $ 157,550
Operating income (loss) before one time
single cycle costs and restructuring 27,608 (11,576) (13,209) (9,126) (23,901)
Single cycle costs(1) and restructuring (2) (14,222) - - - -
Interest, fees and other income 4,797 6,103 2,182 46,104 31,072
Interest expense (11,395) (2,426) (2,578) (6,455) (10,102)
Equity in loss of affiliates (7,835) (13,380) (8,763) (12,705) -
Income (loss) from continuing
operations before income taxes (1,047) (21,279) (22,368) 17,818 (2,931)
Income (loss) from continuing operations $ (5,003) $ (23,229) $(16,271) $ 6,002 $ (6,547)
======== ========= ======== ======== =========
Per Share Data:
Income (loss) from continuing operations per $ (58.47) $ (273.66) $(190.75) $ 69.77 $ (74.56)
======== ========= ======== ======== =========
Dividends paid per share $ 114.40 $ 114.40 $ 104.00 $ 94.60 $ 86.00
======== ========= ======== ======== =========
OTHER DATA:
EBITDA, excluding single cycle costs
and restructuring (3)
Broadcasting 64,419 14,075 7,210 5,378 1,358
Publishing 14,808 20,468 21,317 20,977 12,999
Programming and New Media (1,664) (282) -- -- --
Corporate (12,363) (10,889) (14,632) (14,228) (10,306)
-------- --------- -------- -------- ---------
$ 65,200 $ 23,372 $ 13,895 $ 12,127 $ 4,051
======== ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
BALANCES AS OF DECEMBER 31,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets $ 707,230 $ 724,713 $ 775,685 $793,433 $594,098
Net assets of discontinued cable television
operations included in total assets - 369,790 402,819 400,639 54,184
Long-term debt 243,998 247,173 276,601 253,106 28,608
Stockholders' equity 263,239 285,887 359,575 391,967 399,938
<FN>
Notes to Table
- --------------
(1) Single cycle costs are those costs totaling $7,422 incurred in 1995
to consolidate the Company's morning and afternoon daily newspapers
into one cycle. As a result, the Company now publishes a morning
only daily newspaper in addition to its Sunday newspaper. No
additional costs are expected beyond 1995.
(2) Restructuring costs totaling $6,800 incurred in 1995 are estimated
severance costs associated with management's plan to reorganize and
restructure operating and administrative departments of the
Publishing Business, eliminating approximately 100 full time
equivalents.
(3) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization, stock-based compensation and pension
expense.
</TABLE>
19
<PAGE> 20
<TABLE>
SUPPLEMENTAL ADJUSTED COMBINED INFORMATION
- ------------------------------------------
The table presented below provides supplemental "adjusted combined" information
for 1995, 1994 and 1993. This information, which is unaudited, consolidates the
historical audited results of the Company and KHC with appropriate elimination
entries as if the reorganization, Kelso Buyout, and Merger had occurred on
January 1, 1993. As such, appropriate adjustments have been made for the
effects on interest expense, amortization expense, and income taxes. (See
"Supplemental Adjustments" in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein).
Although not required to be shown, adjusted combined amounts are presented
because management believes the information is more meaningful in evaluating
the current status of the Company in that it includes KHC operations and
excludes discontinued cable operations. However, the adjusted combined
financial information presented below is not necessarily indicative of
what would have actually occurred on January 1, 1993 nor is it indicative of
results which may occur in the future.
<CAPTION>
ADJUSTED COMBINED (UNAUDITED)
-----------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
ADJUSTED COMBINED STATEMENT OF OPERATIONS DATA:
Revenues $312,506 $301,276 $272,760
Operating income (loss) before one time
single cycle costs (1) and restructuring (2) 21,992 7,754 (2,742)
Single cycle costs and restructuring (14,222) - -
Interest, fees and other income (expense) 4,797 2,601 (1,055)
Interest expense (19,573) (17,971) (18,213)
Equity in loss of affiliates (7,835) (5,054) (1,518)
Loss from continuing
operations before income taxes (14,841) (12,670) (23,528)
Loss from continuing operations $(14,893) $(19,136) $(19,795)
======== ======== ========
EBITDA, excluding single cycle costs
and restructuring (3)
Broadcasting $ 64,419 $ 57,634 $ 43,014
Publishing 14,808 20,468 21,317
Programming and New Media (1,664) (614) -
Corporate (12,363) (13,074) (17,346)
-------- -------- --------
Total EBITDA $ 65,200 $ 64,414 $ 46,985
======== ======== ========
<FN>
Notes to Table
- --------------
(1) Single cycle costs are those costs totaling $7,422 incurred in 1995 to
consolidate the Company's morning and afternoon daily newspapers into
one cycle. As a result, the Company now publishes a morning only daily
newspaper in addition to its Sunday newspaper. No additional costs are
expected beyond 1995.
(2) Restructuring costs incurred in 1995 are estimated severance costs
associated with management's plan to reorganize and restructure
operating and administrative departments of the Publishing Business,
eliminating approximately 100 full-time equivalents.
(3) EBITDA is defined by the Company as operating income(loss) plus
depreciation, amortization, stock-based compensation and pension
expense.
</TABLE>
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
General
The following analysis of the financial condition and results of operations of
the Company should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto and the unaudited "Adjusted
Combined" financial data included elsewhere in this Form 10-K.
The Company's businesses are concentrated principally in broadcast television,
the publication of the Journal, and in programming and new media ventures. The
Company's broadcast television revenues are derived principally from local and
national advertising and, to a lesser extent, from network compensation for the
broadcast of network programming. The Company's publishing revenues are derived
principally from advertising and, to a lesser extent, paid circulation.
Revenues from the programming and new media ventures are principally derived
from subscriptions, service fees and advertising.
The Company's revenues are generally highest in the fourth quarter of each
year. This seasonality is particularly attributable to increased expenditures
by advertisers in anticipation of holiday retail spending and an increase in
broadcast television viewership during the Fall/Winter season. Accordingly,
accounts receivable balances as of the end of the first three calendar
quarterly periods are generally less than the balances at the end of the year.
Each of the Stations and the Journal generally has produced positive EBITDA on
an annual basis. Generally, Stations in larger markets contribute a larger
proportionate share of EBITDA.
The Company's principal costs of operations, in the case of Broadcasting, are
employee salaries and commissions, programming, production, promotion, and
other expenses (such as maintenance, supplies, insurance, rent, and utilities),
and in the case of Publishing are labor and newsprint costs. The Programming
and New Media segment consists primarily of investments in operations that are
in the early development phase.
The Company has experienced operating losses primarily as a result of non-cash
charges attributable to amortization of intangibles resulting from acquisitions
of its television stations and stock-based compensation expense, and in the
case of 1995, costs related to the consolidation of the morning and afternoon
newspapers ("single cycle costs") and a restructuring charge associated with
Publishing (see Note 8 of the Company's consolidated financial statements).
Reorganization
On October 5, 1995, Old PJC completed the acquisition of its joint venture
partner's interest in KHC through the Kelso Buyout for $265 million, including
transaction fees, completed the PJC Spin-Off, and, following the PJC Spin-Off,
at which point it held only Old PJC's cable television businesses and assets,
Old PJC was merged with and into Continental. Immediately prior to the Kelso
Buyout, Continental purchased for $405 million all of the stock of KVC, a
wholly owned cable subsidiary of KBC, which is wholly owned by KHC. As a
result of these transactions, the Company, in substance, became successor to
Old PJC, in the same lines of businesses, simultaneously disposing of its cable
operations.
Disposal of Cable Operations
Gross proceeds from the disposal of the cable operations discussed above
consisted of a combination of Continental stock, which was received directly
from Continental by Old PJC's shareholders in connection with the Merger,
assumption of a portion of Old PJC's debt by Continental and cash. The total
combined consideration amounted to approximately $1.4 billion (including $405
million from the sale of KVC). The accounting for this transaction was to
treat the disposal of the cable operations as if the Company had spun off its
cable operations to shareholders, which management believes more appropriately
reflects the substance of the transaction. Accordingly, the excess of the
gross proceeds over the net assets of the discontinued cable operations less
income taxes is reflected in the consolidated statement of stockholders'
equity. This excess amounted to $582.5 million. The receipt by the Old PJC
shareholders of the Continental shares, valued at $584.8 million, is recorded as
a "deemed distribution" in the consolidated statement of stockholders' equity.
21
<PAGE> 22
In connection with the Merger, the Company agreed to indemnify Continental from
any and all liabilities arising from the non-cable television businesses, and
is responsible for all federal and state income tax liabilities for periods
ending on or before the closing date.
Kelso Buyout
The Kelso Buyout as discussed above and in Note 3 (a) of the consolidated
financial statements, was recorded in the fourth quarter of 1995 as a step
acquisition under the purchase method of accounting. As illustrated below ,
the excess of the purchase price over the net book value of assets acquired,
including deferred taxes, was $206.7 million, of which approximately $88.0
million was allocated to identifiable intangibles and the remainder to goodwill
together to be amortized over an average life of approximately 30 years.
<TABLE>
In connection with the Kelso Buyout assets acquired and liabilities
assumed were as follows (in thousands):
<S> <C>
Assets acquired $ 243,186
=========
Goodwill and other intangibles $ 206,740
=========
Liabilities assumed $ 184,926
=========
Cash paid $ 265,000
=========
</TABLE>
The primary business of KHC is broadcast television, and prior to the sale to
Continental of KVC, also included cable television. Prior to the Kelso Buyout,
the Company reported its 50% investment in KHC under the equity method of
accounting. Audited financial statements of KHC as of December 31, 1994 and
for each of the years in the two-year period then ended are presented elsewhere
in this Form 10-K.
CONSOLIDATED RESULTS OF OPERATIONS
The following discussion of the results of operations for the years ended
December 31, 1995, 1994, and 1993 is divided into three sections in order to
assist the reader in analyzing the effects on the Company's operations of the
above described reorganization, disposal of cable operations, and Kelso Buyout
while at the same time providing the required discussion of the consolidated
results of operations presented in the audited financial statements. The
sections are as follows:
- - ADJUSTED COMBINED Results of Operations - presents a discussion
of Adjusted Combined results of operations assuming the transactions
discussed above occurred on January 1, 1993.
- - CONSOLIDATED RESULTS OF OPERATIONS - presents a discussion of the
historical audited consolidated results of operations.
- - ANALYSIS BY SEGMENT - presents a discussion of the results of operations
for each of the Company's significant segments: Broadcasting, Publishing,
and Programming and New Media.
ADJUSTED COMBINED RESULTS OF OPERATIONS
The following table presents adjusted combined results of operations for the
years ended December 31, 1995, 1994, and 1993 with appropriate adjustments for
the effects on amortization expense, interest expense, and income taxes as if
the reorganization, disposal of cable operations, and Kelso Buyout occurred on
January 1, 1993. This information, which is unaudited, consolidates the
historical audited results of the Company and KHC with appropriate
elimination entries for all periods presented. Although not required to be
shown, this adjusted combined financial information is presented because
management believes the information is more meaningful in evaluating the
current status of the Company in that it includes KHC operations for all years
presented and excludes discontinued operations for all years presented.
However, the adjusted combined financial information presented below is not
necessarily indicative of what would have actually occurred on January 1, 1993
nor is it indicative of results which may occur in the future.
22
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------
ADJUSTED COMBINED (UNAUDITED)
-----------------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
ADJUSTED COMBINED OPERATIONS DATA:
- ----------------------------------
Revenues:
Broadcasting $180,547 $171,083 $147,846
Publishing 128,491 127,893 124,914
Programming and New Media 3,468 2,300 -
-------- -------- --------
312,506 301,276 272,760
-------- -------- --------
Operating expenses:
Operating and administrative expenses 248,542 237,165 226,969
Single cycle (1) and restructuring (2) 14,222 - -
Stock-based compensation 2,387 15,138 5,735
Depreciation and amortization 39,585 41,219 42,798
-------- -------- --------
304,736 293,522 275,502
Operating income (loss):
Broadcasting 36,919 28,615 13,930
Publishing (10,264) 9,270 9,891
Programming and New Media (1,831) (649) -
Corporate (17,054) (29,482) (26,563)
-------- -------- --------
7,770 7,754 (2,742)
Other income (expense):
Interest, fees, and other income 4,797 2,601 (1,055)
Interest expense (19,573) (17,971) (18,213)
Equity in loss of affiliates (7,835) (5,054) (1,518)
-------- -------- --------
(22,611) (20,424) (20,786)
Loss from continuing operations
before income taxes (14,841) (12,670) (23,528)
Income tax expense (benefits) 52 6,466 (3,733)
-------- -------- --------
Loss from continuing operations $(14,893) $(19,136) $(19,795)
======== ======== ========
OTHER DATA:
- -----------
Selected operating expenses:
Pension expense $ 1,236 $ 303 $ 1,194
-------- -------- --------
Operating income (loss), excluding
single cycle and restructuring charges $ 21,992 $ 7,754 $ (2,742)
======== ======== ========
EBITDA, excluding single cycle costs
and restructuring (3)
Broadcasting $ 64,419 $ 57,634 $ 43,014
Publishing 14,808 20,468 21,317
Programming and New Media (1,664) (614) -
Corporate (12,363) (13,074) (17,346)
-------- -------- --------
TOTAL EBITDA $ 65,200 $ 64,414 $ 46,985
======== ======== ========
<FN>
Notes to table
- --------------
(1) Single cycle costs are those costs totaling $7,422 incurred in 1995
to consolidate the Company's morning and afternoon daily newspapers
into one cycle. As a result, the Company now publishes a
morning only daily newspaper in addition to its Sunday newspaper.
No additional costs are expected beyond 1995.
(2) Restructuring costs totaling $6,800 incurred in 1995 are estimated
severance costs associated with management's plan to reorganize and
restructure operating and administrative departments of the
Publishing Business, eliminating approximately 100 full time
equivalents.
(3) EBITDA is defined by the Company as operating income (loss)
plus depreciation, amortization, stock-based compensation and
pension expense.
</TABLE>
23
<PAGE> 24
<TABLE>
Supplemental Adjustments
In addition to the restatement of 1994 and 1993 to consolidate results of KHC's
operations to be consistent with 1995 with appropriate elimination entries, the
differences between "Historical" and "Adjusted Combined" results of operations
for 1995, 1994 and 1993 are primarily attributable to supplemental adjustments
to reflect the reorganization, the Kelso Buyout, and cable disposal as if
those transactions had occurred on January 1, 1993. Those adjustments are
as follows:
<CAPTION>
Incremental Amount to Arrive at Adjusted Combined Amounts
---------------------------------------------------------
Years Ended December 31,
------------------------
Line Item in Historical Financial Statements 1995 1994 1993
-------------------------------------------- ---- ---- ----
(in thousands)
<S> <C> <C> <C>
Depreciation and Amortization
-----------------------------
Additional amortization expense as a result of the
"step-up" in basis in acquired assets of KHC $ 5,616 $ 7,488 $ 7,488
Interest Expense
----------------
Additional interest expense assuming beginning debt as a
result of the transactions at January 1, 1993 was
approximately $225 million with an average interest rate
of approximately 8% $ 8,178 $ 6,852 $ 6,663
Income Tax Expense (Benefit)
-----------------------------
Incremental income tax expense (benefit) from above
adjustments $ (3,904) $ (3,827) $ (3,763)
========= ========= =========
</TABLE>
Adjusted Combined 1995 to Adjusted Combined 1994
ADJUSTED COMBINED OPERATING REVENUES. Consolidated revenues in 1995 increased
by 3.7% over 1994 to $312.5 million from $301.3 million. Broadcasting revenues
contributed significantly to the increase in consolidated revenues with an
increase of 5.5% in 1995 to $180.5 million from $171.1 million in 1994 due to
improved ratings and local market growth. Publishing contributed substantially
the same revenue in 1995 as in the prior year with $128.5 million for 1995
compared with $127.9 million in 1994. The operations in the Programming and New
Media segment are in the early development phase and contributed $3.5 million in
revenue in 1995 compared to $2.3 million in 1994.
ADJUSTED COMBINED OPERATING AND ADMINISTRATIVE EXPENSES. Consolidated operating
and administrative expenses increased 4.8% to $248.5 million in 1995 from $237.2
million in 1994, primarily as a result of the increased costs in Publishing.
Broadcasting operating and administrative expenses increased 2.4% to $116.1
million in 1995 from $113.4 million in 1994. Publishing operating and
administrative expenses increased 5.9% in 1995 to $113.7 million from $107.4
million in 1994. This increase was a result of a 45% increase in the average
price per ton of newsprint paid by the Company which caused a $6.5 million
increase in newsprint costs in 1995 compared to 1994. Operating expenses for
the development stage businesses in the Programming and New Media segment
increased from $2.6 million in 1994 to $5.1 million in 1995 primarily due to
expenses associated with the launching of the cable network NorthWest Cable News
Channel. Such expenses are expected to continue to escalate 30-40% in 1996
as these businesses grow.
ADJUSTED COMBINED EBITDA. Consolidated EBITDA excluding the one-time impact of
single cycle costs and restructuring costs was relatively flat at $65.2
million and $64.4 million in 1995 and 1994, respectively. Broadcasting
experienced 11.8% EBITDA growth in 1995 to $64.4 million compared to $57.6
million in 1994. The growth in Broadcasting EBITDA was offset by a $5.7 million
decline in Publishing EBITDA that was primarily the result of the 45% increase
in newsprint prices. Because the Programming and New Media segment is in an
early development phase, EBITDA was a loss of $1.7 million in 1995 and $.6
million in 1994.
24
<PAGE> 25
SINGLE CYCLE AND RESTRUCTURING COSTS. In 1995, the Company recorded a $7.4
million charge for the costs associated with the consolidation of the morning
and afternoon newspapers ("single cycle" conversion) and a $6.8 million
restructuring charge at year end under a plan of reorganization and
restructuring of most Publishing departments to increase efficiencies. To the
extent not funded by the Company's pension plan, the Company will pay such
costs in 1996. The combined impact of both of these efforts is expected to
reduce the number of employees by approximately 160 (net of 20 additional local
news/photo interns) full time equivalents and, when fully implemented, to
generate annual cost savings of up to $8 million. Included in the $7.4 million
single cycle charge are early retirement benefits accepted by 61 employees and
voluntary separation benefits accepted by 19 employees, together totaling
approximately $4.9 million. Also included are costs of approximately $2.5
million for promotion, training, and other costs of the conversion. The early
retirement benefits will be paid from the Company's retirement plans (in which
plan assets exceed plan obligations). As of December 31, 1995 approximately $.7
million remains unpaid under the voluntary separation plans and benefits and is
expected to be paid in 1996. Included in the $6.8 million restructuring charge
is the cost of salaries and related payroll taxes associated with a targeted
reduction in workforce of approximately 100 full time equivalents through a
combination of early retirement and voluntary and involuntary separation
assistance plans. Of the 100 full time equivalents, approximately 62 are from
the news and operations departments with the remainder coming from all other
departments. Early retirement and voluntary separation benefits will be paid
out of the Company's pension plans (in which plan assets exceed plan
obligations). All costs are expected to be paid out in 1996.
STOCK-BASED COMPENSATION. Stock-based compensation expense relates to the
Company's restricted stock unit, incentive unit compensation ("IUP"), and
certain stock option plans. Stock-based compensation declined $12.7 million to
$2.4 million in 1995 from $15.1 million in 1994 primarily due to the freezing
of the IUP plan in 1994. (See also "Liquidity and Capital Resources" regarding
possible additional payments under these plans).
ADJUSTED COMBINED DEPRECIATION AND AMORTIZATION EXPENSE. Consolidated
depreciation and amortization expense decreased $1.6 million from $41.2 million
in 1994 to $39.6 million in 1995 reflecting management's continued effort to
control capital spending. Included in adjusted combined depreciation and
amortization is approximately $7.5 million associated with the step-up in the
carrying value of intangible assets (with an average life of 30 years)
acquired in the Kelso Buyout.
ADJUSTED COMBINED OTHER INCOME (EXPENSE), NET. Other income (expense), net
increased $2.2 million to $22.6 million in 1995 from $20.4 million in 1994.
The increase of $2.8 million in equity in losses of affiliates from 1994 is a
result of them Programming and New Media segment's investments in start up
businesses, America's Health Network ("AHN") and Peapod, L.P. (See
"Description of Programming and New Media Business"). An increase in interest
expense of $1.6 million in 1995 was offset by recognition in 1995 of $2.4
million in interest income from a note receivable with the Lowell Sun
Companies. Interest income received in 1994 and 1993 had been used to create
a reserve against the principal of the note receivable in those years.
ADJUSTED COMBINED LOSS FROM CONTINUING OPERATIONS. Adjusted Combined loss from
continuing operations for 1995 was $14.9 million compared with $19.1 million in
1994 reflecting the fluctuations discussed above. Adjusted Combined income tax
expense decreased from $6.5 million in 1994 to $.1 million in 1995 primarily
due to a $6.0 million additional tax provision recorded in 1994 primarily
relating to interest on settlements and contingencies on income tax
exposures identified during Internal Revenue Service examinations. The
effective tax rate is unfavorably affected by non-deductible amortization of
certain intangibles acquired.
ADJUSTED COMBINED 1994 TO ADJUSTED COMBINED 1993
ADJUSTED COMBINED OPERATING REVENUES. Consolidated revenues in 1994 increased
by 10.4% over 1993 to $301.3 million from $272.8 million. Broadcasting
revenues contributed 15.8% growth in revenues to $171.1 million in 1994 from
$147.8 million in 1993, accounting for most of the consolidated revenue
increase. Publishing revenues grew slowly at 2.4% to $127.9 million in 1994
from $124.9 million in 1993 reflecting a continuing recession in the local
economy. The Programming and New Media segment began developing its operating
services in 1994 and generated $2.3 million in revenue.
ADJUSTED COMBINED OPERATING AND ADMINISTRATIVE EXPENSES. Consolidated operating
and administrative expenses increased 4.5% to $237.2 million in 1994 from
$227.0 in 1993, primarily as a result of the increased costs in Broadcasting.
Broadcasting operating and administrative expenses increased 8.2% to $113.4
million in 1994 from $104.8 million in 1993 as a result of program development
and increased promotional activities. Publishing operating and administrative
expenses increased 3.7% in 1994 to $107.4 million from $103.6 million in 1993
due to development expenses, system conversion costs, and payroll cost
increases. Operating expenses for the start up of businesses in the Programming
and New Media segment amounted to $2.6 million in 1994.
25
<PAGE> 26
ADJUSTED COMBINED EBITDA. Consolidated EBITDA grew 37.0% to $64.4 million from
$47.0 million primarily due to a 34.0% increase in Broadcasting EBITDA.
Broadcasting EBITDA increased to $57.6 million in 1994 compared to $43.0
million in 1993. Publishing EBITDA declined slightly to $20.5 million in 1994
from $21.3 million in 1993. Corporate overhead declined $4.2 million in 1994
to $13.1 million from $17.3 million in 1993 primarily due to consolidation and
allocation of shared services.
STOCK-BASED COMPENSATION. Stock-based compensation increased $9.4 million to
$15.1 million in 1994 from $5.7 million in 1993 primarily due to a 40% increase
in the valuation of the Company as determined by an independent appraiser.
ADJUSTED COMBINED DEPRECIATION AND AMORTIZATION EXPENSE. Consolidated
depreciation and amortization expense decreased $1.6 million to $41.2 million
in 1994 from $42.8 million in 1993 reflecting management's effort to control
capital spending. Included in adjusted combined depreciation and amortization
is approximately $7.5 million associated with the step-up in carrying values of
intangible assets (with an average life of 30 years) acquired in the
Kelso Buyout.
ADJUSTED COMBINED OTHER (EXPENSE), NET. Adjusted Combined other income
(expense), net remained relatively flat in 1994 at $20.4 million compared with
$20.8 million in 1993. Losses in the Company's ancillary garage operations
included a valuation adjustment of approximately $3 million in 1993. However,
1994 equity in losses of affiliates increased $3.5 million primarily due to
developing operations at TVFN and Partner Stations Network. (See table in
Programming and New Media segment).
ADJUSTED COMBINED LOSS FROM CONTINUING OPERATIONS. Including the $6.0 million
provision for income tax settlements and contingencies in 1994 discussed
earlier, adjusted combined loss from continuing operations was $19.1 million in
1994 compared with $19.8 million in 1993, a $.7 million improvement.
26
<PAGE> 27
<TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
The following table presents consolidated financial data derived from the
audited consolidated financial statements of the Company for the years ended
December 31, 1995, 1994, and 1993. As a result of the Kelso Buyout discussed
above, the 1995 results include the results of operations of KHC since January
1, 1995 with appropriate adjustments for minority interests from January 1,
1995 to October 5, 1995, the date of the acquisition. As a result of the Kelso
Buyout, the 1995 results are not comparable to 1994 and 1993.
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------
HISTORICAL
----------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
OPERATIONS DATA. (in thousands)
Revenues:
Broadcasting $180,547 $ 54,024 $ 45,506
Publishing 128,491 127,893 124,914
Programming and New Media 3,468 2,300 -
-------- -------- --------
312,506 184,217 170,420
-------- -------- --------
Operating expenses:
Operating and administrative expenses 248,542 160,672 157,281
Single cycle (1) and restructuring (2) 14,222 - -
Stock-based compensation 2,387 15,138 5,735
Depreciation and amortization 33,969 19,983 20,613
-------- -------- --------
299,120 195,793 183,629
Operating income (loss):
Broadcasting 42,535 6,219 (1,472)
Publishing (10,264) 9,270 9,891
Programming and New Media (1,831) (315) -
Corporate (17,054) (26,750) (21,628)
-------- -------- --------
13,386 (11,576) (13,209)
Other income (expense):
Interest, fees, and other income 4,797 6,103 2,182
Interest expense (11,395) (2,426) (2,578)
Equity in loss of affiliates (7,835) (13,380) (8,763)
-------- -------- --------
(14,433) (9,703) (9,159)
Loss from continuing operations
before taxes (1,047) (21,279) (22,368)
Income tax expense (benefits) 3,956 1,950 (6,097)
-------- -------- --------
Loss from continuing operations (5,003) (23,229) (16,271)
Loss from discontinued operations
net of taxes - (36,562) (6,413)
-------- -------- --------
Loss before extraordinary items
and minority interests (5,003) (59,791) (22,684)
Extraordinary items, net of tax (2,086) - 1,551
Minority interests (2,559) - -
-------- -------- --------
Net loss $ (9,648) $(59,791) $(21,133)
======== ======== ========
OTHER DATA:
Selected operating expenses:
Pension (income) expense $ 1,236 $ (173) $ 756
======== ======== ========
Operating income (loss), excluding
Single Cycle and Restructuring charges $ 27,608 $(11,576) $(13,209)
======== ======== ========
EBITDA, excluding single cycle costs
and restructuring (3)
Broadcasting $ 64,419 $ 14,075 $ 7,210
Publishing 14,808 20,468 21,317
Programming and New Media (1,664) (282) -
Corporate (12,363) (10,889) (14,632)
-------- -------- --------
Total Adjusted EBITDA $ 65,200 $ 23,372 $ 13,895
======== ======== ========
<FN>
Notes to table
- --------------
(1) Single cycle costs are those costs totaling $7,422 incurred in 1995 to
consolidate the Company's morning and afternoon daily newspapers into
one cycle. As a result, the Company now publishes a morning only daily
newspaper in addition to its Sunday paper. No additional costs are expected
beyond 1995.
(2) Restructuring costs, totaling $6,800 incurred in 1995, are estimated
severance costs associated with management's plan to reorganize and
restructure most operating and administrative departments of the
Publishing segment, eliminating approximately 100 full time equivalents.
(3) EBITDA is defined by the Company as operating income (loss) plus
depreciation, amortization, stock-based compensation and pension expense.
</TABLE>
27
<PAGE> 28
<TABLE>
Historical 1995 to Historical 1994
GENERAL. As discussed above, 1995 results include the full consolidation of
KHC's operations since January 1, 1995 with appropriate adjustments for
minority interests. Prior to the Kelso Buyout, the Company recorded the
investment in KHC under the equity method of accounting. Consequently, the
significant increases in comparing historical Broadcasting revenues,
Broadcasting operating income, interest expense and income taxes are
attributable to the consolidation of KHC's operations in 1995. The Company's
50% ownership interest in KHC's net operations included in the equity in loss
of affiliates amounted to $8.3 million and $7.2 million for 1994 and 1993,
respectively. Management fees from KHC, which were eliminated in
consolidation in 1995, amounted to $3.5 million and $3.8 million in 1994 and
1993, respectively, and are included in interest, fees, and other income. All
other continuing operations fluctuations to the extent not attributable to the
consolidation of KHC's operations generally exhibit the same trends previously
discussed under the "Adjusted Combined Results of Operations" discussed above.
The following table summarizes KHC's operations for 1994 and 1993. The table is
derived from the audited results of operations of KHC included elsewhere
herein:
<CAPTION>
KHC Operations 1994 1993
-------------- ---- ----
<S> <C> <C>
Broadcasting net revenues $117,059 $102,340
Operating and administrative expenses 78,537 71,272
Depreciation and amortization expenses 13,746 14,697
-------- --------
Operating income 24,776 16,371
Other expenses, net (8,670) (8,684)
-------- --------
Income before taxes 16,106 7,687
Income tax expense 8,843 6,787
-------- --------
Income from continuing operations $ 7,263 $ 900
-------- --------
EBITDA $ 38,522 $ 31,068
======== ========
</TABLE>
OPERATING REVENUES. Consolidated revenues increased 69.7%, or $128.3 million
to $312.5 million in 1995 from $184.2 million in 1994 primarily due to the
acquisition of the KHC stations. Including KHC broadcasting revenues in 1994,
consolidated revenues in 1995 increased by 3.7% over 1994 to $312.5 million
from $301.3 million. Broadcasting revenues contributed significantly to the
increase in consolidated revenues with an increase of 5.5% for the year ended
December 31, 1995 as compared to the year ended December 31, 1994. Publishing
contributed substantially the same revenue in 1995 as in the prior year with
$128.5 million for 1995 compared with $127.9 million in 1994. The operations
in the Programming and New Media segment are in the early development phase and
contributed $3.5 million in revenue in 1995 compared to $2.3 million in 1994.
OPERATING AND ADMINISTRATIVE EXPENSES. Consolidated operating and
administrative expenses increased $103.3 million primarily due to the
acquisition and consolidation of KHC's operations in 1995. Including KHC
operations for 1994, consolidated operating and administrative expenses
increased 4.8% to $248.5 million in 1995 from $237.2 in 1994 (adjusted
combined), primarily as a result of the increased costs in Publishing.
Publishing operating and administrative expenses increased 5.9% in 1995 to
$113.7 million from $107.4 million in 1994. This increase is a result of a
45% increase in the average price per ton of newsprint which caused a $6.5
million increase in newsprint costs in 1995 as compared to 1994. Operating
expenses for the early development phase businesses in the Programming and New
Media segment increased from $2.6 million in 1994 to $5.1 million in 1995
primarily due to expenses associated with the launching of the cable network
NorthWest Cable News Channel.
STOCK-BASED COMPENSATION. See discussion under "Adjusted Combined 1995 to
Adjusted Combined 1994."
Single Cycle and Restructuring Costs. See discussion under "Adjusted Combined
1995 to Adjusted Combined 1994".
DEPRECIATION AND AMORTIZATION EXPENSE. Consolidated depreciation and
amortization expense increased $14.0 million primarily due to the consolidation
of KHC's operations in 1995. Additional amortization recorded in 1995 as a
result of the step-up in carrying value of intangibles acquired amounted to
approximately $1.9 million in 1995.
28
<PAGE> 29
OTHER INCOME (EXPENSE), NET. Other income (expense), net increased $4.7
million to $14.4 million in 1995 from $9.7 million in 1994. In addition to
the changes discussed in the "Adjusted Combined 1995 to Adjusted Combined
1994", the change is also due to consolidation of KHC in 1995 and related
effects on equity in loss of affiliates and other income.
LOSS FROM CONTINUING OPERATIONS. Loss from continuing operations for 1995 was
$5.0 million compared with $23.2 million in 1994 reflecting the fluctuations
discussed above.
LOSS FROM DISCONTINUED OPERATIONS. Loss from the discontinued cable business
is not reflected in 1995 because loss on disposal of that business, including
estimated loss during the 1995 phase-out period, was recognized in the
fourth quarter of 1994. The loss from the operations and disposal of
discontinued wholly owned cable operations (excluding KHC's discontinued cable
operation) in 1994 amounted to $36.6 million of which $34.8 million reflected
severance and transaction costs and $1.8 million reflected the loss from cable
operations, net of allocated interest of $20.7 million and loss during the
phase out period.
NET LOSS. Net loss for 1995 was $9.6 million including an extraordinary charge
of $2.1 million related to the early extinguishment of debt. Net loss
including the loss for discontinued operations of $36.6 million was $59.8
million in 1994.
Historical 1994 to Historical 1993
OPERATING REVENUES. Historical consolidated revenues increased 8.1% to $184.2
million in 1994 from $170.4 million in 1993. Broadcasting revenues grew
18.7% to $54.0 million from $45.5 million due to a nationwide improvement in
the economy. Publishing revenues grew slowly at 2.4% to $127.9 million in 1994
from $124.9 million in 1993 reflecting a continuing recession in the local
economy. The Programming and New Media segment began its early stage
development operating services in 1994 and generated $2.3 million in revenue.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
increased 2.2% on a consolidated basis from $157.3 million in 1993 to $160.7
million in 1994 primarily due to $2.6 million in start up costs associated with
new operations of the Programming and New Media segment.
STOCK-BASED COMPENSATION. See discussion under "Adjusted Combined 1994 to
Adjusted Combined 1993".
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization declined
slightly to $20.0 million in 1994 from $20.6 million in 1993 due to
management's focus on controlling capital spending.
OTHER INCOME (EXPENSE), NET. Other income (expense), net remained
relatively even in 1994 at $9.7 million compared with $9.2 million in 1993. A
valuation adjustment of $3.0 million associated with the Company's ancillary
garage operation recorded in 1993 was offset in 1994 by increases in losses
from affiliates of $4.6 million primarily associated with the Company's share
of KHC's net operations (including discontinued operations) of $7.2 million.
LOSS FROM CONTINUING OPERATIONS. Including the $6.0 million provision for
income tax settlements and contingencies in 1994 discussed earlier, loss from
continuing operations declined $6.9 million to $23.2 million in 1994 from $16.3
million in 1993.
LOSS FROM DISCONTINUED OPERATIONS. As previously discussed, the loss from the
operations and disposal of discontinued wholly owned cable operations in 1994
amounted to $36.6 million. The loss in 1993 from discontinued cable operations
of $6.4 million includes $19.8 million in allocated interest expense.
NET LOSS. Net loss for 1994 including the $36.6 million loss for discontinued
operations was $59.8 million. Net loss for 1993, including a $1.6 million
extraordinary gain associated with the early extinguishment of debt, was $21.1
million.
29
<PAGE> 30
<TABLE>
ANALYSIS BY SEGMENT
Broadcasting Segment.
Broadcasting consists of nine owned and operated stations and provides
marketing and programming services for two LMAs. These eleven stations serve
markets in Louisville, KY; Charlotte, NC; Tucson, AZ; Albuquerque, NM;
Seattle, WA; Spokane, WA; Portland, OR; Boise, ID; and Honolulu, HI.
KING-TV in Seattle, KGW (TV) in Portland, and WHAS-TV in Louisville contributed
approximately 46%, 17% and 14%, respectively of the 1995 EBITDA of the
Stations. No other station represents more than 10% of the segment's 1995
EBITDA.
The following table sets forth Adjusted Combined and historical operating
results for the Company's Broadcasting division for 1995, 1994, and 1993.
For comparison purposes, Adjusted Combined amounts consolidate the results of
KHC's broadcasting operations as if the Kelso Buyout occurred on January 1,
1993 and include supplemental adjustments for amortization expense.
<CAPTION>
Year Ended December 31,
-----------------------
(in thousands)
Adjusted Combined (unaudited) Historical
----------------------------- ----------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National $ 91,125 $ 88,691 $ 74,503 $ 91,125 $ 24,487 $19,475
Local and Regional 106,054 96,268 82,657 106,054 32,909 27,180
Other 11,572 12,538 12,972 11,572 4,924 5,510
Agency Commissions (28,204) (26,414) (22,286) (28,204) (8,296) (6,659)
-------- -------- -------- -------- -------- -------
Net Revenues 180,547 171,083 147,846 180,547 54,024 45,506
Operating and Administrative Expenses 116,128 113,449 104,832 116,128 39,949 38,296
Depreciation and Amortization 27,500 29,019 29,084 21,884 7,856 8,682
-------- -------- -------- -------- -------- -------
Total Operating Expenses 143,628 142,468 133,916 138,012 47,805 46,978
-------- -------- -------- -------- -------- -------
Operating Income (loss) $ 36,919 $ 28,615 $ 13,930 $ 42,535 $ 6,219 $(1,472)
======== ======== ======== ======== ======== =======
OTHER DATA:
EBITDA $ 64,419 $ 57,634 $ 43,014 $ 64,419 $ 14,075 $ 7,210
EBITDA as percentage of Net Revenues 36% 34% 29% 36% 26% 16%
Corporate Allocations 703 773 514 703 364 94
Program rights amortization 17,318 18,924 17,899 17,318 7,356 7,674
Program rights payments (16,166) (17,839) (18,807) (16,166) (6,760) (7,296)
-------- -------- -------- -------- -------- -------
Broadcasting Cash Flow (1) $ 66,274 $ 59,492 $ 42,620 $ 66,274 $ 15,035 $ 7,682
======== ======== ======== ======== ======== =======
<FN>
(1) Broadcasting Cash Flow is defined by the Company as EBITDA plus corporate
allocations plus programming rights amortization less programming rights
payments.
</TABLE>
Broadcasting revenues have grown 22.1% over 1993 (adjusted combined) levels,
with 15.7% growth in 1994 and 5.5% growth in 1995. While national revenues
grew 19.1% in 1994 to $88.7 million (adjusted combined) from $74.5 million
(adjusted combined) in 1993 reflecting nationwide economic improvement, growth
slowed in 1995 to reflect only a modest increase of 2.7% to $91.1 million. This
modest increase is a result of a slight downturn in the industry in the fourth
quarter of 1995 as well as the unfavorable effects of large advance sales of
advertising by the major networks which reduced national advertiser demand for
spot advertising at the Company's stations. Local and regional revenues
exhibited strong growth in 1995 and 1994 (adjusted combined) of 10.2% and 16.5%,
respectively, due to improved ratings and market growth. Contributing to
revenue growth in 1994 (adjusted combined) were changes in certain network
affiliations, increased market share for the three stations that were Fox
affiliates at the time and advertising revenue generated by the 1994 Winter
Olympics.
Operating and administrative expenses increased 2.4% to $116.1 million in 1995
from $113.4 million in 1994 (adjusted combined), a change of $2.7 million.
These expenses reflect the incremental costs of a start-up news operation in
Honolulu (required by
30
<PAGE> 31
KHNL's affiliation switch from Fox to NBC at the end of 1995) and the
offsetting impact of cost containment policies at the stations. Operating and
administrative expenses increased 8.2% to $113.4 million in 1994 (adjusted
combined) from $104.8 million in 1993 (adjusted combined), a change of $8.6
million. This increase is a result of program development and promotional
incentive programs to increase market share.
Depreciation and amortization expense decreased 5.2 % to $27.5 million from
$29.0 million in 1994 (adjusted combined), a change of $1.5 million, reflecting
management's effort to control capital spending. Included in adjusted combined
depreciation and amortization is approximately $7.5 million annually associated
with the step-up in carrying value of intangible assets (with an average life
of 30 years) resulting from the Kelso Buyout.
As a result of revenue growth and cost control, EBITDA for the group increased
11.8% to $64.4 million in 1995 from $57.6 million in 1994 (adjusted combined)
and increased 34.0% in 1994 from $43.0 million in 1993 (adjusted combined).
Broadcasting cash flow also grew 11.4% to $66.3 million in 1995 from $59.5
million in 1994 (adjusted combined) and increased 39.7% in 1994 from $42.6
million in 1993 (adjusted combined). Operating income improved 29.0% in 1995
(adjusted combined) and 105.4% in 1994 (adjusted combined). Performance was
particularly strong at the stations in Seattle, Portland, Louisville, and
Albuquerque.
The primary difference between "Historical" and "Adjusted Combined" results of
operations for the Broadcasting segment in 1995, 1994, and 1993 is attributable
to (1) an adjustment increasing amortization expense $5.6 million in
1995 and $7.5 million in both 1994 and 1993 in connection with the step-up in
carrying value of intangible assets resulting from the Kelso Buyout and (2)
consolidation of KHC broadcast operations. Historical depreciation and
amortization increased $14.0 million in 1995 from $7.9 million in 1994 as a
result of the consolidation of KHC and additional amortization expense of $1.9
million associated with the step-up in carrying values from the Kelso Buyout.
Historical depreciation and amortization for 1994 decreased from $8.7 million
in 1993 due to maintaining control over capital spending.
Historical revenue and operating and administrative expenses for the three year
period exhibited the same trends as those discussed on an "Adjusted Combined"
basis.
31
<PAGE> 32
<TABLE>
Publishing Segment.
The Publishing segment was unaffected by the Kelso Buyout or disposal of cable
operations. Therefore, the following table includes only certain historical
operating and other data for the years ended December 31, 1995, 1994, and 1993
(in thousands, except circulation figures):
<CAPTION>
YEARS ENDED DECEMBER 31,
HISTORICAL
1995 1994 1993
<S> <C> <C> <C>
OPERATING DATA:
Revenues:
Advertising $ 93,671 $ 95,079 $ 93,149
Circulation 32,151 30,888 31,028
Other 2,669 1,926 737
-------- -------- --------
128,491 127,893 124,914
Operating and administrative expenses 113,683 107,425 103,597
Single cycle costs(1) and restructuring(2) 14,222 - -
Depreciation 10,850 11,198 11,426
-------- -------- --------
Operating income (loss) $(10,264) $ 9,270 $ 9,891
======== ======== ========
OTHER DATA:
EBITDA, excluding one time
single cycle costs and restructuring $ 14,808 $ 20,468 $ 21,317
======== ======== ========
Average Net Paid Circulation (internally generated):
Daily 179,000 183,900 187,700
Sunday 259,800 267,100 268,900
<FN>
Notes to table
- --------------
(1) Single cycle costs are those costs totaling $7,422 incurred in 1995 to
consolidate the Company's morning and afternoon daily newspapers into
one cycle. As a result, the Company now publishes a morning daily
newspaper in addition to its Sunday newspaper. No additional costs are
expected beyond 1995.
(2) Restructuring costs totaling $6,800 incurred in 1995 are estimated
severance costs associated with management's plan to reorganize and
restructure operating and administrative departments of the Publishing
Business, eliminating approximately 100 full-time equivalents.
</TABLE>
Publishing revenues have grown 2.9% over a three year period since 1993.
Advertising revenues have remained relatively flat over the three year period
primarily due to a lackluster Rhode Island economy. Advertising linage for the
three year period was 1,909,600; 2,031,400; and 2,104,900 for 1995, 1994, and
1993, respectively.
Prior to June 5, 1995, the Company published a Sunday newspaper, The Providence
Sunday Journal and both a morning daily newspaper, Providence Journal (Monday
through Saturday) and an afternoon daily newspaper The Evening Bulletin (Monday
through Friday). As discussed previously, the Company, in response to the
changing readership preferences and declining circulation, primarily in The
Evening Bulletin, consolidated the afternoon newspaper with the morning
newspaper, and now only publishes the morning daily Providence Journal-Bulletin
(Monday through Saturday) in addition to The Providence Sunday Journal.
As a result of the consolidation to a single cycle, daily circulation has
dropped 5.0% from an average of approximately 177,500 for the month of July 1995
to approximately 169,000 (as calculated by management) for the two months ended
February, 1996 and is expected to continue to fall somewhat in the first half of
1996. However, a recent study conducted by the Company has indicated that both
daily and Sunday readership has remained constant over the past three years with
daily readership fluctuating between 56% to 58% of the total adults in the
market and Sunday readership remaining between 68% to 70% of total adults in the
market. In addition, management is making efforts to increase circulation
levels through expanded local coverage and continued improvement in content and
customer service. There can be no assurances, however, that management will be
successful in these efforts. Despite the decline in circulation levels,
circulation revenues of $32.2 million in 1995 were 4% ahead of 1994
circulation revenues of $30.9 million as a result of price increases.
Operating and administrative expenses increased 5.9% in 1995 to $113.7 million
and 3.7% in 1994 to $107.4 million primarily due to newsprint and ink increases
of $6.5 million in 1995 and development efforts of $2.0 million in 1994. The
average price per ton of newsprint paid by the Company
32
<PAGE> 33
increased 45% in 1995. Publishing has implemented several newsprint
conservation programs to offset these price increases, including, among others,
increased recycling and reduction of web width. Due to recent market trends in
price increase withdrawals, the Company believes that newsprint prices will
decline somewhat in 1996.
In implementing the conversion to a single cycle, the Company incurred costs of
$7.4 million which include early retirement and voluntary separation costs
totaling $4.9 million affecting approximately 80 employees and $2.5 million for
promotion, training, and other costs of the conversion. Annualized savings
from this consolidation are expected to approximate $4 million.
As previously discussed, management approved a plan of reorganization and
restructuring of most departments of Publishing at the end of 1995 in an effort
to improve efficiencies. Under the plan, the Company has targeted a reduction
in workforce of approximately 100 full time equivalents through a combination
of early retirement and voluntary and involuntary separation assistance plans.
Approximately 62% of the reductions are in the news and operations departments.
A charge of $6.8 million was recorded in the fourth quarter of 1995 relating to
salaries, benefits, and payroll taxes associated with the restructuring. Annual
savings from the restructuring are expected to be approximately $4 million.
Together with the savings from the single cycle consolidation, total annualized
savings are estimated to be approximately $8 million.
As a result of the above fluctuations, EBITDA excluding single cycle costs and
restructuring costs declined to $14.8 million in 1995 from $20.5 million in
1994. The early retirement and voluntary separation benefits under the
restructuring plan as well as the early retirement benefits offered in the
single cycle conversion are expected to be paid from the Company's pension plan
(in which plan assets exceed plan obligations), thereby minimizing the impact
on Publishing's cash flow.
33
<PAGE> 34
<TABLE>
Programming and New Media Segment.
During 1995, the Company launched the NorthWest Cable News channel, which
provides 24-hour news service to cable television viewers in Washington,
Oregon, and Idaho, and Rhode Island Horizons, its electronic on-line
information service. The Company made new investments in America's Health
Network, a 24-hour health channel that launched on March 25, 1996, and Peapod,
an existing interactive grocery delivery service. The Company continued to
fund its share of its investment in Television Food Network and Partner
Stations Network. In addition, the Company has fully subleased the satellite
transmission space it had previously acquired. In 1995, the Company grouped
these investments together in a new segment called "Programming and New Media".
Currently, the Company wholly owns and operates NorthWest Cable News and Rhode
Island Horizons and has significant equity investment positions in the other
entities.
The Programming and New Media segment was not significantly affected by the
Kelso Buyout or the disposal of cable operations. As such, the following
tables present the historical results of the wholly owned entities and the
Company's share of the equity in loss of affiliates comprising this segment (in
thousands):
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
HISTORICAL
----------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING DATA:
Revenues $ 3,468 $ 2,300 $ --
Operating expenses 5,132 2,582 --
Depreciation 167 33 --
------- ------- --------
Operating loss $(1,831) $ (315) $ --
======= ======= ========
Equity in loss of affiliates $(6,796) $(4,545) $(1,391)
======= ======= ========
EBITDA $(1,664) $ (282) $ --
======= ======= ========
</TABLE>
<TABLE>
Equity in loss of affiliates for Programming and New Media consists of:
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
HISTORICAL
OWNERSHIP % AS OF --------------------------------------
DECEMBER 31, 1995 1995 1994 1993
----------------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AHN 59%(1) $(1,835) $ - $ -
TVFN 20% (4,177) (3,848) (1,391)
Peapod 17% (460) - -
PSN 16% (324) (697) -
------ -------- -------
Total $(6,796) $(4,545) $(1,391)
======= ======= =======
<FN>
(1) AHN ownership is anticipated to decline to approximately 50% after
completion of a restructuring of AHN in 1996.
</TABLE>
34
<PAGE> 35
<TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its working capital, debt service, capital
expenditure and dividend requirements primarily through cash provided by its
operating activities. Significant acquisitions or investments have
historically been funded primarily through long-term debt borrowings under
credit facilities. The following table sets forth summary information from the
Company's Consolidated Statement of Cash Flows for the years ended December 31,
1995, 1994, and 1993:
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Cash flows provided by continuing operations $ 11,975 $ 24,927 $ 23,383
========= ======== ========
Cash flows provided by (used in) investing
activities:
Kelso Buyout, less cash acquired $(261,422) - -
Investments in affiliates (23,647) (6,555) (5,783)
Property, plant, and equipment (15,276) (6,481) (11,597)
Cash proceeds from sale of cable operations,
net of taxes paid 693,058 - -
(Increase) decrease in investment in cable
operations through disposal date (66,459) 24,838 (4,528)
Proceeds from sale of assets 8,739 594 1,073
Other (58) 3,086 (2,800)
--------- -------- --------
Total $ 334,935 $ 15,482 $(23,635)
========= ======== ========
Cash flows provided by (used in) financing
activities:
Net borrowings (repayments) $(313,215) $(19,345) $ 18,847
Payments for television programming rights
financed (16,166) (6,760) (7,296)
Dividends paid (9,706) (9,711) (8,872)
Purchases and adjustments to basis of treasury
stock (7,353) (4,291) (2,387)
Other (1,702) - -
--------- -------- --------
Total $(348,142) $(40,107) $ 292
========= ======== ========
<FN>
(1) Represents $405,000 from the sale of KVC plus $410,000 assumption of New
Cable Indebtedness less taxes of $121,942.
</TABLE>
Cash Flows - Investing and Financing Activities.
The significant investing and financing activities in 1995 are primarily
related to the consummation of the Merger and Kelso Buyout transactions. The
cash flows of KHC's operations are included in the above table for 1995 since
January 1, 1995, net of the effects of the acquired assets and liabilities of
KHC. KHC's operating activities included above have been adjusted for minority
interests from January 1, 1995 through the acquisition date.
In connection with the Merger and Kelso Buyout transactions, Old PJC, prior to
the PJC Spin-Off, incurred indebtedness to a subsidiary of Continental in a
principal amount of approximately $408 million (net of $2 million in certain
costs shared with Continental) ("New Cable Indebtedness"). Prior to the PJC
Spin- Off, Old PJC used the proceeds of the New Cable Indebtedness, the $405
million provided by the sale of KVC and the Company Indebtedness (defined
below) to (i) consummate the Kelso Buyout (ii) to repay substantially all
outstanding indebtedness of Old PJC and KHC in an aggregate amount of
approximately $623 million, and (iii) to pay other costs associated with the
transactions. Additional indebtedness (the "Company Indebtedness") required to
meet the foregoing obligations, among others, was incurred by Old PJC and the
Company in the principal amount of $105 million. Following the PJC Spin-Off,
the Company had no obligations or liabilities with respect to the New Cable
Indebtedness, and Continental had no obligations or liabilities with respect to
the Company Indebtedness. In connection with the sale of KVC, KBC paid
approximately $121 million in taxes, which was funded by the Company
Indebtedness in December, 1995.
35
<PAGE> 36
<TABLE>
The effects of the above transactions on consolidated long term debt and
consolidated stockholders' equity of the Company are illustrated in the
following table comparing amounts immediately before the transaction
(effectively, September 30, 1995) with balances as of December 31, 1995 (in
thousands):
<CAPTION>
Balances as of Balances as of
September 30, December 31,
1995 1995
-------------- --------------
<S> <C> <C>
Consolidated Long-Term Debt $337,400 $244,098
Consolidated Stockholders Equity 277,745 263,239
Long-Term Debt to Equity Ratio 1.21 .93
======== ========
</TABLE>
Credit Facility
The Company Indebtedness was incurred pursuant to a Credit Agreement entered
into by the Company on October 5, 1995 (the "Credit Agreement"). The Credit
Agreement, which consists of a $75 million term loan and a $300 million
revolving credit facility, provides the Company with maximum credit
availability of $375 million. The amount of credit available as of December
31, 1995 under this facility was approximately $141 million.
Credit availability under the Credit Agreement decreases quarterly commencing
December 31, 1996, with a final maturity on June 30, 2004. The revolving
commitment decreases as follows (in thousands): 1996-$4,000; 1997-$10,500;
1998-$14,500; 1999-$21,500; 2000-$53,250; 2001-$65,750; 2002-$67,750; and
2003-$62,750. The indebtedness evidenced by the Credit Agreement is secured by
guarantees from all of the material subsidiaries of the Company and a first
priority pledge of all such material subsidiaries' capital stock. The Credit
Agreement provides for borrowings indexed, as the Company may from time to time
elect, to the Eurodollar rate, the certificate of deposit rate, or the "base"
rate of the agent, plus the "spread" over such rates. The "spread" will be
determined by the ratio of the total debt of the Company to the operating cash
flow of the Company (as defined by the Credit Agreement). The Credit Agreement
contains customary events of default, financial covenants, covenants restricting
the incurrence of debt (other than under the Credit Agreement), investments and
encumbrances on assets and covenants limiting mergers and acquisitions. The
Credit Agreement provides for the mandatory prepayment of amounts outstanding
and a reduction in the commitment under certain circumstances.
The Company has hedged against changes in interest rates on its revolving credit
and term loan facilities described above through an interest rate swap
agreement. The interest rate under the swap agreement is equal to 6.71% plus an
applicable margin as defined in the revolving credit and term loan facility
which, at December 31, 1995 effectively sets the interest rate at 8.1% on the
first $200 million of outstanding debt. The Company recorded additional
interest expense during 1995 of approximately $1.1 million which represents the
excess of the swap agreement rate over the original contractual rate. The
notional amounts under the agreement are as follows: $200 million in 1996,
$175 million in 1997 and $150 million in 1998 and 1999.
36
<PAGE> 37
<TABLE>
Cash Flows from Operations
Consolidated cash flows provided by (used in) operations in 1995 can be
analyzed as follows (in thousands):
<CAPTION>
1995
--------
<S> <C>
EBITDA:
Broadcasting $ 64,419
Publishing (excluding single cycle costs and restructuring charges) 14,808
Programming and New Media (1,664)
Corporate (12,363)
--------
Total 65,200
Program rights amortization 17,318
Interest expense paid (11,400)
Income taxes paid (12,679)
Other working capital items (7,865)
--------
Cash flow from operations before unusual cash payouts 50,574
Unusual cash payouts
IRS settlements (1) (15,023)
Stock-based compensation payouts in connection with incentive stock
unit plan liquidation (see discussion below) (20,633)
Cash paid related to single cycle conversion costs (2) (2,943)
--------
Cash flow from operations $ 11,975
========
<FN>
Notes to table
(1) "IRS settlements" identified above relates to amounts paid in connection
with final settlements reached with the Internal Revenue Service relating
to examinations of the Company's income tax returns for the years 1984
through 1989.
(2) Cash portion of single cycle costs incurred to consolidate the Company's
morning and afternoon newspapers. See discussion of such costs in the
"Adjusted Combined Results of Operations" and Note 8 of the Company's
consolidated financial statements.
</TABLE>
<TABLE>
As discussed previously, EBITDA on a consolidated basis was relatively even
with prior year but has increased 38.8% since 1993 with significant growth in
Broadcasting and cost controls in Corporate overhead. EBITDA for the KHC
broadcasting operations acquired amounted to $46.3 million in 1995 and $43.5
million in 1994 and $35.8 million in 1993. EBITDA for 1995, 1994, and 1993,
including KHC's broadcasting operations, are as follows (in thousands):
<CAPTION>
Years Ended December 31,
------------------------------------------------
Adjusted Combined
---------------------------
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
EBITDA, excluding single cycle and
restructuring charges:
Broadcasting $64,419 $57,634 $43,014
Publishing 14,808 20,468 21,317
Programming and New Media (1,664) (614) -
Corporate (12,363) (13,074) (17,346)
------- ------- -------
Total $65,200 $64,414 $46,985
======= ======= =======
</TABLE>
Stock-based compensation payouts identified above totaling $20.6 million relate
to cash paid to participants in the liquidation of 85% of the units in the
Company's incentive stock units plan (the "IUP Plan"). Amounts paid to
participants in the IUP Plan and for the remaining units previously were to be
adjusted if, upon the occurrence of a public offering of Continental Class A
Common Stock or certain other events, the price of Continental Class A Common
Stock is greater or less than the price attributed to such shares at the time
85% of the units were liquidated. A similar adjustment was applicable to
certain
37
<PAGE> 38
other stock-based compensation plans of the Company. As a result of a
planned merger of Continental with and into USWest Media Group
("USWest/Continental Merger"), jointly announced by these entities on February
27, 1996, participants in these plans may now receive the adjustment as
additional payments in cash or stock reflecting the increase in the price of
Continental Class A Common Stock since the Merger. The final amount of
additional consideration is subject to approval by the Compensation Committee
of the Company's Board of Directors and the closing of the USWest/Continental
Merger but could approximate $21 million the vested portion of which will be
charged to first quarter operations in 1996. It is currently anticipated that
following the payout of any additional consideration, the IUP Plan will be
fully liquidated and terminated.
Capital Expenditures
Of the $15.3 million spent in 1995 on capital expenditures, $8.0 million was
spent by the Broadcasting division; $3.2 million was spent by Publishing; and
$3.7 million was spent in Programming and New Media. Broadcasting and
Programming and New Media capital expenditures consisted primarily of
maintenance of existing broadcasting plant and equipment but also consisted of
approximately $2.1 million spent on advanced digital editing systems with
another $4 million to $5 million planned for such digital editing systems in
1996. Total capital expenditures planned for Broadcasting in 1996 are expected
to be approximately $12.5 million. Publishing capital expenditures of $3.2
million are primarily related to information and prepress systems and equipment
replacement. Similar amounts for Publishing are planned for 1996.
Investments
In addition to the Kelso Buyout, the Company made significant investments in
Programming and New Media in 1995. Investments in the cable networks AHN and
TVFN totaled $10.3 million and $5.2 million, respectively in 1995. Investments
in its interactive shopping venture, Peapod, totaled $5.3 million and
investments in Partner Stations Network totaled $.9 million. The Company
intends to increase its investment in these and other entities in Programming
and New Media in 1996 with minimum amounts of $32 million planned for AHN and
TVFN. In addition, the Company intends to pursue a proposed transaction to
purchase some or all of the cash equity partnership interests held by three
partners of TVFN. In 1995, the Company disposed of the Biltmore Hotel in
Providence, Rhode Island, for approximately $7 million, which approximated net
book value.
Dividends and Treasury Stock
Total gross dividends have been fairly constant over the past three years at
$9.7 million in 1995 and 1994 and $8.9 million in 1993. It is anticipated that
total dividends for 1996 will be equivalent to those paid in 1995. After 1996,
it is anticipated that dividends will be reduced to zero subject to change at
the discretion of the Board of Directors of the Company.
The Company has not repurchased its stock since 1994 and does not currently
have plans to do so in 1996. As discussed in note 16 of the consolidated
financial statements, additional consideration totaling $7.4 million was paid
in 1995 to a former stockholder under the terms of a redemption agreement dated
April 15, 1987 in connection with a treasury stock repurchase at that time.
Future Funding and Capital Resources
Future cash flows from the Company's operations are expected to be sufficient
to meet foreseeable working capital, debt service, capital expenditure, and
dividend requirements. In addition, the Company expects to use its unused
credit facility and cash flow from operations for developing its existing
businesses and investing in programming and new media ventures, among other
things. In order to enhance corporate flexibility, management is currently
exploring other debt or equity capital resource alternatives.
INFLATION
Certain of the Company's expenses, such as those for wages and benefits
increase with general inflation. However, the Company does not believe that its
results of operations have been, or will be, adversely affected by inflation,
provided that it is able to increase its advertising rates periodically.
38
<PAGE> 39
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company will adopt Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). The Statement encourages, but does not require, a fair value based
method of accounting for stock- based compensation plans. SFAS No. 123 allows
an entity to continue to measure compensation cost for those plans using the
intrinsic value based method prescribed by APB Opinion No. 25. For those
entities electing to use the intrinsic value based method, SFAS No. 123
requires pro forma disclosures of net income and earnings per share computed as
if the fair value based method had been applied. The Company intends to
continue to account for stock-based compensation costs under APB Opinion No. 25
and will provide the additional required disclosures relating to 1995 and 1996
stock options in its 1996 Annual Report.
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. This statement also requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of carrying value or fair value less costs to sell.
Adoption of this statement is not expected to have any impact on the Company's
consolidated financial statements.
39
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<CAPTION>
PAGE
-----
<S> <C>
Financial Statements and Schedule of the Company
- ------------------------------------------------
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
Independent Auditors' Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41-42
Consolidated Balance Sheets, December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Consolidated Statements of Operations, for the Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . 44
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993 . . . . . . . . . . 45
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994, and 1993 . . . . . 46
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47-70
Schedule II - Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Financial Statements and Schedule of the Company's Significant Unconsolidated Affiliate
- ----------------------------------------------------------------------------------------
KING HOLDING CORP. AND SUBSIDIARIES*
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Consolidated Balance Sheet, December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Consolidated Statements of Operations, for the Years Ended December 31, 1994 and 1993 . . . . . . . . . . . . . 74
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1993 . . . . . . . . . . . . . 75
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1994 and 1993 . . . . . . . . 76
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77-89
Schedule II - Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
<FN>
*King Holding Corp. was acquired and consolidated by the Company in 1995.
</TABLE>
40
<PAGE> 41
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of The Providence Journal Company:
We have audited the consolidated financial statements of The Providence Journal
Company and Subsidiaries (the Company) as listed in the accompanying index. In
connection with our audit of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits. We did not audit the
consolidated financial statements of King Holding Corp. (a 50% owned investee
company prior to October 5, 1995) as of December 31, 1994 and for each of the
years in the two-year period then ended. The Company's investment in King
Holding Corp. at December 31, 1994 was $76,829,000 and its equity in losses of
King Holding Corp. was $8,325,000 and $7,244,000 for the years ended December
31, 1994 and 1993, respectively. The consolidated financial statements and
financial statement schedule of King Holding Corp. were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for King Holding Corp. is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
As discussed more fully in Note 2 to the consolidated financial statements, the
Company completed the Merger and related transactions with Continental
Cablevision, Inc. and the Kelso Buyout on October 5, 1995 which resulted in the
disposal of the Company's cable operations, and the acquisition of the
Company's joint venture partner's interest in King Holding Corp.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Providence Journal Company and
Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the information
set forth therein.
/s/ KPMG PEAT MARWICK LLP
Providence, Rhode Island
February 16, 1996, except for
Notes 2 and 13 which are dated
March 4, 1996 and February 27,
1996, respectively.
41
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
King Holding Corp.:
We have audited the consolidated financial statements of King Holding Corp.
(the Company) as listed in the accompanying index. Our audits also included
the financial statement schedule listed in the index at Item 14. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of King Holding Corp. and
subsidiaries at December 31, 1994, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
42
<PAGE> 43
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 87 $ 1,319
Accounts receivable, net of allowance for doubtful accounts of
$4,328 in 1995, and $1,950 in 1994 56,321 24,916
Television program rights, net 16,536 4,699
Federal and state income taxes receivable 24,146 1,661
Deferred income taxes (note 9) 7,112 20,526
Inventory, prepaid expenses and other current assets 5,019 4,593
-------- --------
Total current assets 109,221 57,714
Investments in affiliated companies (note 3) 22,171 83,407
Notes receivable (note 4) 19,174 19,513
Television program rights, net 3,817 2,670
Property, plant and equipment, net (note 5) 171,649 130,287
License costs, goodwill and other intangible assets, net (note 6) 354,411 35,222
Other assets (notes 10 and 14) 26,787 26,110
Net assets of discontinued operations (note 2) - 369,790
-------- --------
$707,230 $724,713
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,837 $ 10,202
Accrued expenses and other current liabilities (note 7) 49,504 92,840
Current installments of long-term debt (note 10) 100 13,588
Current portion of television program rights payable (note 11) 16,463 4,542
-------- --------
Total current liabilities 82,904 121,172
Long-term debt (note 10) 243,998 247,173
Television program rights payable (note 11) 5,509 2,822
Deferred income taxes (note 9) 52,298 11,944
Deferred compensation (note 13) 10,204 11,287
Other liabilities (notes 13 and 14 ) 49,078 44,428
-------- --------
Total liabilities 443,991 438,826
Commitments and contingencies (notes 2, 3, 12, 14, and 16)
Stockholders' equity (notes 2 and 17):
Class A common stock, par value $1.00 per share; authorized
180,000,000 shares; issued 38,514 shares in 1995 39
Class B common stock, par value $1.00 per share; authorized
46,825,000 shares; issued 46,817 shares in 1995 47
Class A common stock, par value $2.50 per share; authorized
600,000 shares; issued 38,369 shares in 1994 - 96
Class B common stock, par value $2.50 per share; authorized
300,000 shares; issued 47,281 shares in 1994 - 118
Additional paid in capital 71 1,225
Retained earnings (note 2) 264,335 291,791
Unrealized gain (loss) on securities held for sale, net (1,253) 105
Treasury stock at cost-961 shares in 1994 - (7,448)
-------- --------
Total stockholders' equity 263,239 285,887
-------- --------
$707,230 $724,713
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
43
<PAGE> 44
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Broadcasting $ 180,547 $ 54,024 $45,506
Publishing advertising 96,340 97,006 93,886
Publishing circulation 32,151 30,887 31,028
Programming and New Media 3,468 2,300 -
--------- --------- ---------
Total net revenues 312,506 184,217 170,420
--------- --------- ---------
Expenses:
Operating 161,283 77,543 84,925
Selling, general and administrative 87,259 83,129 72,356
Single Cycle costs and restructuring (note 8) 14,222 - -
Stock-based compensation 2,387 15,138 5,735
Depreciation and amortization 33,969 19,983 20,613
--------- --------- ---------
Total expenses 299,120 195,793 183,629
--------- --------- ---------
Operating income (loss) 13,386 (11,576) (13,209)
Other income (expense):
Interest expense (notes 2 and 10) (11,395) (2,426) (2,578)
Equity in loss of affiliated companies (note 3) (7,835) (13,380) (8,763)
Management fees from related parties (note 3) - 3,525 3,781
Other income (expense), net 4,797 2,578 (1,599)
--------- --------- ---------
Total other expense, net (14,433) (9,703) (9,159)
--------- --------- ---------
Loss from continuing operations before income tax expense (benefit) (1,047) (21,279) (22,368)
Income tax expense (benefit) (note 9) 3,956 1,950 (6,097)
--------- --------- ---------
Loss from continuing operations (5,003) (23,229) (16,271)
Discontinued operations (note 2):
Loss from operations of discontinued segments, net of income tax
benefits - (1,798) (6,413)
Loss on disposal of segments, net of income tax benefits - (34,764) -
--------- --------- ---------
Loss before extraordinary items (5,003) (59,791) (22,684)
Extraordinary items, net (note 10) (2,086) - 1,551
--------- --------- ---------
Loss before minority interests (7,089) (59,791) (21,133)
Minority interests (2,559) - -
--------- --------- ---------
Net loss $ (9,648) $ (59,791) $ (21,133)
========= ========= =========
Net loss per common share:
From continuing operations $ (58.47) $ (273.66) $ (190.75)
From discontinued operations - (430.74) (75.18)
Extraordinary items (24.38) - 18.18
Minority interests (29.90) - -
--------- --------- ---------
Net loss per common share $ (112.74) $(704.40) $ (247.74)
========= ========= =========
Weighted average shares outstanding 85,570 84,882 85,302
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
44
<PAGE> 45
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss $ (9,648) $(59,791) $(21,133)
Adjustments to reconcile net loss
to cash flows provided by continuing operations:
Extraordinary items 2,086 - (1,551)
Discontinued operations - 36,562 6,413
Minority interests 2,559 - -
Depreciation and amortization 33,969 19,983 20,613
Program rights amortization 17,318 7,356 7,674
Equity in loss of affiliated companies 7,835 13,380 8,763
Deferred income taxes 11,008 (3,258) (4,846)
Increase (decrease) in deferred compensation (1,531) 7,740 5,767
Changes in assets and liabilities, net of effects of acquisitions
Accounts receivable (4,604) (484) (1,451)
Inventories, prepaid expenses and other current assets (34,870) (1,868) (660)
Accounts payable 1,172 2,545 (3,128)
Accrued expenses and other current liabilities (15,095) (697) 1,629
Other, net 1,776 3,459 5,293
--------- ------- --------
Cash flows provided by continuing operations 11,975 24,927 23,383
--------- ------- --------
Investing activities:
Purchase of Kelso interest, less cash acquired $3,578 (261,422) - -
Investment in securities held for sale (397) - (5,551)
Investments in and advances to affiliated companies (23,647) (6,555) (5,783)
Additions to property, plant and equipment (15,276) (6,481) (11,597)
Collections on notes receivable 339 3,086 2,751
Proceeds from sale of assets 8,739 594 1,073
Cash proceeds in sale of cable operations, net of taxes paid 693,058 - -
(Increase) decrease in discontinued operations through disposal date (66,459) 24,838 (4,528)
--------- ------- --------
Cash flows provided by (used in) investing activities 334,935 15,482 (23,635)
--------- ------- --------
Financing activities:
Proceeds from syndicated long-term debt 233,000 - 30,000
Net increase in syndicate line of credit 1,298 - -
Proceeds from refinanced syndicated long-term debt 90,711 - -
Principal payments on long-term debt including prepayment penalty (638,224) (19,345) (11,153)
Payments of debt issue costs (1,748) - -
Payments on television program rights payable (16,166) (6,760) (7,296)
Dividends paid (9,706) (9,711) (8,872)
Issuance of Class A stock 46 - -
Purchases and adjustments to basis of treasury stock (7,353) (4,291) (2,387)
--------- ------- --------
Cash flows provided by (used in) financing activities (348,142) (40,107) 292
--------- ------- --------
Increase (decrease) in cash (1,232) 302 40
Cash at beginning of year 1,319 1,017 977
--------- ------- --------
Cash at end of year $ 87 $ 1,319 $ 1,017
--------- ------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
45
<PAGE> 46
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- PAID IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1992 37,979 $ 95 47,671 $119 $ 1,225
Treasury stock activity:
Tender offer and other purchases -- -- -- -- --
Issuance of common stock from treasury -- -- -- -- --
Conversion upon sale of Class B to Class A
common stock 374 1 (374) (1) --
Dividends declared, $104 per share -- -- -- -- --
Net loss -- -- -- -- --
------ ---- ------ ---- -------
Balances at December 31, 1993 38,353 96 47,297 118 1,225
Purchases of treasury stock -- -- -- -- --
Conversion upon sale of Class B to Class A
common stock 16 -- (16) -- --
Dividends declared, $114.40 per share -- -- -- -- --
Cumulative effect of change in accounting -- -- -- -- --
principle (note 1(c)) -- -- -- -- --
Net change in unrealized gain (loss) -- -- -- -- --
Net loss
------ ---- ------ ---- -------
Balances at December 31, 1994 38,369 96 47,281 118 1,225
Conversion upon sale of Class B to Class A
common stock 131 -- (131) -- --
Reissuance of treasury stock in connection
with stock based compensation plans -- -- -- -- 2,738
Treasury stock adjustments to basis (note 16) -- -- -- -- --
Dividends declared $114.40 per share -- -- -- -- --
Net change in unrealized gain (loss) -- -- -- -- --
Excess of proceeds over net assets held
for sale in disposal of cable operations
(note 2) -- -- -- -- --
Deemed distribution to shareholders of
Continental capital stock in connection
with disposal of cable operations (note 2) -- -- -- -- --
Recapitalization in connection with PJC
Spin-Off (notes 2 and 17) -- (57) (333) (71) (3,963)
Exercised options 14 -- -- -- 71
Net loss -- -- -- -- --
------ ---- ------- ---- -------
Balances at December 31, 1995 38,514 $ 39 46,817 $ 47 $ 71
====== ==== ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) TREASURY STOCK
RETAINED ON SECURITIES --------------------
EARNINGS HELD FOR SALE SHARES AMOUNT TOTAL
--------- ------------- ------ -------- -----
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1992 $ 391,298 -- (100) $ (770) $391,967
Treasury stock activity:
Tender offer and other purchases -- -- (337) (2,460) (2,460)
Issuance of common stock from treasury -- -- 10 73 73
Conversion upon sale of Class B to Class A
common stock -- -- -- -- --
Dividends declared, $104 per share (8,872) -- -- -- (8,872)
Net loss (21,133) -- -- -- (21,133)
--------- ------- --- ------- --------
Balances at December 31, 1993 361,293 -- (427) (3,157) $359,575
Purchases of treasury stock -- -- (534) (4,291) (4,291)
Conversion upon sale of Class B to Class A
common stock -- -- -- -- --
Dividends declared, $114.40 per share (9,711) -- -- -- (9,711)
Cumulative effect of change in accounting
principle (note 1(c)) -- 5,120 -- -- 5,120
Net change in unrealized gain (loss) -- (5,015) -- -- (5,015)
Net loss (59,791) -- -- -- (59,791)
--------- ------- --- ------- --------
Balances at December 31, 1994 291,791 105 (961) (7,448) 285,887
Conversion upon sale of Class B to Class A
common stock -- -- -- -- --
Reissuance of treasury stock in connection
with stock based compensation plans -- -- 628 4,867 7,605
Treasury stock adjustments to basis
(note 16) -- -- -- (7,353) (7,353)
Dividends declared $114.40 per share (9,706) -- -- -- (9,706)
Net change in unrealized gain (loss) -- (1,358) -- -- (1,358)
Excess of proceeds over net assets held
for sale in disposal of cable operations
(note 2) 582,510 -- -- -- 582,510
Deemed distribution to shareholders of
Continental capital stock in connection
with disposal of cable operations
(note 2) (584,769) -- -- -- (584,769)
Recapitalization in connection with PJC
Spin-Off (notes 2 and 17) (5,843) -- 333 9,934 --
Exercised options -- -- -- -- 71
Net loss (9,648) -- -- -- (9,648)
--------- ------- --- ------- --------
Balances at December 31, 1995 $ 264,335 $(1,253) -- $ -- $263,239
========= ======= === ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
46
<PAGE> 47
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1-- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Consolidation
The consolidated financial statements present the financial position and
results of operations of The Providence Journal Company ("Registrant") and its
subsidiaries (collectively the "Company"). Registrant is the successor to
Providence Journal Company ("Old PJC") which reorganized itself, acquired all
of its joint venture partner's interest in King Holding Corp. ("KHC"), and
disposed of its cable operations on October 5, 1995 in a series of transactions
as described in Note 2. The Company is a diversified communications company
with operations and investments in several media and electronic communications
businesses. The principal areas of the Company's activities are television
broadcasting ("Broadcasting"), newspaper publishing ("Publishing") and
programming and new media ventures ("Programming and New Media"). Prior to the
consummation of the Merger (defined below) and other transactions described
below, these businesses were conducted by Old PJC which was also engaged in the
ownership and operation of cable television systems ("PJC Cable Business").
All significant intercompany balances and transactions have been eliminated and
appropriate minority interests have been recorded in consolidation. The results
of operations for KHC have been consolidated in the accompanying statement of
operations since January 1, 1995 with appropriate adjustments for minority
interests for the period from January 1, 1995 to October 5, 1995 the date of
the Kelso Buyout, as discussed in Note 3.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
(b) Cash
The Company has a cash management program whereby outstanding checks in excess
of cash in the concentration account are not accounted for as reductions of
cash until presented to the bank for payment. At December 31, 1995 and 1994,
the Company reclassified $2,162 and $2,805, respectively, of net outstanding
checks to accounts payable.
<TABLE>
Supplemental cash flow information is as follows:
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Income taxes paid during the year (excluding IRS
settlements, see Note 9).................................. $12,679 $ 2,588 $ 9,815
======= ======= =======
Interest paid during the year (including amounts allocated
to discontinued operations), net of amounts capitalized.. $47,891 $20,911 $20,285
======= ======= =======
Obligations incurred for acquisition of television program
rights (non-cash transactions)............................ $21,520 $ 6,627 $ 5,898
======= ======= =======
</TABLE>
47
<PAGE> 48
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
In connection with the acquisition of the joint venture partner's interest in
King Holding Corp. in 1995, assets acquired and liabilities assumed were as
follows:
<S> <C>
Assets acquired............... $243,186
========
Goodwill and other intangibles $206,740
========
Liabilities assumed........... $184,926
========
</TABLE>
(c) Investments
Investments in Affiliates
Investments in affiliates in which the Company has significant influence
(generally ownership of 20% to 50% of voting stock) and investments in
partnerships are accounted for using the equity method. Other investments
(generally ownership of less than 20% of voting stock) are carried at the lower
of cost or net realizable value. The following investments are accounted for
under the equity method as of December 31, 1995:
Television Food Network, G.P.
America's Health Network
Peapod, L.P.
Partner Stations Network, L.P.
Linkatel Pacific, L.P.
Information about these investments is presented in Note 3.
Investments in Marketable Equity Securities
Investments in marketable equity securities consist of one common stock
investment, StarSight Telecast, Inc., in which the Company owns approximately
5% of the outstanding common stock. This marketable equity security is
included in other assets on the accompanying consolidated balance sheets.
Prior to January 1, 1994, marketable equity securities were stated at cost.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Under this standard, the Company's marketable equity
securities are considered to be "held for sale" and unrealized gains and
losses, net of the related tax effect, are recorded as a separate component of
stockholders' equity. A decline in the market value of any marketable equity
security below cost that is deemed other than temporary results in an
adjustment to the cost basis of the security which is charged to the
consolidated statement of operations.
At December 31, 1995 and 1994, the cost of marketable equity securities totaled
$5,949 and $5,552, respectively; fair market value totaled $3,861 and $5,727,
respectively.
(d) Inventories
Inventories, principally comprising raw materials, are stated at the lower of
cost or market. Cost is determined principally on the last-in, first-out (LIFO)
basis. Replacement cost of inventories was $2,806 and $1,945 at December 31,
1995 and 1994, respectively.
48
<PAGE> 49
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(e) Television Program Rights
Television program rights acquired under license agreements are recorded as
assets at the gross value of the related liabilities at the time the programs
become available for showing. The rights are amortized using accelerated
methods over the term of the applicable contract. Amortized costs are included
in operating expenses in the accompanying consolidated statements of
operations.
Program rights classified as a current asset represent the total amount
estimated to be amortized within a year. Related liabilities due to licensers
are classified as current or long-term in accordance with the payment terms.
Television program rights are reviewed periodically for impairment and, if
necessary, adjusted to estimated net realizable value.
(f) Property, Plant and Equipment
<TABLE>
Property, plant and equipment are stated at cost. Expenditures for maintenance
and repairs are charged to income as incurred; significant improvements are
capitalized. The Company provides for depreciation using the straight-line
method over the following estimated useful lives:
<S> <C>
Buildings and improvements 2 - 45 years
Machinery and equipment... 3 - 15
Furniture and fixtures.... 5 - 11
Broadcast equipment....... 6 - 15
</TABLE>
When the Company determines that certain property, plant and equipment is
impaired, a loss for impairment is recorded for the excess of the carrying
value over the fair value of the asset. Fair value is determined by independent
appraisal, if an active market exists for the related asset. Otherwise, fair
value is estimated through forecasts of expected cash flows.
(g) License Costs, Goodwill and Other Intangible Assets
License costs and other intangible assets are stated at cost. Goodwill
represents the excess of purchase price over fair value of net assets acquired.
The Company provides for amortization using the straight-line method over
periods ranging from 5 to 40 years.
The Company periodically reviews its intangible assets to determine whether any
impairment has occurred. The Company assesses the recoverability of intangible
assets by reviewing the performance of the underlying operations, in particular
the operating cash flows (earnings before income taxes, depreciation, and
amortization) of the operation.
49
<PAGE> 50
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date.
(i) Pension and Other Postretirement Benefits
The Company has defined benefit pension plans covering substantially all
employees of Publishing and certain employees of Broadcasting. The plans are
funded in accordance with the requirements of the Employee Retirement Income
Security Act.
The Company sponsors a defined life insurance and medical plan for its
newspaper and one of its broadcast operations, respectively. The plans are
accounted for under Statement of Financial Accounting Standards ("SFAS") No.
106, "Employer's Accounting for Postretirement Benefits Other than Pensions".
(j) Derivative Financial Instruments
The Company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. Derivative financial instruments
are only used to manage interest rate risks.
The Company has entered into an interest rate swap agreement which is accounted
for as a hedge of the obligation and, accordingly, the net swap settlement
amount is recorded as an adjustment to interest expense in the period incurred
(see note 10). Gains and losses upon settlement of a swap agreement are
deferred and amortized over the remaining term of the agreement.
(k) Net Loss Per Share
Net loss per share is based on the weighted average number of Class A and Class
B shares of common stock outstanding. Restricted stock units and stock options
are both considered common stock equivalents. Common stock equivalents were
anti-dilutive for all periods in which the common stock equivalents were
outstanding.
(l) Stock-Based Compensation
Effective January 1, 1996, the Company will adopt SFAS No. 123, "Accounting for
Stock-Based Compensation." The Statement encourages, but does not require, a
fair value based method of accounting for stock-based compensation plans. SFAS
No. 123 allows an entity to continue to measure compensation cost for those
plans using the intrinsic value based method prescribed by APB Opinion No. 25.
For those entities electing to use the intrinsic value based method, SFAS No.
123 requires pro forma disclosures of net income and earnings per share
computed as if the fair value based method had been applied. The Company
intends to continue to account for stock-based compensation costs under APB
Opinion No. 25 and will provide the additional required disclosures relating to
1995 and 1996 stock options in its 1996 Annual Report.
50
<PAGE> 51
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 2-- REORGANIZATION AND DISCONTINUED CABLE OPERATIONS
(a) Reorganization
On October 5, 1995, Old PJC completed the acquisition of the 50% interest in
King Holding Corp. ("KHC") held by an unrelated third party for $265 million,
including $5 million in transaction fees (the "Kelso Buyout"), completed the
transfer of all non-cable operations from Old PJC to the Company in a
substantially tax-free reorganization pursuant to which the shares of capital
stock of the Company were distributed to the shareholders of Old PJC (the
"PJC Spin-Off"), and, following the PJC Spin-Off, at which point it held only
Old PJC's cable television businesses and assets, Old PJC was merged ("the
Merger") with and into Continental Cablevision, Inc. ("Continental").
Immediately prior to the Kelso Buyout, Continental purchased for $405 million
all of the stock of King Videocable Company ("KVC"), a wholly owned subsidiary
of King Broadcasting Company ("KBC"), which is wholly owned by KHC. As a
result of these transactions, the Company, in substance, became successor to
Old PJC, in the same lines of businesses, simultaneously spinning off its cable
subsidiaries to its shareholders who then merged them into Continental.
Proceeds from the disposal of the cable operations discussed above consisted of
a combination of Continental stock, which was received directly from
Continental by Old PJC's shareholders in connection with the Merger, assumption
of a portion of the Old PJC's debt by Continental (see Note 10), and cash. The
total combined consideration amounted to approximately $1.4 billion (including
the $405 million from the sale of KVC). The excess of the proceeds over the
net assets of the discontinued cable operations was $582,510 and is reflected
in the consolidated statement of stockholders' equity. The receipt by the Old
PJC Shareholders of the Continental shares, valued at $584,769, is recorded as
a deemed distribution to shareholders in the statement of stockholders'
equity.
The Merger agreement between Old PJC and Continental provides that the total
combined consideration received from the disposal of the Company's cable
operations will be adjusted for certain working capital items of the cable
operations acquired by Continental. On March 4, 1996, the Company agreed to
pay Continental $4,250 in full settlement of this working capital adjustment
which was accrued in the accompanying balance sheet as of December 31, 1995 and
included in discontinued operations of 1995.
In connection with the Merger, the Company agreed to indemnify Continental from
any and all liabilities arising from the non-cable television businesses, and
is responsible for all federal and state income tax liabilities for periods
ending on or before the closing date.
51
<PAGE> 52
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
(b) Discontinued Cable Operations
The results of operations of the cable television segment, the cellular system
and the paging subsidiary have been reported as discontinued in the
accompanying consolidated statements of operations. Prior year financial
statements have been reclassified to present these businesses as discontinued
operations. Operating results of these discontinued operations were as follows:
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues..................... $ 148,268 $ 177,953 $ 177,417
Costs and expenses........... (154,741) (180,597) (185,998)
Equity in income of affiliate 1,373 2,417 1,413
--------- --------- ---------
Loss before income taxes..... (5,100) (227) (7,168)
Income tax (expense) benefit. (2,017) (1,571) 755
--------- --------- ---------
Net loss..................... $ (7,117) $ (1,798) $ (6,413)
========= ========= =========
</TABLE>
The net loss for discontinued operations in 1995 was accrued in 1994 as part of
the costs to dispose of the cable operations. No amounts were required to be
recorded in the loss from operations of discontinued segments in the
consolidated statement of operations for 1995.
Loss from operations of discontinued segments includes allocated interest
expense totaling $17,265 (excluding $12,386 allocated to KVC operations),
$20,674 and $19,807 in 1995, 1994 and 1993, respectively. Interest allocated to
discontinued segments was limited to the associated interest on debt that was
repaid in connection with the Merger. The estimated loss on disposal of
segments in 1994 of $34,764, which is net of income tax benefits of $8,038,
includes severance packages, transaction costs and a provision for loss during
the phase-out period.
In addition, in 1994 the Company sold its remaining cellular system investment
and its paging subsidiary. As a result of these transactions, the Company
recorded gains of $1,390 (net of phase-out period operating losses and income
taxes).
Included in discontinued operations is a 50% equity investment in
Copley/Colony, Inc. ("Copley/Colony"), a joint venture between Colony
Communications, Inc. ("Colony") (a subsidiary of Old PJC) and Copley Press
Electronics Company ("Copley"), engaged in cable television operations. In
connection with the Merger agreement with Continental, in May, 1995 Copley sold
all of its interests in Copley/Colony to Colony for a fixed aggregate purchase
price of $47,790 in cash. As a result, Colony owned all of the outstanding
shares of Copley/Colony at the time of the Merger with Continental.
The net assets of the cable television businesses acquired by Continental are
presented in the accompanying consolidated balance sheets as "net assets of
discontinued operations" prior to the disposal. Discontinued assets acquired
consisted primarily of plant and equipment, and intangible assets. Liabilities
assumed consisted primarily of accounts payable and accrued expenses.
52
<PAGE> 53
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 3 -- INVESTMENTS IN AFFILIATED COMPANIES
(a) King Holding Corp.
The Kelso Buyout as discussed in Note 2 (a), was recorded in the fourth quarter
of 1995 as a step acquisition under the purchase method of accounting. The
excess of the purchase price over the net book value of assets acquired
including deferred taxes was $206,740, of which approximately $88,000 was
allocated to identifiable intangibles and the remainder to goodwill, together
to be amortized over an average life of approximately 30 years.
<TABLE>
The following table presents unaudited pro forma summary results of operations
as if the Kelso Buyout and Merger had occurred on January 1, 1994, and
accordingly, include adjustments for additional amortization and interest
expense and related income tax benefits. It does not purport to be indicative
of what would have actually occurred had the acquisition occurred on January 1,
1994 nor is it indicative of results which may occur in the future:
<CAPTION>
PRO FORMA (UNAUDITED)
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
--------- ---------
<S> <C> <C>
Revenues.......................... $ 312,506 $ 301,276
Loss from continuing operations... (14,893) (19,136)
Net loss.......................... $ (16,979) $ (19,136)
========= =========
Net loss per common share......... $ (198.42) $ (225.44)
========= =========
</TABLE>
Prior to the acquisition of all outstanding interests, the Company received
annual governance fees and management fees from KHC totaling $3,525 and $3,781
in 1994 and 1993 respectively, which had been included in management fees from
related parties. The Company charged KHC $1,130 and $330 for accounting
services in 1994 and 1993, respectively, and was also reimbursed $3,240, and
$2,842 by KHC for expenses in its capacity as manager in 1994 and 1993,
respectively. In 1995, the annual governance, management, and accounting fees
and expenses reimbursed have been eliminated in consolidation.
53
<PAGE> 54
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
Summary combined information for King Holding Corp. as of December 31, 1994 and
for each of the years in the two year period then ended is summarized below:
<CAPTION>
1994
---------
<S> <C> <C>
Current assets........................ $ 39,978
Current liabilities................... (48,804)
--------
Working capital deficiency............ (8,826)
Property, plant and equipment, net.... 58,131
Intangible and other assets........... 138,453
Net assets of discontinued operations. 255,902
Long-term liabilities................. (289,669)
--------
Net assets............................ $153,991
========
1994 1993
-------- --------
Revenues.............................. $117,059 $102,340
======== ========
Operating income...................... $ 24,776 $ 16,371
======== ========
Income from continuing operations..... $ 7,263 $ 900
======== ========
Loss from discontinued operations, net $(23,915) $(15,389)
======== ========
Net loss.............................. $(16,652) $(14,489)
======== ========
</TABLE>
(b) Television Food Network, G.P.
As of December 31, 1995, the Company, controlled a 20% interest in Television
Food Network, G.P. ("TVFN"). The partnership was formed specifically to own
and operate the Television Food Network channel. TVFN is a 24-hour advertising
supported network service that provides television programming related to the
preparation, enjoyment and consumption of food, as well as programs focusing on
nutrition and topical news areas. TVFN is a general partnership consisting of
eight media companies with cable television, broadcast television and
programming holdings. TVFN is distributed predominantly through cable
television stations to aproximately 15.4 million subscribers throughout the
United States. The Company is the general partner in the managing partner of
TVFN and has invested approximately $12,650 through December 31, 1995. In
addition, the Company is negotiating with three of its partners to purchase
interests which, when combined with the Company's current interest, would give
the Company majority ownership of TVFN. In addition, the Board approved
additional investments in TVFN of up to an additional $20,000 to fund
operating losses of TVFN through 1997.
Effective March 1994 the Company entered into a sub-lease agreement with TVFN
for use of the Company's C-band primary transponder. The lease is effective
through March 1999. The Company recorded $1,090 and $1,700 in rental revenue
from TVFN in 1995 and 1994, respectively.
(c) America's Health Network
During 1995, the Company invested $10,250 in America's Health Network ("AHN"),
a development stage cable programming network service intending to provide
health-related information and products. The channel launched on March 25,
1996 with 750,000 subscribers. The Company's Board of Directors has approved
additional investments up to $12,000, expected to made in 1996. In early
1996, AHN, Inc. was reorganized and became America's Health Network, L.L.C.
("AHN LLC"), a limited liability corporation which is the general partner in
AHN Partners, L.P. ("AHN Partners"), a limited partnership formed to carry on
the operations of the network. The Company has invested approximately $15,300
collectively in AHN LLC and AHN Partners as of February 29, 1996, representing
a 59% interest, which is considered temporary until the full funding by
investors is completed, which is expected to occur in the second quarter of
1996. It is anticipated that the Company's overall interest in this venture at
that time will be approximately 50%. Although consolidation is not material to
the Company's financial statements, to the extent the Company attains control
over this investment, it will be consolidated in 1996.
54
<PAGE> 55
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company also entered into a sub-lease agreement with AHN for use of the
Company's C-band primary transponder. The lease term is from November 1, 1995
through October 31, 2000. The Company recorded revenue of $410 related to this
agreement during 1995.
(d) Peapod, L.P.
On July 27, 1995, the Company purchased a 17.1% interest in Peapod, L.P., which
currently provides an interactive computer on-line grocery ordering, shopping
and delivery service in Chicago and San Francisco and will expand such services
to Boston and Providence in 1996. Total investments in the partnership during
1995 were $5,335. The Company has committed to invest an additional $1,000 in
1996 as part of a $15 million private placement. No additional investments have
been committed to.
Summary Financial Information -- TVFN, AHN, and Peapod, L.P
<TABLE>
Summary combined financial information for TVFN, AHN and Peapod L.P., as of
December 31, 1995 and 1994 and for the years ended December 31, 1995 and 1994
is presented below. Information for 1993 presented below is for TVFN only:
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current assets...................... $14,935 $ 8,511
Current liabilities................. (8,418) (2,489)
------- -------
Working capital..................... 6,517 6,022
Property, plant and equipment, net.. 7,996 6,052
Intangible and other assets......... 11,248 3,356
Long-term liabilities............... (3,009) (373)
------- -------
Net assets.......................... $22,752 $15,057
======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Revenues......... $ 22,579 $ 10,307 $ 13
======== ======== =======
Operating loss... $(31,863) $(25,513) $(6,526)
======== ======== =======
Net loss......... $(31,614) $(25,223) $(6,648)
======== ======== =======
</TABLE>
(e) Partner Stations Network, L.P.
The Company is a limited partner with four other television group broadcasters
in Partner Stations Network, L.P. ("PSN"). PSN was formed in 1994 to develop
and produce television programming for broadcast on their own stations and for
potential national distribution to other television broadcast stations. Each
of the limited partners has a 16% interest and the general partner, Lambert
Television Management, Inc. has a 20% interest. Through December 31, 1995, the
Company has invested $1,810.
55
<PAGE> 56
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(f) Linkatel Pacific, L.P.
In July 1993, the Company, through its wholly-owned subsidiary Colony/Linkatel
Networks, Inc., invested in Linkatel Pacific, L.P. (a development stage
enterprise), with two other communications companies. The Company has a 45%
limited interest in the partnership, which was formed to pursue the development
of alternative access networks. Through December 31, 1995, the Company has
invested $6,531 in Linkatel Pacific, L.P. The Company intends to sell this
investment in 1996 for an amount at least equal to the amounts invested to
date, although no firm commitments are in place as of December 31, 1995.
Linkatel Pacific, L.P.'s net loss approximated $2,319 and $1,262 for the years
ended December 31, 1995 and 1994. Net assets approximated $9,088 and $7,367 as
of December 31, 1995 and 1994.
NOTE 4 -- NOTES RECEIVABLE
In September 1990, the Company advanced the Lowell Sun Publishing Company and
Lowell Sun Realty Company (collectively the "Lowell Sun Companies") $25,650 and
agreed to provide a $6,500 revolving credit facility. The loan and revolving
credit facility which were originally due in March 1996 are subject to a
forebearance until January 2, 1997. Amounts outstanding bear interest at a
floating rate of prime plus 1.25%. The advance is collateralized by all assets
of the Lowell Sun Companies and an interest in Lowell Sun Companies stock. The
principal balance receivable at December 31, 1995 and 1994 was $23,575 and
$23,675, respectively.
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
Property, plant and equipment, at cost, consist of the following at December
31:
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Land......................... $ 24,338 $ 17,054
Machinery and equipment...... 84,733 78,503
Buildings and improvements... 116,790 75,608
Broadcast equipment.......... 104,147 38,307
Furniture and fixtures....... 45,076 39,871
Construction in progress..... 1,445 1,564
-------- --------
376,529 250,907
Less accumulated depreciation 204,880 120,620
-------- --------
$171,649 $130,287
======== ========
</TABLE>
Depreciation expense on property, plant and equipment used in continuing
operations totaled $22,346, $16,617 and $16,964 in 1995, 1994 and 1993,
respectively.
56
<PAGE> 57
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 6 -- INTANGIBLE ASSETS
<TABLE>
As of December 31, 1995 and 1994, intangible assets consist of:
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Goodwill............ $166,594 $28,219
Licenses............ 165,836 1,303
Advertiser Relations 88,595 41,395
Other............... 411 307
-------- -------
Total............. $421,436 $71,224
======== =======
</TABLE>
Amortization expense on intangible assets charged to continuing operations
totaled $11,623, $3,366 and $3,649 in 1995, 1994, and 1993, respectively.
Accumulated amortization on intangible assets totaled $67,025 and $36,002 at
December 31, 1995 and 1994, respectively. See also Note 3.
NOTE 7 -- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
Significant components of accrued expenses and other current liabilities
consisted of the following amounts at December 31:
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Accrued costs on disposal of the cable television segment $12,278 $35,075
Deferred compensation.................................... 4,806 31,266
Accrued interest......................................... 872 7,263
Salaries, wages and other employee benefits.............. 11,626 7,033
Unearned revenue......................................... 3,709 4,024
Publishing restructuring................................. 6,800 --
Other.................................................... 9,413 8,179
------- -------
$49,504 $92,840
======= =======
</TABLE>
NOTE 8 -- SINGLE CYCLE COSTS AND RESTRUCTURING
(a) Single Cycle Costs
Included in the 1995 consolidated statement of operations are one-time charges
related to the consolidation of the Company's afternoon newspaper (The Evening
Bulletin) with the morning newspaper (The Providence Journal). This
consolidation was effective June 5, 1995 and resulted in the publishing of
Providence Journal-Bulletin, a morning newspaper. This consolidation is
referred to as "Single Cycle" conversion. In connection with the Single Cycle
conversion, the Company offered early retirement benefits and voluntary
separation assistance to affected employees. As of December 31, 1995, 61
employees accepted early retirement benefits and 19 employees accepted
voluntary separation amounting to a charge to operations of approximately
$3,826 and $1,071, respectively, including benefits. In addition, the Company
incurred costs of approximately $2,525 for promotion, training, and other costs
of the conversion. The early retirement benefits will be paid from the
Company's retirement plans. As of December 31, 1995 approximately $700 remains
unpaid under the voluntary separation plans. This amount is expected to be
paid in 1996.
57
<PAGE> 58
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(b) Publishing Restructuring
During the fourth quarter of 1995, management approved a plan of reorganization
and restructuring of most departments of Publishing in an effort to improve
efficiencies. Under the plan, the Company has targeted a reduction in
workforce of approximately 100 full time equivalents through a combination of
early retirement and voluntary and involuntary separation assistance plans.
Of the 100 full time equivalents, approximately 62 are from the news and
operations departments with the remainder coming from other departments.
Salaries and related payroll taxes associated with these reductions amounted to
approximately $6,800 and has been included as a restructuring charge in the
accompanying consolidated statement of operations for 1995. Early retirement
and voluntary separation benefits will be paid out of the Company's pension
plans (in which plan assets exceed plan obligations) and all other costs are
expected to be paid out in 1996.
<TABLE>
NOTE 9 -- FEDERAL AND STATE INCOME TAXES
Income tax expense (benefit) has been allocated as follows:
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Continuing operations.............. $3,956 $ 1,950 $(6,097)
Operations of discontinued segments 2,017 1,571 (755)
Loss on disposal of segments....... -- (8,038) --
Extraordinary items................ (417) -- 799
Stockholders' equity............... (905) 70 --
------ ------- -------
$4,651 $(4,447) $(6,053)
====== ======= =======
</TABLE>
<TABLE>
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -------
<S> <C> <C> <C>
Year ended December 31, 1995:
U.S. Federal................. $(8,523) $11,162 $ 2,639
State........................ 1,471 (154) 1,317
------- ------- -------
$(7,052) $11,008 $ 3,956
======= ======= =======
Year ended December 31, 1994:
U.S. Federal................. $ 5,855 $(3,258) $ 2,597
State........................ (647) -- (647)
------- ------- -------
$ 5,208 $(3,258) $ 1,950
======= ======= =======
Year ended December 31, 1993:
U.S. Federal................. $ (879) $(4,886) $(5,765)
State........................ (372) 40 (332)
------- ------- -------
$(1,251) $(4,846) $(6,097)
======= ======= =======
</TABLE>
58
<PAGE> 59
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
During 1995, the Company paid $15,023 in additional taxes and interest in final
settlement with the Internal Revenue Service ("IRS") relating to examinations
of its income tax returns for the years 1984 through 1989. In anticipation of
the interest on these settlements and in providing for various contingencies on
income tax exposures identified during on-going examinations, the Company
recorded additional income tax expense of $6,000 in 1994.
During 1994, the Company also agreed to a settlement in connection with the IRS
initiative for settlement of intangible asset issues. Consequently, deferred
tax liabilities previously recorded for uncertainties related to income taxes
in connection with prior purchase business combinations were adjusted to
reflect the revised tax basis resulting from the settlement of these
intangible asset issues. As a result of these adjustments, deferred tax
liabilities and goodwill associated with the purchase business combinations
were reduced by approximately $12,500.
<TABLE>
Income tax expense (benefit) differed from the amounts computed by applying the
U.S. federal income tax rate of 34% to pretax loss from continuing operations
as a result of the following:
<CAPTION>
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Computed ''expected'' tax benefit...................... $ (356) $(7,235) $(7,605)
Increase (decrease) in income taxes resulting from:
Reserve for tax contingencies and interest on
settlements............................................ -- 6,000 --
Equity in net loss of affiliates....................... 623 2,831 2,463
State and local income taxes, net of federal income tax 804 (427) (219)
Rehabilitation credit.................................. -- -- (1,248)
Amortization of goodwill............................... 2,223 231 271
Other, net............................................. 662 550 241
------ ------- -------
$3,956 $ 1,950 $(6,097)
====== ======= =======
</TABLE>
<TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 and
1994 are presented below:
<CAPTION>
Gross deferred tax assets: 1995 1994
------- -------
<S> <C> <C>
Deferred compensation......................................... $ 5,678 $14,915
State net operating loss carryforwards........................ 3,329 3,252
Investment and other reserves................................. 5,535 5,117
Self-insurance reserves....................................... 1,357 1,027
Vacation accrual.............................................. 935 702
Postretirement benefits....................................... 3,767 1,897
Accounts receivable, principally due to allowance for doubtful
accounts...................................................... 1,163 438
Accrued costs on disposal of segments......................... 2,968 7,021
Other......................................................... 3,765 3,510
------- -------
Total gross deferred tax assets............................... 28,497 37,879
Less valuation allowance...................................... (3,329) (3,252)
------- -------
Net deferred tax assets....................................... 25,168 34,627
======= =======
</TABLE>
59
<PAGE> 60
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Gross deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation
and capitalized interest.................................................................. (29,771) (15,477)
Net intangibles, principally due to differences in basis.................................. (33,288) (4,140)
Prepaid pension costs..................................................................... (3,544) (4,016)
Partnership investment.................................................................... (213) (486)
Other..................................................................................... (3,538) (1,926)
-------- -------
Total gross deferred tax liabilities...................................................... (70,354) (26,045)
-------- -------
Net deferred tax asset (liability).................................................... $(45,186) $ 8,582
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible, or the recovery of taxes
paid in the carryback period. Based upon certain assumptions, such as the
scheduled reversal of deferred tax liabilities, available taxes in the carryback
period, projected future taxable income, (the realization of which there can be
no assurance). Management has determined that it is more likely than not that
the deferred tax assets will be realized.
The valuation allowance for deferred tax assets as of December 31, 1995 and
1994 was $3,329 and $3,252. The net change in the total valuation allowance was
an increase of $77 in 1995, a decrease of $1,283 in 1994, and an increase of
$394 in 1993. Changes to the valuation allowance relate principally to deferred
tax assets recorded for state net operating loss carryforwards.
At December 31, 1995, the Company had net operating loss carryforwards for
state income tax purposes of approximately $59,401 which are available to
offset future state taxable income, if any, expiring in various years ending in
2007.
NOTE 10 -- LONG-TERM DEBT
<TABLE>
At December 31, 1995 and 1994, long-term debt consists of the following:
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Revolving credit and term loan facility at rates of interest averaging
7.2% in 1995........................................................ $234,298 $ --
Revolving credit and term loan facility at rates of interest
averaging 7.52% and 5.8% in 1995 and 1994, repaid October 1995..... -- 243,655
Industrial Revenue Bonds ("IRB") payable at various rates of interest
averaging 3.5% payable through December 2022....................... 9,800 9,900
Note payable at an annual rate of interest equal to 18% payable
through April 2002, retired in July 1995............................ -- 7,123
Other................................................................. -- 83
-------- --------
Total long-term debt.................................................. 244,098 260,761
Less current installments............................................. 100 13,588
-------- --------
Long-term debt, excluding current installments........................ $243,998 $247,173
======== ========
</TABLE>
60
<PAGE> 61
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Scheduled principal payments on outstanding debt total $244,098 and are due as
follows: IRB payments of $100 in each of the years 1996 through 2000.
Thereafter scheduled principal payments on the IRB continue at $100 annually
until increasing to $200 in 1998 through 2005; to $300 in 2006 through 2010; to
$400 in 2011 through 2014; to $500 in 2015 through 2017; to $600 in 2018
through 2019; to $700 in 2020 and 2021, and a final payment of $800 in 2022.
Of the revolver and term loan outstanding at December 31, 1995, $75,000 is a
term loan with a balloon payment due in 2004. The revolver commitment decreases
quarterly on a schedule commencing December 31, 1996 in accordance with the
Credit Agreement as described below.
Costs of obtaining debt financing have been deferred and are being amortized
using the straight-line method over the period of the related debt. Deferred
financing costs totaled $1,748 and $7,097 at December 31, 1995 and 1994,
respectively. Accumulated amortization at December 31, 1995 and 1994
aggregated $50 and $1,876, respectively. On October 5, 1995 the Company
refinanced its debt in connection with the transactions described in Note 2.
Accordingly, unamortized deferred financing costs of $4,554 associated with the
debt refinanced was written off and allocated to discontinued operations in the
fourth quarter of 1995.
On October 5, 1995, in connection with the transactions discussed in Note 2,
Old PJC (net of $2 million in certain costs shared with Continental), prior to
the PJC Spin-Off, incurred indebtedness to a subsidiary of Continental in
a principal amount of approximately $408 million ("New Cable Indebtedness").
Prior to the PJC Spin-Off, Old PJC used the proceeds of the New Cable
Indebtedness, the $405 million provided by the sale of KVC and the Registrant
Indebtedness (defined below) to (i) consummate the Kelso Buyout (ii) to repay
substantially all outstanding indebtedness of Old PJC and KHC in an aggregate
amount of approximately $623 million, and (iii) to pay other costs associated
with the transactions discussed in Notes 2 and 16. Additional indebtedness
(the "Company Indebtedness") required to meet the foregoing obligations, among
others, was incurred by Old PJC and the Company in the principal amount of $105
million. Following the PJC Spin-Off, the Company had no obligations or
liabilities with respect to the New Cable Indebtedness, and Continental had no
obligations or liabilities with respect to the NEW Cable Indebtedness, and
Continental had no obligations or liabilities with respect to the Company
Indebtedness. In connection with the sale of KVC, KBC paid approximately $121
million in taxes.
The Company Indebtedness was incurred pursuant to a Credit Agreement entered
into by the Company on October 5, 1995 (the "Credit Agreement"). The Credit
Agreement, consists of a $75,000 term loan and a $300,000 revolving credit
facility. The $75,000 Term Loan provided for under the Credit Agreement is due
2004. The revolving credit facility provided for under the Terms of the Credit
Agreement decreases by the following amounts in the years indicated:
1996 - $4,000; 1997 - $10,500; 1998 - $14,500; 1999 - $21,500; 2000 - $53,250;
2001 - $65,750; 2002 - $67,750; 2003 - $62,750. The indebtedness evidenced by
the Credit Agreement is secured by guarantees from all of the material
subsidiaries of the Company and a first priority pledge of all such material
subsidiaries capital stock. The Credit Agreement provides for borrowings
indexed, as the Company may from time to time elect, to the Eurodollar rate,
the certificate of deposit rate, or the "base" rate of the agent, plus the
"spread" over such rates. The "spread" will be determined by the ratio of the
total debt of the Company to the operating cash flow of the Company (as defined
by the Credit Agreement).
The Credit Agreement contains customary events of default, financial covenants,
covenants restricting the incurrence of debt (other than under the Credit
Agreement), investments and encumbrances on assets and covenants limiting
mergers and acquisitions. The Credit Agreement provides for the mandatory
prepayment of amounts outstanding and a reduction in the commitment under
certain circumstances.
In July, 1995, the Company retired its 18% note payable for $8,734. The loss
on the early retirement of this debt amounted to $2,086 (net of income taxes of
$417) and is included as an extraordinary item in the Company's consolidated
statement of operations.
In January 1993, the Company retired an industrial revenue bond with a face
value of $9,500 for $7,150. The gain resulting from this transaction, totaling
$1,551 net of tax, has been presented as an extraordinary item in the 1993
statement of operations. These retirements were funded through additional
borrowings under the revolving credit and term loan facility.
61
<PAGE> 62
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
In November 1992, the Company entered into an interest rate swap agreement to
reduce the impact of changes in interest rates on its revolving credit and term
loan facilities described above. The interest rate under the swap agreement is
equal to 6.71% plus an applicable margin as defined in the revolving credit and
term loan facility which presently sets the fixed interest rate at 8.1% on the
first $200,000 of outstanding debt. The Company recorded additional interest
expense during 1995, 1994 and 1993 totaling approximately $1,121, $4,880, and
$6,883, respectively, which represents the excess of the swap agreement rate
over the original contractual rate. In accordance with certain covenants under
the Credit Agreement, the Company will maintain its existing interest rate swap
arrangements with The First National Bank of Chicago through December 31, 1999.
<TABLE>
The notional amounts and respective periods covered under the interest rate
swap agreement are as follows:
<CAPTION>
AMOUNT PERIOD
- -------- ------
<S> <C>
$200,000 December 30, 1992 -- December 30, 1996
$175,000 December 30, 1996 -- December 30, 1997
$150,000 December 30, 1997 -- December 30, 1999
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement, however, the Company does not
anticipate nonperformance under the agreement.
NOTE 11 -- TELEVISION PROGRAM RIGHTS PAYABLE
Television program rights payable consist of the gross value of cash payments
due on the acquisition of program rights as well as amounts due in the amount
of approximately $3,805 at December 31, 1995 for programs purchased through
barter transactions. Future cash payments total $18,167 and are due in the
following years: 1996 -- $12,658; 1997 -- $3,128; 1998 -- $1,814; and 1999 --
$567. The barter obligations are scheduled to be fulfilled in 1996.
NOTE 12 -- OPERATING LEASES
The Company has certain noncancelable operating leases with renewal options for
land, buildings, machinery and equipment. Future minimum lease payments under
noncancelable operating leases are due in the following years: 1996 -- $6,037;
1997 -- $5,362; 1998 -- $4,711; 1999 -- $4,253; 2000 -- $4,229; and thereafter
- -- $15,228. Gross rental expense for the years ended December 31, 1995, 1994
and 1993, was $5,993, $5,167, and $2,173, respectively.
Future minimum rental income under noncancelable satellite subleases is as
follows: 1996 -- $4,030; 1997 -- $4,030; 1998 -- $3,220; 1999 -- $1,923; and
2000 -- $900. Sublease satellite rental income totaled $3,349 and $2,300 in
1995 and 1994 and is included in Programming and New Media revenue. There was
no sublease satellite rental income in 1993.
62
<PAGE> 63
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 13 -- STOCK-BASED COMPENSATION PLANS
(a) Incentive Compensation Plans
The Company has a deferred incentive compensation plan which is administered by
the Compensation Committee of the Board of Directors. The expense under this
plan was $773, $12,747, and $5,330 in 1995, 1994 and 1993, respectively. As of
December 31, 1995 and 1994, the amounts accrued under this plan equaled $4,806
and $31,266, respectively. On September 29, 1995, the Company liquidated 85% of
the units in the Company's deferred incentive compensation units plan (the "IUP
Plan") which was paid in cash and stock totaling $27,233.
(b) Restricted Stock Unit Plan
During 1993, the Company established a Restricted Stock Unit Plan for certain
key executives. Participants were awarded restricted stock units with each unit
being equivalent to one share of Class A Common Stock. Restricted stock units,
including additional units accrued as a result of dividends and reinvested
dividends, will be 100% vested at the end of three years from the date of the
award. Upon vesting, the restricted stock units will be paid out, net of taxes,
in actual shares of Class A Common Stock. Participants will be offered an
opportunity to defer such payout. Vesting is accelerated for death, total
disability, termination other than for cause, and for retirement (pro-rata). In
connection with the disposal of its cable operations, the Company fully vested
257 units of which 134 units were paid in cash and stock totaling $1,653 prior
to the Merger. In connection with the reorganization and transactions described
in Note 2, and as provided under the terms of the plans, the number of units
awarded to participants holding units immediately after the closing of the
transaction were adjusted upward by a factor of approximately 2.3876 (the
"Conversion Factor") in order to preserve the economic value of the outstanding
units. In connection with the Plan, a total of 1,624 Class A shares (after
considering the Conversion Factor) have been reserved. As of December 31, 1995
and 1994, 1,261 (after the Conversion Factor) and 666 units, respectively, were
issued and outstanding. Compensation expense, included in continuing
operations, totaled $1,173, $2,400, and $405 during 1995, 1994 and 1993,
respectively.
(c) Stock Option Plans
Effective October 1, 1994, the Board of Directors of the Company adopted the
''1994 Employee Stock Option Plan'' and the ''1994 Non-Employee Director Stock
Option Plan'', (The ''Option Plans''). The Option Plans were approved by the
stockholders of the Company at its Annual Meeting in 1995. The Option Plans
will remain in effect until the earlier of October 1, 1999 or termination of
the aforementioned Option Plans by the Board of Directors of the Company.
Under the terms of the Option Plans, key employees recommended by the
Compensation Committee of the Board of Directors (or by any other committee
appointed by the Board consisting of two or more non-employee Directors) and
all 12 non-employee directors, are eligible to receive grants of stock options.
The maximum number of shares of Class A Common Stock that can be used for
purposes of the Option Plans is 4,150. Shares may be awarded from authorized
and unissued shares or from treasury shares, as determined by the Compensation
Committee.
Options granted under the ''1994 Employee Stock Option Plan'' are exercisable
in four equal annual installments beginning one year after the grant date.
Options under the ''1994 Non-Employee Director Stock Option Plan'' are
exercisable on the first anniversary date of the grant. Options granted under
both plans have a term of ten years.
Upon a "Change of Control" as defined in the Option Plans, all options
granted will become immediately vested and exercisable. In 1994, 637 options
were granted, at an exercise price of $7,700. In 1995, an additional 60 options
were granted to the non-employee directors, and an additional 776 options were
granted to key employees at an exercise price of $5,072. In connection
63
<PAGE> 64
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
with the reorganization and transactions described in Note 2, and as provided
under the terms of the plans, the option exercise price on the 637 options
issued in 1994 were adjusted to $662 in order to preserve the economic value of
the outstanding options. During 1995, 14 options were exercised at an
exercise price of $662. As of December 31, 1995, there were 1,459 options
outstanding of which 182 are exercisable.
Amounts paid to participants in the liquidation of 85% of the IUP Plan and the
remaining units in the IUP Plan, may be adjusted if, upon the occurrence of a
public offering of Continental Class A Common Stock or certain other events,
the price of Continental Class A Common Stock is greater or less than the price
attributed to such shares at the time 85% of the units were liquidated. A
similar adjustment is applicable to certain options and units issued prior to
the Merger in the Option Plans and the Restricted Stock Unit Plan. As a result
of a planned merger of Continental with and into US West Media Group (the US
West/Continental Merger"), jointly announced by these entities on February 27,
1996, participants in these plans may receive the adjustment as additional
payments in cash or stock reflecting the increase in the price of Continental
Class A Common Stock since the Merger. The final amounts of additional
consideration is subject to approval by the Compensation Committee of the
Company's Board of Directors and the closing of the US West/Continental Merger
but could approximate $21 million. It is currently anticipated that following
the payout of any additional consideration, the IUP Plan will be fully
liquidated and terminated.
NOTE 14 -- PENSIONS AND OTHER EMPLOYEE BENEFITS
(a) Defined Benefit Pension Plans
The Company has three noncontributory defined benefit retirement plans
(including one funded by KHC acquired in the Kelso Buyout). The Company's
funding policy for the defined benefit plans is to contribute such amounts as
are deductible for federal income tax purposes. Benefits are based on the
employee's years of service and average compensation immediately preceding
retirement.
<TABLE>
The funded status of the defined benefit plans is as follows:
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations................................................ $ (86,502) $(49,956)
========= ========
Accumulated benefit obligations........................................... $ (91,968) $(54,169)
========= ========
Projected benefit obligations............................................. $(109,985) $(71,227)
Plan assets at fair value (primarily corporate equity and debt securities,
government securities and real estate).................................... 132,779 89,106
--------- --------
Excess of plan assets over projected benefit obligations.................. $ 22,794 $ 17,879
========= ========
</TABLE>
<TABLE>
The assumptions used in the above valuations are as follows:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount rate.............................................................. 7.0% 7.5%
Rate of increase in compensation levels.................................... 4.5% 5.0%
</TABLE>
64
<PAGE> 65
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
Certain changes in the items shown above are not recognized as they occur, but
are amortized systematically over subsequent periods. Unrecognized amounts to
be amortized and amounts included in the consolidated balance sheets are shown
below:
<CAPTION>
1995 1994
------- --------
<S> <C> <C>
Unrecognized net loss.................................................................................... $(2,874) $(8,336)
Unrecognized net transition asset being amortized principally over 18
years.................................................................................................... 10,727 11,956
Unrecognized prior service cost due to plan amendment.................................................... (3,029) (3,504)
Prepaid pension cost (included in other assets).......................................................... 17,970 17,763
------- -------
Excess of plan assets over projected benefit obligations................................................. $22,794 $17,879
======= ========
</TABLE>
<TABLE>
The components of 1995, 1994 and 1993 pension expense (income) and the
assumptions used as determined by the plans' actuary, are as follows:
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Service cost............................................. $ 3,185 $ 2,017 $ 1,971
Interest cost............................................ 7,480 5,093 5,022
Actual return on plan assets............................. (25,674) 2,724 (8,681)
Net amortization of unrecognized net assets and deferrals 15,041 (11,304) 691
-------- -------- -------
Pension expense (income)................................. $ 32 $ (1,470) $ (997)
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Discount rate ............................................. 7.5% 7.5% 7.5%
Rate of increase in compensation levels.................... 5.0 5.0 5.0
Expected long-term rate of return on assets................ 8.5 8.5 8.5
</TABLE>
The effects of the special termination benefits of $3,701 and curtailment gain
of $531 associated with the Single Cycle conversion and early retirement
program are included in the Single Cycle costs discussed in Note 8 (a).
(b) Defined Contribution Plan
The Company contributes to defined contribution plans based on the amount of
each employee's plan contribution, not to exceed a predetermined amount as
defined by each plan. The total expense of these plans was $1,312, $1,150 and
$1,086 in 1995, 1994 and 1993, respectively.
(c) Other Postretirement Benefit Plans
In addition to the Company's defined benefit pension plans, one of Broadcasting
stations provides postretirement medical benefits to its group of employees.
The Registrant provides postretirement life insurance benefits to substantially
all of its employees. These plans are non-contributory and are not funded.
65
<PAGE> 66
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company's accrued postretirement benefit cost as of December 31, 1995 and
1994 was $3,461 and $3,086, respectively, consisting primarily of accumulated
postretirement benefit obligations for retirees. Net periodic postretirement
benefit cost for 1995, 1994 and 1993 totaled $204, $300 and $252, respectively,
consisting primarily of interest costs.
For measurement purposes relating to the medical plan, a medical trend rate of
13.0% was used grading to 6.0% by the year 2002. A 1% change in the medical
trend rate does not result in a material impact to the Company's reported
postretirement benefits. The discount rate used in determining the accumulated
postretirement benefit obligation for the medical and life insurance plans was
7.0% and 7.5% in 1995 and 1994, respectively.
(d) Supplemental Retirement Plan
The Company maintains an unfunded supplemental retirement plan which provides
supplemental benefits to a select group of senior management employees. At
December 31, 1995 and 1994, the vested benefit obligation was $3,933 and
$1,220, respectively, and the accumulated benefit obligation was $4,684 and
$3,437, respectively. The projected benefit obligation totaled $6,065 and
$5,799, respectively, at December 31, 1995 and 1994.
The net periodic pension cost for 1995, 1994, and 1993 was $1,000, $997 and
$1,501, respectively, consisting of service and interest costs. An assumed
discount rate of 7.0% and 7.5% and compensation level increase rate of 4.5% and
5.0% were used in determining the benefit obligations at December 31, 1995 and
1994, respectively.
(e) Change in Control Agreements
In October, 1993, the Company executed various management agreements which
only become effective upon a change-in-control of the Company. The terms of
the agreements vary, with the maximum agreement providing a three year term of
employment with responsibilities, compensation, and benefits at least
commensurate as those during the prior six (6) months. If terminated
involuntarily, the individuals are entitled to a maximum of 299% of their
highest base pay and average bonus received during the prior three years as a
lump sum severance payment. In a supplemental agreement, executed in October
1993, the Company committed to paying the severance stated above in the event
an individual was involuntarily terminated as a result of corporate
restructuring, even if prior to a change-in-control.
NOTE 15-- DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
(a) Current Assets and Liabilities
The carrying amount of cash, trade receivables, trade accounts payable and
accrued expenses approximates fair value because of the short maturity of these
instruments.
(b) Notes Receivable
The fair values of the Company's notes receivable are based on the amount of
future cash flows associated with each instrument, discounted using current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same maturities.
66
<PAGE> 67
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(c) Long-Term Debt and Obligations for Television Program Rights
The fair values of each of the Company's long-term debt instruments are based
on the amount of future cash flows associated with each instrument discounted
using the Company's current borrowing rate, for similar debt instruments of
comparable maturity.
The fair value of obligations for television program rights are based on future
cash flows, discounted using the Company's current borrowing rate, over the
term of the related contract.
(d) Interest Rate Swaps
The fair value of interest rate swaps is the amount at which they could be
settled, based on estimates obtained from dealers. The amount of payment
required to settle outstanding interest rate swaps at December 31, 1995
approximated $8,000. At December 31, 1994 settlement approximated a $9,400
receivable to the Company.
(e) Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
<TABLE>
The estimated fair value of the Company's financial instruments are summarized
as follows:
AT DECEMBER 31, 1995 AT DECEMBER 31, 1994
----------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
-------- ---------- -------- ---------
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Notes receivable................. $ 19,174 $ 19,174 $ 19,513 $ 19,513
======== ======== ======== ========
Long-term debt................... $244,098 $244,098 $260,761 $263,430
======== ======== ======== ========
Television program rights payable $ 21,972 $ 20,467 $ 7,364 $ 6,458
======== ======== ======== ========
</TABLE>
NOTE 16-- COMMITMENTS AND CONTINGENCIES
The Company has outstanding payment commitments for broadcast television
programming totaling $45,511 at December 31, 1995, which under the licensing
agreements are not yet available for showing. Such programming becomes
available at various times over the years 1996 through 2000, at which point the
Company records the asset and related liability.
The Company has various talent contract commitments primarily with its newscast
employees covering up to three years together totaling $28,743.
The Company has insurance programs for workers' compensation, general
liability, auto and certain health coverages which comprise a form of
self-insurance. The Company's liability for large losses is capped,
individually and in the aggregate, through contracts with insurance companies.
In addition, the Company is self-insured for environmental hazards. An estimate
for claims incurred but not paid is accrued annually.
67
<PAGE> 68
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company has a letter of credit commitment in an amount not to exceed
$12,000 in support of industrial revenue bonds of a wholly-owned subsidiary.
In 1987, the Company repurchased approximately 8% of its outstanding shares of
common stock from an unaffiliated party with a provision that additional
consideration be paid to the unaffiliated party in the event of a significant
change in ownership of the Company. The Company paid this unaffiliated party
approximately $7,353 on October 5, 1995 in full settlement of the redemption
agreement, and has recorded the additional consideration in the consolidated
statement of stockholders' equity.
On August 12, 1994, Department of Insurance regulators seized control of
Confederation Life Insurance Company. The Company's Qualified Compensation
Deferral Plan has an investment contract with Confederation Life Insurance
Company. The contract was entered into in 1991 and was scheduled to mature on
January 2, 1996. As a result of the seizure, the value of the contract as of
August 11, 1994, has been frozen at $3,840. The Company has agreed to guarantee
the difference between the amount eventually paid by the regulators and the
contract value on the seizure date. To date this amount cannot be quantified
but is not expected to have a material effect on the consolidated financial
position or results of operations of the Company.
On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory
judgment action against Old PJC, Colony and Dynamic Cablevision of Florida,
Inc. ("Dynamic") in the Circuit Court of Dade County, Florida. Colony and
Dynamic were cable television subsidiaries of Old PJC, which became units of
Continental in connection with the Merger. This case relates to a partnership
(the "Dynamic Partnership"), in which Dynamic is the general partner with an
89.8% interest, and Cable LP is the limited partner with a 10.2% interest. In
this action, Cable LP claims that Dynamic was obligated to offer to sell to
Cable LP Dynamic's general partnership interest before Old PJC entered into the
Merger Agreement with Continental. Cable LP further claims that Dynamic's
offer to purchase Cable LP's limited partnership interest for $13.1 million
triggered a right of first refusal entitling Cable LP to purchase the general
partnership interest for $115 million. Cable LP seeks a declaration by the
court that the right of first refusal it is asserting applies.
Old PJC, Colony and Dynamic made a motion to strike allegations of bad faith
and breach of fiduciary duty filed against them, which motion was granted by
the court, and they filed an Answer to the Complaint and a Counterclaim on
March 16, 1995. In their counterclaim, Colony and Dynamic seek a declaratory
judgment that Cable LP unreasonably refused consent to the transfer of the
general partner's interest to Continental and that a purported transfer of
Cable LP's interest in the Dynamic Partnership to a partnership to be managed
by Adelphia Communications, Inc. violates Dynamic's right of first refusal
under the Dynamic Partnership Agreement. The case was tried with testimony
given on December 11 through December 13, 1995 with final arguments heard on
January 12, 1996. The decision of the Court is expected shortly. The Company
believes that the claims asserted by Cable LP are without merit and intends to
continue to vigorously defend this matter through the appeal process in the
event of an unfavorable ruling.
In the event that, as a result of such litigation, Dynamic is required to sell
its interest in the Dynamic partnership to Cable LP, the Merger Agreement
provides that the Registrant will pay to Continental simultaneously with the
closing of such sale an amount equal to the sum of (i) the amount (if any) by
which the consideration received by Dynamic for the sale of such interest is
less than $115 million plus (ii) the taxes which would have been payable
assuming the purchase price for such interest equaled $115 million.
The Company is party to various claims, legal actions and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are adequately covered by insurance or, if not so covered, are without merit or
are of such kind, or involve such amounts, that unfavorable disposition would
not have a material effect on the consolidated financial position or results of
operations of the Company.
68
<PAGE> 69
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 17-- STOCKHOLDERS' EQUITY
The Company has two classes of common stock: Class A and Class B. Each class
has the same rights and privileges, except that Class A common stock is
entitled to one vote per share, whereas Class B common stock is entitled to
four votes per share. In addition, the transfer of Class B common stock is
limited to ''Permitted Transferees'' only, otherwise the shares convert to
Class A common stock upon sale. In connection with the Merger agreement,
trading of all shares is restricted for a period of one year from the date of
the closing.
Effective September 26, 1990, pursuant to a shareholder rights agreement, the
Company issued to shareholders one common stock right for each share of Class A
or Class B common stock then outstanding. The right entitles the holder to
purchase one share of Class A or Class B common stock at a purchase price of
$35,000 per share. Upon the occurrence of certain events, as defined in the
rights agreement, the Board of Directors may order the exchange of three common
shares for each right held. The shareholder rights agreement was terminated in
connection with the closing under the Merger Agreement. A substantially
similar agreement was entered into by the Company.
Treasury stock at December 31, 1994, consisted of 641 Class A shares and 320
Class B shares. In connection with the PJC Spin-off, all treasury stock was
canceled as of the effective time of the closing.
NOTE 18-- BUSINESS SEGMENT INFORMATION
The Company primarily operates in Broadcasting, Publishing, and Programming
and New Media. Broadcasting consists of nine owned network-affiliated
television stations and two television stations for which the Company provides
programming and marketing services for under local marketing agreements
("LMA"s) serving the following markets: Seattle, Portland, Charlotte,
Albuquerque, Louisville, Honolulu, Spokane, Tucson, and Boise. Prior to the
Kelso Buyout, Broadcasting consisted of five stations (including one station
under an LMA). Publishing consists primarily of the publication and sale of
the major daily newspaper serving Rhode Island and parts of southeastern
Massachusetts. The Programming and New Media segment consists of wholly owned
subsidiaries or equity investments in cable television programming networks,
electronic and interactive media, programming ventures, and other new media.
It currently consists of the Company's investments in AHN and TVFN (cable
programming networks); interactive media investments: Peapod and StarSight;
its electronic on-line information service: Rhode Island Horizons; its
broadcast programming venture: Partner Stations Network; and its recently
launched cable news network: NorthWest Cable News Network ("NWCN"). NWCN is a
24-hour regional cable news network serving cable subscribers in the Pacific
Northwest. It was launched on December 18, 1995 and currently reaches 1.2
million subscribers.
Operating results and other financial data for the principal business segments
of the Company for 1995, 1994 and 1993 are presented in the table which
follows. Operating income (loss) by business segment is total revenue less
operating expenses. Other income (expense), income taxes and extraordinary
items have all been excluded from the computation of operating income (loss) by
segment. Identifiable assets by business segment are those assets used in
Company operations in each segment. Capital expenditures are reported exclusive
of acquisitions.
69
<PAGE> 70
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1995 1994 1993
------------ --------- -------------
<S> <C> <C> <C>
Revenues:
Broadcasting........................ $180,547 $ 54,024 $ 45,506
Publishing.......................... 128,491 127,893 124,914
Programming and New Media........... 3,468 2,300 -
-------- -------- --------
$312,506 $184,217 $170,420
======== ======== ========
Operating income (loss):
Broadcasting........................ $ 42,535 $ 6,219 $ (1,472)
Publishing.......................... (10,264) 9,270 9,891
Programming and New Media........... (1,831) (315) -
Corporate........................... (17,054) (26,750) (21,628)
-------- -------- --------
$ 13,386 $(11,576) $(13,209)
======== ======== ========
Identifiable assets
Broadcasting........................ $502,024 $ 84,278 $106,992
Publishing.......................... 152,890 161,743 162,848
Programming and New Media:
Investments in affiliated companies 17,315 2,708 3,786
Other.............................. 10,719 8,364 1,312
Discontinued operations, net........ - 369,790 396,707
Investments in affiliates - Other... 4,856 80,699 86,451
Other............................... 19,426 17,131 17,589
-------- -------- --------
$707,230 $724,713 $775,685
======== ======== ========
Depreciation and amortization:
Broadcasting........................ $ 21,884 $ 7,856 $ 8,682
Publishing.......................... 10,850 11,198 11,426
Programming and New Media........... 167 33 -
Other............................... 1,068 896 505
-------- -------- --------
$ 33,969 $ 19,983 $ 20,613
======== ======== ========
Capital expenditures
Broadcasting........................ $ 7,951 $ 1,587 $ 1,368
Publishing.......................... 3,200 2,356 9,962
Programming and New Media........... 3,670 1,138 -
Other............................... 455 1,400 267
-------- -------- --------
$ 15,276 $ 6,481 $ 11,597
======== ======== ========
</TABLE>
70
<PAGE> 71
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Balances at Beginning of Year $1,950 $2,134 $1,441
Acquisition of King Holding Corp. 1,200 -
Additions:
Charged to operations 2,516 473 1,921
Recoveries 336 339 363
Deductions:
Accounts written off (1,674) (996) (1,591)
------ ------ ------
Balance at End of Year $4,328 $1,950 $2,134
====== ====== ======
</TABLE>
71
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
King Holding Corp.:
We have audited the consolidated financial statements of King Holding Corp.
(the Company) as listed in the accompanying index. Our audits also included the
financial statement schedule listed in the index at Item 14. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of King Holding Corp. and
subsidiaries at December 31, 1994, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1995
72
<PAGE> 73
<TABLE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,1994
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1994
---------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,578
Accounts receivable, net 26,801
Film and syndication rights, current portion 7,995
Prepaid expenses and other current assets 1,604
--------
Total current assets 39,978
--------
Property and Equipment, net 58,131
--------
Other Assets:
Film and syndication rights, long-term portion 787
Deferred financing costs, net 10,625
Intangible assets, net 124,070
Long-term pension asset 2,927
Other assets 44
--------
Total other assets 138,453
--------
Net Assets of Discontinued Operations 255,902
--------
$492,464
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 28,804
Current portion of film and syndication rights 7,753
Accounts payable and other accrued expenses 12,247
--------
Total current liabilities 48,804
Long-term Obligations:
Long-term debt 265,245
Film and syndication rights obligations 1,501
Deferred income taxes 17,202
Other 5,721
--------
Total liabilities 338,473
--------
Commitments and Contingencies
Stockholders' Equity:
Common stock, Class A; $0.10 par value; 200 shares authorized -
issued and outstanding
Common stock, Class B (nonvoting); $0.10 par value; 240,000
shares authorized; 211,000 issued and outstanding 21
Additional paid in capital 210,314
Accumulated deficit (56,344)
--------
Total stockholders' equity 153,991
--------
$492,464
========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
73
<PAGE> 74
<TABLE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Revenues:
Gross broadcast revenue $135,177 $117,967
Less agency commissions 18,118 15,627
-------- --------
Net revenues 117,059 102,340
-------- --------
Costs and Expenses:
Operating 48,734 44,005
Selling, general and administrative 27,179 25,233
Management and other fees paid to related parties 2,624 2,034
Depreciation and amortization 13,746 14,697
-------- --------
Total 92,283 85,969
-------- --------
Operating income 24,776 16,371
Other income (expense):
Interest expense, net of alocation to discontinued operations (8,694) (8,972)
Other, net 24 288
-------- --------
Total other expense (8,670) (8,684)
-------- --------
Income from continuing operations before income taxes 16,106 7,687
Income tax provision 8,843 6,787
-------- --------
Income from continuing operations 7,263 900
Loss from discontinued cable operations, net of taxes (11,837) (15,389)
Provision for loss on discontinUED CABLE OPERATIONS DURING PHASEOUT
period, net of taxes (12,078) -
-------- --------
Net loss $(16,652) $(14,489)
======== ========
Net loss per common share:
Income (loss) from continuing operations $ 34.38 $ 4.26
Discontinued operations (113.23) (72.86)
-------- --------
Net loss per common share $ (78.85) $ (68.60)
======== ========
Weighted average shares outstanding 211,198 211,198
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
74
<PAGE> 75
<TABLE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $7,263 $ 900
Adjustments to reconcile income from continuing
operations to net cash flows provided by
operating activities:
Depreciation and amortization 13,746 14,697
Loss on disposal of fixed assets 464 -
Compensation costs related to warrant bonuses - 335
Deferred income taxes (746) 18
Changes in assets and liabilities:
Accounts receivable (3,116) (4,695)
Prepaid expenses and other current assets 533 905
Accounts payable and other accrued expenses 2,491 838
Other, net 2,595 575
Film rights assets and liabilities 489 (1,286)
------ ------
Total adjustments 16,456 11,387
------ ------
Net cash flows provided by continuing
operating activities 23,719 12,287
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,136) (3,086)
Increase in other assets, net - (250)
Net decrease in investments
in discontinued operations 7,113 7,238
------ ------
Net cash provided by (used in)
investing activities (23) 3,902
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of notes payable (20,951) (16,000)
------ ------
Net cash used in
financing activities (20,951) (16,000)
------ ------
Increase in cash and cash equivalents 2,745 189
Cash and cash equivalents, beginning of year
(including cash and cash equivalents included
in net assets of discontinued operations) 876 687
------ ------
Cash and cash equivalents, end of year:
Continuing operations 3,578 833
Included in net assets of discontinued operations $ 43 $ 43
====== ======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
75
<PAGE> 76
<TABLE>
KING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
CLASS CLASS PAID-IN ACCUMULATED STOCKHOLDERS'
A B CAPITAL DEFICIT EQUITY
------ ---------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $ - $21 $209,979 $(25,203) $184,797
Compensation costs related to warrant
bonuses 335 335
Net loss (14,489) (14,489)
---- ---- -------- -------- --------
BALANCE AT DECEMBER 31, 1993 - 21 210,314 (39,692) 170,643
Net loss (16,652) (16,652)
---- ---- -------- -------- --------
BALANCE AT DECEMBER 31, 1994 $ - $21 $210,314 $(56,344) $153,991
==== ==== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
76
<PAGE> 77
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- King Holding Corp. (the "Company") owns and operates certain
television stations and cable television properties throughout the central and
western United States and Hawaii. The Company was formed as a joint venture
between the Providence Journal Company and subsidiaries (the "Providence
Journal") and an investment banking organization (the "Investor Stockholder").
The Providence Journal and Investor Stockholder each own a 50% interest in the
Company. On February 25, 1992, the Company acquired the outstanding capital
stock of King Broadcasting Company ("KBC"), the parent company of King
Videocable Company ("KVC"), for a purchase price of approximately
$364,000 plus assumed liabilities aggregating $183,000 (the "Acquisition"). The
Acquisition has been accounted for as a purchase, and accordingly, the
accompanying consolidated statements of operations, stockholders' equity, and
cash flows include the operations of the Company and its subsidiaries
commencing February 25, 1992. The purchase price was funded through the initial
capitalization of the Company and proceeds received from debt financing with a
syndicate of banks (see Note 5). As part of the initial capitalization of the
Company, the Providence Journal was awarded a warrant allowing for the purchase
of 2,012 shares of Class B nonvoting common stock at $.10 per share.
During 1994 the Company entered into a plan to dispose of its Cable operations
(see Note 2).
Summary of Significant Accounting Policies
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The accompanying
consolidated financial statements differ from those previously issued by the
Company due to the reporting of its discontinued cable operations (see Note 2).
All significant transactions between the consolidated entities have been
eliminated (see Note 9).
Revenue Recognition -- Revenues from broadcast activities are recognized as
advertisements are broadcast. Revenues from cable activities are recognized as
the services are provided.
Investment in Nonconsolidated Partnerships -- The Company has made certain
investments in media partnerships as a limited and general partner with voting
interests of approximately 10% and 50%, respectively. These investments are
accounted for using the equity method and are included in net assets of
discontinued operations. Income attributable to the Company's proportional
share of the partnership earnings is reported within other expense.
Allowance for Doubtful Accounts -- The allowance for doubtful accounts related
to continuing operations at December 31, 1994 aggregated $1,200.
Property and Equipment -- Property and equipment are recorded at cost, or in
the case of property and equipment acquired as a result of the Acquisition, at
appraised fair value at the date of purchase. Cable system betterments,
including materials, labor and interest, are recorded at cost. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets, generally three to twenty years.
77
<PAGE> 78
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
In 1993, due to provisions of the Cable Television Consumer Protection and
Competition Act of 1992 ("Cable Act") which effectively transferred ownership of
wiring and additional outlets installed in a customer's residence, KVC
accelerated the depreciation of these items based upon the estimated customer
churn rate and expensed all costs of installation and wiring in the home as
incurred effective January 1, 1993. The change recorded in December 1993
related to these items aggregated $4,607 and is reflected in discontinued
operations.
Deferred Financing Costs -- Costs of obtaining debt financing have been
deferred and are being amortized using the straight-line method over the
amortization period of the related debt (ten years). Included in such costs are
$12,000 of fees paid to the Company's stockholders to assist in the arrangement
of the financing. Accumulated amortization at December 31, 1994 aggregated
$4,201.
Intangible Assets -- Intangible assets are recorded at their appraised fair
value at the date of Acquisition. Amortization is provided using the
straight-line method over the estimated useful lives of the related assets,
generally fifteen to forty years. The Company evaluates the recoverability of
intangible assets by reviewing the performance of the underlying operations, in
particular the future undiscounted operating cash flows. The Company also
evaluates the amortization periods of the intangible assets to determine
whether events or circumstances warrant revised estimates of useful lives.
Film and Syndication Rights -- Assets and liabilities related to film and
syndication rights are recorded at cost, when the related film or television
series is available for broadcast. Film rights assets are amortized using
principally accelerated methods, based on the anticipated value of each film
showing and the number of anticipated showings. Syndication rights are
amortized ratably over the term of the series expected showing.
Cash and Cash Equivalents -- The Company considers all short-term, highly
liquid investments purchased with remaining maturities of three months or less
to be cash equivalents.
<TABLE>
Supplemental cash flow information for the years ended December 31, 1994 and
1993 is as follows:
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Cash paid for interest.... $25,165 $25,453
Cash paid for income taxes 4,736 3,021
</TABLE>
Income Taxes -- Deferred income taxes are provided to recognize temporary
differences between book and tax bases of the Company's assets and liabilities
and the effects of credits and other items not yet recognized for tax purposes.
Interest Rate Swaps -- The Company has only limited involvement with derivative
financial instruments and does not use them for trading purposes. Derivative
financial instruments are used only to manage well-defined interest rate risks.
78
<PAGE> 79
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company has entered into interest rate swap agreements which are 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.
Gains and losses upon settlement of a swap agreement are deferred and amortized
over the remaining term of the agreement.
Net Loss Per Common Share -- Net loss per common share is computed using the
weighted average number of common shares outstanding during the year.
Reclassifications -- The accompanying statements of cash flows have been
reclassified to present cash flows from discontinued operations in investing
activities.
2. DISCONTINUED OPERATIONS (Information Subsequent to February 10, 1995 is
unaudited)
In November 1994, the Providence Journal entered into an agreement with
Continental Cablevision, Inc. ("Continental") whereby Continental would acquire
all of the Providence Journal's cable operations, both wholly and partly owned.
Under the terms of the agreement, as modified in August 1995 (the "August
Modification"), in an integrated transaction, KBC sold its entire interest in
KVC to Continental for proceeds which approximated $405 million. Simultaneously
with this transaction, the Providence Journal acquired the remaining 50%
interest in the Company held by the Investor Stockholder, thus becoming sole
owner of the Company. Immediately thereafter, the remaining cable operations
of the Providence Journal were merged into Continental in accordance with the
terms of the agreement in a tax-free transaction.
Prior to the August Modification, the transaction had been structured to
qualify as a tax-free exchange effected through a distribution of assets to the
shareholders, which would have resulted in no gain or loss for the Company.
Accordingly, the Company provided for the anticipated operating losses of KVC
through the expected date of its disposal in the Company's 1994 financial
statements. The provision for loss during the phase-out period, recorded by the
Company during 1994, including allocated interest of $18,258, net of taxes was
$12,078. Proceeds of the transaction were used to repay all of the Company's
existing long-term debt and to settle the outstanding interest rate swaps.
The net assets of KVC have been segregated in the accompanying consolidated
balance sheets as ''net assets of discontinued operations''. Net assets to be
acquired consist primarily of property and equipment, and intangible assets.
Such amounts have been reported net of costs and expenses expected to be
incurred through the disposal date.
The results of operations of KVC have been reported as discontinued operations
in the accompanying consolidated statements of operations. Prior year financial
statements have been reclassified to conform to the current year presentation.
The condensed statements of operations relating to the discontinued cable
operations are presented below:
79
<PAGE> 80
<TABLE>
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Revenues.................. $ 84,174 $ 83,538
Costs and expenses........ (101,261) (106,342)
-------- --------
(Loss) before income taxes (17,087) (22,804)
Income tax benefit........ 5,250 7,415
-------- --------
Net (loss)................ $(11,837) $(15,389)
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment of continuing operations consisted of the following
at December 31:
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Land and buildings............................ $40,225
Broadcast equipment........................... 30,352
Office equipment.............................. 2,979
Leasehold improvements........................ 1,207
Construction-in-process....................... 4,343
-------
Total......................................... 79,106
Less accumulated depreciation and amortization (20,975)
-------
Property and equipment -- net................. $58,131
=======
</TABLE>
80
<PAGE> 81
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
4. INTANGIBLE ASSETS
Intangible assets of continuing operations consisted of the following at
December 31:
<CAPTION>
1994
--------
<S> <C>
FCC license agreements....... $ 59,780
Goodwill..................... 28,774
Advertiser relations......... 47,200
Other........................ 7,669
--------
Total........................ 143,423
Less accumulated amortization (19,353)
--------
Intangible assets -- net..... $124,070
========
</TABLE>
5. FINANCING AGREEMENTS
The Company has a credit agreement (the "Credit Agreement") with a syndicate of
banks which consists of a revolving credit facility, ''swing'' loans (as
defined), and a term loan.
The revolving credit facility provides for borrowings of up to $50,000 of which
$10,800 was outstanding on December 31, 1994. Borrowings outstanding under the
facility are payable in full in February 2000. The term loan of $283,249 is
payable in 32 quarterly installments commencing in March 1994.
''Swing'' loans are available to the Company from the lead bank of the
syndicate. ''Swing'' loans are available up to a maximum aggregate borrowing
level of $5,000 at any one time, and are generally subject to the same
repayment terms as the revolving credit facility.
Borrowings under the Credit Agreement bear interest at either a bank's CD rate
plus an applicable margin (as defined), the LIBOR rate plus the applicable
margin or an alternate base rate determined as the greater of a bank's prime
rate, the Federal Funds rate plus 1/2% or a secondary market determined rate
plus 11/4% all determined at the Company's option. At December 31, 1994, the
interest rate on the revolving credit facility was 7.375%. During 1994,
interest rates on the term loan ranged between 4.88% and 7.75%, based on the
one and three month LIBOR rates, respectively.
In connection with the Credit Agreement, the Company is required to pay an
annual fee of 3/8 of 1% of the average daily unused availability under the
revolving credit facility. In addition, the Company is required to pay the lead
bank an annual fee of 3/8 of 1% of the average daily unused ''swing'' loan
availability. Such fees aggregated $194 $187 in 1994 and 1993, respectively.
81
<PAGE> 82
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Credit Agreement contains certain limitations on additional indebtedness,
capital expenditures, payments to affiliates and disposition of assets and
requires the Company to maintain certain leverage and interest coverage ratios,
all as defined in the Agreement.
At December 31, 1994, long-term debt was due as follows: 1995 - $28,804; 1996 -
38,408; 1997 - $38,408; 1998 - $38,408; 1999 - $28,804; thereafter -
$121,217.
In March 1992, the Company entered into two interest rate swap agreements to
minimize interest rate risk on its revolving and term credit facilities
described above and to access lower interest rates in certain markets. The
interest rate under the swap agreements is equal to 7.23%, plus an applicable
margin as defined in the revolving credit and term loan facility, which
effectively sets the interest rate at 8.6%. The agreements expire March 25,
1999 and cover $250,000 of notional principal amount.
<TABLE>
The Company recorded additional interest expense during 1994 and 1993 totaling
approximately, $7,427 and $9,915, respectively, which represents the excess of
the swap agreement rate over the original contractual rate. The notional
amounts and respective periods covered under the agreements are as follows:
<CAPTION>
AMOUNT
- --------
<S> <C>
$250,000 March 25, 1992 -- March 25, 1995
$200,000 March 25, 1995 -- March 25, 1996
$160,000 March 25, 1996 -- March 25, 1997
$110,000 March 25, 1997 -- March 25, 1998
$ 50,000 March 25, 1998 -- March 25, 1999
</TABLE>
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the interest rate swap agreements, however, the Company does
not anticipate nonperformance under the agreement.
KVC has been allocated interest (including amortization of deferred financing
costs) of $18,224 and $19,054 for the years ended December 31, 1994 and
1993, respectively. Interest expense has been allocated to KVC based upon
intercompany financing in connection with the Acquisition. The effective
interest rate used in these allocations was 8.36% during these periods. The
common stock and assets of the Company are pledged to collateralize all
external financing arrangements.
6. EMPLOYEE BENEFIT PLANS
In connection with the Acquisition described in Note 1, the Company assumed a
defined benefit pension plan (the Plan). The Plan covers all qualified
employees who meet certain employment service and age requirements and are not
covered by union pension plans. Net periodic pension cost is comprised of the
components listed below, as determined using the actuarial cost aggregate
method. The Company's funding policy is to make annual
82
<PAGE> 83
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
contributions to the Plan in such amounts necessary to fund benefits provided
by the Plan on the basis of information provided by the Plan's actuary.
<TABLE>
Consolidated net periodic pension cost without regard to the effect of the
discontinued operations for the years ended December 31, 1994 and 1993 is as
follows:
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Service cost for benefits earned during the period $ 908 $ 852
Interest cost on projected benefit obligation..... 1,896 1,804
Return on Plan assets............................. 774 (2,481)
Net deferral...................................... (3,030) 323
Amortization of prior service cost................ (18) --
------ ------
Total............................................. $ 530 $ 498
====== ======
</TABLE>
The following table sets forth the Plan's funded status and obligations at
December 31, 1994 without regard to the effect of the discontinued operations:
<TABLE>
<CAPTION>
1994
---------
<S> <C>
Actuarial present value of accumulated benefit obligations,
including vested benefits of $20,012................................. $(23,146)
========
Projected benefit obligation......................................... $(26,596)
Plan assets at fair value, consisting of cash and equity securities.. 28,226
--------
Plan assets in excess of projected benefit obligation................ 1,630
Prior service cost................................................... (176)
Unrecognized net loss................................................ 1,955
--------
Pension asset........................................................ $ 3,409
========
</TABLE>
83
<PAGE> 84
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
The assumptions used in the above valuations are as follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Discount rate.............................. 7.5% 7.5%
Rate of increase in compensation levels.... 5.0 5.0
Expected long-term rate of return on
assets..................................... 8.5 8.5
</TABLE>
In 1993, the Company instituted an employee savings plan (401(k) Plan) to
provide benefits for substantially all employees of the Company meeting certain
eligibility requirements. The Plan requires the Company to match 25% of
employee contributions, up to a maximum of 1% of covered compensation. Expense
related to the Plan without regard to the effect of the discontinued operations
aggregated $252 and $228 for the years ended December 31, 1994 and 1993,
respectively.
Pension expense allocated to KVC, pursuant to these plans, aggregated $54 and
$60 for 1994 and 1993, respectively. Further, prepaid pension costs with
respect to the defined benefit plan of $384 and $457 have been allocated
to KVC at December 31, 1994 and 1993, respectively.
<TABLE>
7. INCOME TAXES
The income tax provision for continuing operations recorded for the years ended
December 31, 1994 and 1993 consists of the following:
<CAPTION>
Currently payable: 1994 1993
------ ------
<S> <C> <C>
Federal.................... $8,103 $5,577
State...................... 1,486 579
------ ------
Total...................... 9,589 6,156
------ ------
Deferred:
Federal.................... (886) 651
State...................... 140 (20)
------ ------
Total...................... (746) 631
------ ------
Income tax provision -- net $8,843 $6,787
====== ======
</TABLE>
84
<PAGE> 85
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
A reconciliation of the net income tax provision computed using the U.S.
federal statutory rate of 35% (34% in 1993) to pretax income from continuing
operations was as follows:
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Computed ''expected'' tax expense................ $5,637 $2,614
Amortization of goodwill......................... 1,850 1,800
State and local taxes, net of federal tax benefit 1,057 362
Enacted future rate change....................... 362 1,880
Other............................................ (63) 131
------ ------
Effective tax.................................... $8,843 $6,787
====== ======
</TABLE>
<TABLE>
The significant components of deferred income tax provision attributable to
income from continuing operations for the years ended December 31, 1994 and
1993 are as follows:
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Deferred income tax (exclusive of the effects of other
components below)..................................... $(4,899) $(1,950)
(Increase) decrease in alternative minimum tax........ 3,845 701
State net operating loss benefit, net of federal tax.. 244 --
Federal net operating loss benefit.................... 64 --
Enacted future rate change............................ -- 1,880
-------- -------
Total deferred tax provision (benefit)................ $ (746) $ 631
======== =======
</TABLE>
85
<PAGE> 86
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31, 1994 are
presented below:
<CAPTION>
1994
--------
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance for doubtful
accounts............................................................ $ 279
Film and syndication rights, principally due to different accounting
methods............................................................. 511
Compensated absences, principally due to accrual for financial
reporting purposes.................................................. 212
Net operating loss carryforwards.................................... 13
Alternative minimum tax credit carryforwards........................ --
Other............................................................... 1,186
-------
Gross deferred tax assets........................................... 2,201
-------
Deferred tax liabilities:
Property and equipment, principally due to basis differences........ 17,778
Retirement plan, principally due to accrual for financial reporting
purposes............................................................ 1,256
Enacted future rate increases....................................... --
Other............................................................... 369
-------
Gross deferred tax liabilities...................................... 19,403
-------
Net deferred tax liabilities........................................ $17,202
=======
</TABLE>
At December 31, 1994, the Company has net operating loss carryforwards of
$75,000 for state income tax purposes which are available to offset future
state taxable income, if any, through 2009. Approximately $54,000 of these net
operating loss carryforwards were present at Acquisition and, due to
uncertainty of eventual realization, a full valuation reserve was provided
against these assets at that time. Should these net operating loss
carryforwards be realized in the future, the effect would be to reduce the
recorded value of certain intangible assets.
86
<PAGE> 87
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
8. COMMITMENTS
Film and Syndication Rights -- The Company has entered into certain film and
syndication rights' agreements which allow for showings of certain programs
over various periods. At December 31, 1994, film and syndication rights
liabilities related to programs available for broadcast are due as follows:
<S> <C>
1995...... $7,753
1996...... 787
1997...... 487
1998...... 189
1999...... 38
Thereafter --
------
Total..... $9,254
======
</TABLE>
In addition, the Company has entered into film and syndication rights'
agreements covering programs not yet available for broadcast. No asset or
liability related to these programs has been reflected in the financial
statements. At December 31, 1994, the Company had executed contracts
aggregating $36,745 (net of deposits) for programs not yet available for
broadcast.
<TABLE>
Operating Leases -- The Company leases office and other facilities under
operating leases expiring at various dates through 2004. At December 31, 1994,
minimum payments required under noncancelable leases with terms in excess of
one year for continuing operations are as follows:
<S> <C>
1995...... $ 888
1996...... 880
1997...... 812
1998...... 567
1999...... 309
Thereafter 899
-------
Total..... $4,355
=======
</TABLE>
Rent expense under operating leases from continuing operations aggregated $490
and $383 for the years ended December 31, 1994 and 1993, respectively.
87
<PAGE> 88
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
9. RELATED-PARTY TRANSACTIONS
The Company has entered into a management agreement (the "Management Agreement")
with the Providence Journal, under the terms of which the Providence Journal
will operate and manage the Company's cable systems and KBC's television
stations through February 1997. The Management Agreement provides for a base
management fee of $2,525 per year and payment of bonuses based on operating
cash flow (as defined in the Management Agreement) at the end of each fiscal
year for managing both the Company and KBC. No bonus was earned during 1994
and 1993. In addition, the Management Agreement provides for the awarding of
certain warrant bonuses, both on an annual and cumulative basis, based on
operating cash flow at the end of defined periods. Through December 31, 1994,
the Providence Journal had been awarded warrant bonuses providing for the
purchase of 1,552 shares, of the Company's Class B nonvoting common stock at
$0.10 per share. Compensation expense recorded related to these warrant
issuances aggregated $335 in 1993. Based upon the purchase and sale agreement
(See note 2) whereby the Providence Journal will buy out the Investor
Stockholder for a fixed price, it is not probable that the Providence Journal
will exercise any outstanding warrants and accordingly, the Company has not
recorded compensation expense during 1994.
The Providence Journal is also entitled to compensation for out-of-pocket costs
incurred in its capacity as manager of the cable systems for which the Company
reimbursed the Providence Journal $3,844 and $2,842 during 1994, and 1993,
respectively.
The Company is also obligated to pay the Providence Journal an annual $1,000
governance fee, in advance, on December 20 of each year.
The Company entered into a consulting and advisory services agreement (the
"Services Agreement") with the Investor Stockholder. Under the terms of the
Services Agreement, the Company is obligated to pay the Investor Stockholder an
annual fee of $1,000, in advance, on January 1 of each year.
For the years ended December 31, 1994 and 1993, KVC has been allocated expenses
under the terms of the Management Agreement, and other related fees discussed
above, aggregating $1,901 and $2,034, respectively.
10. FAIR VALUE DISCLOSURE
Current Assets and Liabilities -- The carrying amount of cash, trade
receivables, trade accounts payable and accrued expenses approximates fair
value because of the short maturity of these instruments.
Long-term Debt -- The fair values of each of the Company's long-term debt
instruments are based on the amount of future cash flows associated with each
instrument discounted using current borrowing rates for similar debt
instruments of comparable maturity. The fair value of long-term debt
approximated carrying value at December 31, 1994.
88
<PAGE> 89
KING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Interest Rate Swaps -- The fair value of interest rate swaps is the amount at
which they could be settled based on estimates obtained from dealers. The
amount required to settle outstanding interest rate swaps at December 31, 1994
approximated $3,575 (gain).
11. COMMITMENTS AND CONTINGENCIES
The Company is the defendant in a number of legal actions, the outcome of which
management believes, based upon the advice of counsel, will not have a material
effect on the Company's financial position or results of operations.
The Company has outstanding letter of credit commitments amounting to $756 as
of December 31, 1994.
In October 1992, the Congress of the United States passed the Cable Act. As a
result of the Cable Act, several cable television systems of the Company are
subject to regulation by local franchise authorities and/or the FCC.
Regulations imposed by the Cable Act, among other things, allow regulators to
limit and reduce the rates that cable operators can charge for certain basic
cable television services and equipment rental charges. The Company has been
notified by certain franchise authorities that various regulated rates charged
to subscribers were in excess of the rates permitted. The Company has reviewed
the notifications as well as the disputed rates and has accrued for amounts it
believes it may be required to refund. Further rules and regulations are being
considered by the FCC, however, these regulations have not yet been finalized.
The ultimate impact on the operations of the Company resulting from existing
rules and regulations and proposed rules and regulations, if any, cannot be
determined.
89
<PAGE> 90
<TABLE>
KING HOLDING CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS)
<CAPTION>
1994 1993
------- ------
<C> <C> <C>
Balances at Beginning of Year $ 715 $ 932
Additions:
Charged to operations 676 489
Recoveries 46 89
Deductions:
Accounts written off (237) (795)
------ -----
Balance at End of Year $1,200 $ 715
====== =====
</TABLE>
90
<PAGE> 91
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to Instruction G(3) to Form 10-K, the information required in Items
10-13 is incorporated by reference from the Company's definitive proxy
statement for the Company's 1995 Annual Meeting of shareholders, which is
expected to be filed pursuant to Regulation 14A within 120 days after the end
of the company's 1995 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to Instruction G(3) to Form 10-K, the information required in Items
10-13 is incorporated by reference from the Company's definitive proxy
statement for the Company's 1995 Annual Meeting of shareholders, which is
expected to be filed pursuant to Regulation 14A within 120 days after the end
of the company's 1995 fiscal year. Such incorporations by reference shall not
be deemed to specifically incorporate by reference the information referred to
in Item 402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to Instruction G(3) to Form 10-K, the information required in Items
10-13 is incorporated by reference from the Company's definitive proxy
statement for the Company's 1995 Annual Meeting of shareholders, which is
expected to be filed pursuant to Regulation 14A within 120 days after the end
of the company's 1995 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to Instruction G(3) to Form 10-K, the information required in Items
10-13 is incorporated by reference from the Company's definitive proxy
statement for the Company's 1995 Annual Meeting of shareholders, which is
expected to be filed pursuant to Regulation 14A within 120 days after the end
of the company's 1995 fiscal year.
91
<PAGE> 92
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1 The financial statements listed below are included in item 8
of this Form 10-K. See Index of Financial Statements and Schedules
on page 40.
(i) Consolidated Financial Statements of the Company -- The Providence
Journal Company and Subsidiaries.
(ii) Consolidated Financial Statements of Significant Unconsolidated
Affiliate -- King Holding Corp. and Subsidiaries.*
*King Holding Corp. acquired and consolidated by the Company
in 1995.
2 Financial Statement Schedules. The financial statement
schedules listed below are included in item 8 of this Form 10-K.
See Index of Financial Statements and Schedules on page 40.
(i) Financial Statement Schedules of the Company (as required)
II. Valuation and Qualifying Accounts and Reserves for the Years
Ended December 31, 1995, 1994, and 1993
(ii) Financial Statement Schedules of the Company's Unconsolidated
Affiliate -- King Holding Corp.* (as required)
II. Valuation and Qualifying Account and Reserves for the Years
Ended December 31, 1994 and 1993.
*King Holding Corp. acquired and consolidated by the Company
in 1995.
3 Exhibits required to be filed by Item 601 of Regulation S-K:
(i) Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 1 of Registrant's Registration Statement on
Form 8-A dated September 29, 1995).
(ii) By-laws of the Registrant. Filed herewith as Exhibit 3.2.
4 Credit Agreement dated as of October 5, 1995 among Providence
Journal Company, Registrant, Fleet National Bank, as Administrative
Agent, The First National Bank of Boston, The Chase Manhattan Bank,
N.A., Chemical Bank and The Toronto Dominion Bank, as Managing Agents
and the other lenders named therein (incorporated by reference to
Exhibit 4 of Registrant's Current Report on Form 8-K dated October 5,
1995).
10 (i) The Providence Journal Company 1994 Employee Stock Option Plan
(incorporated by reference to Exhibit 4(a) of Registrant's
Registration Statement on Form S-8 (No. 33-63833) dated November 1,
1995).
(ii) The Providence Journal Company 1994 Non-Employee Director Stock
Option Plan (incorporated by reference to Exhibit 4(b) of
Registrant's Registration Statement on Form S-8 (No. 33-63833) dated
November 1, 1995).
92
<PAGE> 93
(iii) Form of Restricted Stock Unit Grant Agreement (incorporated by
reference to Exhibit 10.2 of Registrant's Registration Statement
on Form S-4(No. 33-57479) dated August 31, 1995).
(iv) Form of Change of Control Agreement (incorporated by reference to
Exhibit 10.6 of Registrant's Registration Statement on Form S-4
(No. 33-57479) dated August 31, 1995).
(v) Letter Agreement between Providence Journal Company and James F.
Stack dated August 29, 1995. Filed herewith as Exhibit 10.5.
(vi) Separation Agreement and Release between The Providence Journal
Company and Trygve E. Myhren dated February 9, 1996. Filed herewith
as Exhibit 10.6.
21 Subsidiaries of the Registrant. Filed herewith as Exhibit 21.0.
23 (i) Independent Auditors' consent of KPMG Peat Marwick LLP. Filed
herewith as Exhibit 23.1.
(ii) Independent Auditors' consent of Deloitte & Touche LLP. Filed
herewith as Exhibit 23.2.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
Report on Form 8-K, dated October 5, 1995: Item 5 - voluntary disclosure
of divestiture of cable operations and
completion of Kelso Buyout.
93
<PAGE> 94
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 1, 1996
THE PROVIDENCE JOURNAL COMPANY
By: /s/ Stephen Hamblett
-----------------------------------------------------
Stephen Hamblett
Chairman of the Board and Chief Executive Officer
By: /s/ Thomas N. Matlack
-----------------------------------------------------
Thomas N. Matlack
Vice President-Finance
(principle financial and accounting officer)
By: /s/ F. Remington Ballou
-----------------------------------------------------
F. Remington Ballou
Director
By: /s/ Henry P. Becton, Jr.
-----------------------------------------------------
Henry P. Becton, Jr.
Director
By: /s/ Fanchon M. Burnham
-----------------------------------------------------
Fanchon M. Burnham
Director
By: /s/ Kay K. Clarke
-----------------------------------------------------
Kay K. Clarke
Director
By: /s/ Peter B. Freeman
-----------------------------------------------------
Peter B. Freeman
Director
By: /s/ Benjamin P. Harris, III
-----------------------------------------------------
Benjamin P. Harris, III
Director
By: /s/ Paul A. Maeder
-----------------------------------------------------
Paul A. Maeder
Director
94
<PAGE> 95
By: /s/ Trygve E. Myhren
-----------------------------------------------------
Trygve E. Myhren
Director
By: /s/ John W. Rosenblum
-----------------------------------------------------
John W. Rosenblum
Director
By: /s/ Henry D. Sharpe, Jr.
-----------------------------------------------------
Henry D. Sharpe, Jr.
Director
By: /s/ W. Nicholas Thorndike
-----------------------------------------------------
W. Nicholas Thorndike
Director
By: /s/ John W. Wall
-----------------------------------------------------
John W. Wall
Director
By: /s/ Patrick R. Wilmerding
-----------------------------------------------------
Patrick R. Wilmerding
Director
95
<PAGE> 1
Exhibit 3.2
THE PROVIDENCE JOURNAL COMPANY
BY-LAWS
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I Certificate of Incorporation 1
ARTICLE II Offices
2.01. Registered Office 1
2.02. Principal Office 1
2.03. Other Offices 1
ARTICLE III Meetings of Stockholders
3.01. Place of Meetings 1
3.02. Annual Meetings 2
3.03 Special Meetings 2
3.04. Notice of Meetings 2
3.05. Quorum 3
3.06. Organization 4
3.07. Voting 4
3.08. Inspectors 5
3.09. List of Stockholders 5
3.10. Common Stock 6
ARTICLE IV Board of Directors
4.01. General Powers 6
4.02. Number and Qualifications 6
4.03. Classes, Election and Terms 6
4.04. Quorum and Manner of Acting 6
4.05. Offices; Place of Meetings and Records 7
4.06. Annual Meeting 7
4.07. Regular Meetings 7
4.08. Special Meetings; Notice 7
4.09. Organization 8
4.10. Order of Business 8
4.11. Removal of Directors 8
4.12. Resignation 8
4.13. Vacancies and Newly Created Directorships 8
4.14. Compensation 8
4.15. Amendments to Article IV 8
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V Committees
5.01. Executive Committee 9
5.02. Powers 9
5.03. Procedure; Meetings; Quorum 9
5.04. Compensation 10
5.05. Other Board Committees 10
5.06. Alternates 10
5.07. Additional Committees 10
ARTICLE VI Waiver of Notice and Action by Consent
6.01. Waiver of Notice 11
6.02. Consent by Stockholders 11
6.03. Consent by Directors 11
ARTICLE VII Officers
7.01. Number 12
7.02. General Powers 12
7.03. Election, Qualifications and Term of Office 12
7.04. Other Officers 12
7.05. Removal 13
7.06. Resignation 13
7.07. Vacancies 13
7.08. Chairman of the Board 13
7.09. Chairman of the Executive Committee 13
7.10. President 13
7.11. Vice Presidents 14
7.12. Treasurer 14
7.13. Secretary 14
7.14. Assistant Treasurers 15
7.15. Assistant Secretaries 15
7.16. Bonding 15
7.17. Salaries 15
ARTICLE VIII Indemnification of Directors and Officers
8.01. Right to Indemnification 15
8.02. Non-Exclusivity of Rights 16
8.03. Insurance 16
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE IX Contracts, Checks, Drafts, Bank Accounts, etc.
9.01. Execution of Contracts 16
9.02. Loans 17
9.03. Checks, Drafts, etc. 17
9.04. Deposits 17
9.05. Proxies in Respect of Securities of Other Corporations 17
ARTICLE X Books and Records
10.01. Place 18
10.02. Addresses of Stockholders 18
10.03. Record Dates 18
10.04. Closing of Transfer Books 19
10.05. Audit of Books and Accounts 20
ARTICLE XI Shares and Their Transfer
11.01. Certificates for Shares 20
11.02. Record 20
11.03. Transfer of Stock; Restrictions 20
11.04. Transfer Agent and Registrar: Regulations 24
11.05. Lost, Destroyed or Mutilated Certificates 25
11.06. Shares Liable for Debts 25
11.07. No Fractional Shares 25
ARTICLE XII Seal 26
ARTICLE XIII Fiscal Year 26
ARTICLE XIV Amendments 26
</TABLE>
iii
<PAGE> 5
BY-LAWS
OF
THE PROVIDENCE JOURNAL COMPANY
------------------------------
ARTICLE I
CERTIFICATE OF INCORPORATION
These By-laws, the powers of THE PROVIDENCE JOURNAL COMPANY (the
"Corporation") and of its directors and stockholders, and all matters concerning
the conduct and regulation of the business of the Corporation shall be subject
to such provisions in regard thereto, if any, as are set forth in the
Certificate of Incorporation of the Corporation. All references herein to the
Certificate of Incorporation shall be construed to mean the Certificate of
Incorporation of the Corporation as from time to time amended.
ARTICLE II
OFFICES
SECTION 2.01. REGISTERED OFFICE. The registered office of the Corporation
in the State of Delaware shall be at 32 Lookerman Square, Suite L-100, in the
City of Dover, County of Kent. The name of the registered agent of the
Corporation is The PrenticeHall Corporation System, Inc.
SECTION 2.02. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located in Providence, Rhode Island.
SECTION 2.03. OTHER OFFICES. The Corporation may also have an office at
such other place or places either within or without the State of Rhode Island as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE III
MEETINGS OF STOCKHOLDERS
SECTION 3.01. PLACE OF MEETINGS. All meetings of the stockholders of the
Corporation shall be held at such place either within or without the State of
Rhode Island as shall be fixed by the Board of Directors and specified in the
respective notices or waivers of notice of said meetings. Whenever the directors
shall fail to fix such place, the meeting shall be held at the principal office
of the Corporation.
<PAGE> 6
SECTION 3.02. Annual Meetings.
----------------
(a) The annual meeting of the stockholders for the election of directors
and for the transaction of such other business as may come before the meeting
shall be held at the principal office of the Corporation, or such other place as
shall be fixed by the Board of Directors, at noon, local time, on the Third
Thursday in April in each year, if not a legal holiday at the place where such
meeting is to be held and, if a legal holiday, then on the next succeeding
business day not a legal holiday at the same hour.
(b) In respect of the annual meeting for any particular year the Board of
Directors may, by resolution fix a different day, time or place (either within
or without the State of Rhode Island) for the annual meeting.
(c) If the election of directors shall not be held on the day designated
herein or the day fixed by the Board, as the case may be, for any annual
meeting, or on the day of any adjourned session thereof, the Board of Directors
shall cause the election to be held at a special meeting as soon thereafter as
conveniently may be. At such special meeting the stockholders may elect the
directors and transact other business with the same force and effect as at an
annual meeting duly called and held.
(d) The purposes for which an annual meeting is to be held, in addition to
those prescribed by law or these By-laws, may be specified by a majority of the
Board of Directors, the Chairman of the Board, the President or a stockholder or
stockholders holding of record at least twenty percent (20%) in voting power of
the outstanding shares of the Corporation entitled to vote at such meeting.
SECTION 3.03. SPECIAL MEETINGS. A special meeting of the stockholders for
any purpose or purposes, unless otherwise prescribed by statute, may be called
at any time by the Chairman of the Board, the President, the Board of Directors
or by the Secretary upon the request in writing of a stockholder or stockholders
holding of record at least twenty percent (20%) of the outstanding shares of
stock of the Corporation entitled to vote at such meeting.
SECTION 3.04. Notice of Meetings.
-------------------
(a) Except as otherwise expressly required by statute, notice of all
meetings shall be given, stating the place, date, and hour of the meeting and
stating the place within the city or other municipality or community at which
the list of stockholders of the Corporation may be examined.
(b) The notice of an annual meeting shall state that the meeting is called
for the election of directors and for the transaction of other business which
may properly come before the meeting, and shall (if any other action which could
be taken at a special meeting is to be taken at such annual meeting) state the
purpose or purposes.
2
<PAGE> 7
(c) The notice of a special meeting shall in all instances state the
purpose or purposes for which the meeting is called.
(d) The notice of any meeting shall also include, or be accompanied by, any
additional statements, information, or documents prescribed by law.
(e) Except as otherwise provided by law, a copy of the notice of any
meeting shall be given, personally or by mail, not less than ten (10) days nor
more than fifty (50) days before the date of the meeting, unless the lapse of
the prescribed period of time shall have been waived, and directed to each
stockholder at his record address or at such other address which he may have
furnished by request in writing to the Secretary of the Corporation.
(f) Notice by mail shall be deemed to be given when deposited, with postage
thereon prepaid, in the United States Mail. If a meeting is adjourned to another
time, not more than thirty days hence, and/or to another place, and if an
announcement of the adjourned time and/or place is made at the meeting, it shall
not be necessary to give notice of the adjourned meeting unless the directors,
after adjournment, fix a new record date for the adjourned meeting.
(g) Notice need not be given to any stockholder who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of a stockholder at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened.
(h) Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
SECTION 3.05 Quorum.
-------
(a) At each meeting of the stockholders, stockholders of record
representing a majority of the votes entitled to be cast at such meeting,
present in person or represented by proxy, shall constitute a quorum for the
transaction of business except where otherwise provided by law or by the
Certificate of Incorporation as from time to time amended.
(b) In the absence of a quorum, stockholders of record representing a
majority of the votes entitled to be cast at such meeting, present in person or
represented by proxy or, if none of the stockholders are present or represented
by proxy, any officer entitled to preside or to act as secretary at such
meeting, may adjourn the meeting from time to time, until stockholders holding
the requisite number of votes entitled to be cast shall be present or
represented.
(c) At any such adjourned meeting at which a quorum may be present, any
business may be transacted which might have been transacted at the meeting as
originally called.
(d) The absence from any meeting of the stockholders representing the
number of votes required by law, the Certificate of Incorporation or by these
By-laws for specific action(s) upon
3
<PAGE> 8
any given matter(s) shall not prevent other action(s) by the stockholders at
such meetings upon any other matter(s) which properly come before the meeting,
if the stockholders representing the number of votes required in respect of
such other matter(s) shall be present.
SECTION 3.06. ORGANIZATION. At each meeting of the stockholders, the
Chairman of the Board or, in his absence, the President or, in the absence of
each of them, any Vice President or, in the absence of all such officers, a
chairman chosen by a majority vote of the stockholders entitled to vote thereat,
present in person or by proxy, shall act as chairman, and the Secretary or an
Assistant Secretary of the Corporation, or in the absence of the Secretary and
all Assistant Secretaries, a person whom the chairman of such meeting shall
appoint, shall act as secretary of the meeting and keep the minutes thereof.
SECTION 3.07. Voting.
-------
(a) Except as otherwise provided by law, the Certificate of Incorporation
or these By-laws, at every meeting of the stockholders, each stockholder of the
Corporation's Class A Common Stock shall, at every meeting of the stockholders,
whether the voting is by one or more classes voting separately or by two or more
classes voting as one class, be entitled to one (1) vote in person or by proxy
for each share of the Corporation's Class A Common Stock registered in the
stockholder's name on the books of the Corporation. Except as otherwise provided
by law, the Certificate of Incorporation or these By-laws, at every meeting of
the stockholders, each stockholder of Class B Common Stock shall, at every
meeting of the stockholders, whether the voting is by one or more classes voting
separately or by two or more classes voting as one class, be entitled to four
(4) votes in person or by proxy for each share of the Corporation's Class B
Common Stock registered in the stockholder's name on the books of the
Corporation.
(b) Persons holding stock in a fiduciary capacity shall be entitled to vote
the shares so held. In the case of stock held jointly by two or more executors,
administrators, guardians, conservators, trustees or other fiduciaries, such
fiduciaries may designate in writing one or more of their number to represent
such stock and vote the shares so held, unless there is a provision to the
contrary in the instrument, if any, defining their powers and duties.
(c) Persons whose stock is pledged shall be entitled to vote thereon until
such stock is transferred on the books of the Corporation to the pledgee, and
thereafter only the pledgee shall be entitled to vote.
(d) Every stockholder may authorize another person or persons to act for
him by proxy in all matters in which a stockholder is entitled to participate,
whether by waiving notice of any meeting, voting or participating at a meeting,
or expressing consent or dissent without a meeting. Every proxy must be signed
by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted
upon after three years from its date unless such proxy provides for a longer
period. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the Corporation generally.
4
<PAGE> 9
(e) At all meetings of the stockholders, all matters (except where other
provision is made by law or by the Certificate of Incorporation or these
By-laws) shall be decided by the majority vote of the stockholders entitled to
vote thereon, present in person or by proxy, at such meeting, a quorum being
present.
SECTION 3.08. Inspectors.
-----------
(a) The directors, in advance of any meeting, may, but need not, appoint
one or more inspectors of election to act at the meeting or any adjournment
thereof. If an inspector or inspectors are not appointed, the person presiding
at the meeting may, but need not, appoint one or more inspectors. In case any
person who may be appointed as an inspector fails to appear or act, the vacancy
may be filled by appointment made by the directors in advance of the meeting or
at the meeting by the person presiding thereat.
(b) Each inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspectors at such meeting with strict impartiality and according to the best of
his ability.
(c) The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, the validity and effect of proxies, and
shall receive votes, ballots, or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots, or consents; determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question, or matter
determined by him or them and execute a certificate of any fact found by him or
them. Except as otherwise required by subsection (e) of Section 231 of the
General Corporation Law, the provisions of that Section shall not apply to the
Corporation.
SECTION 3.09. List of Stockholders.
---------------------
(a) It shall be the duty of the Secretary or other officer of the
Corporation who shall have charge of its stock ledger to prepare and make, or
cause to be prepared and made, at least ten days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of stockholder. Such list shall be
open during ordinary business hours to the examination of any stockholder for
any purpose germane to the meeting for a period of at least ten days prior to
the election, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held.
(b) Such list shall be produced and kept at the time and place of the
meeting during the whole time thereof and may be inspected by any stockholder
who is present.
5
<PAGE> 10
(c) Upon the wilful neglect or refusal of the directors to produce such
list at any meeting for the election of directors they shall be ineligible for
election to any office at such meeting.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger and the list of stockholders
required by this Section 3.09 on the books of the Corporation or to vote in
person or by proxy at any meeting of stockholders.
SECTION 3.10. COMMON STOCK. Every reference in these By- laws to stock or
capital stock shall be deemed to refer to the Common Stock (both Class A and
Class B) of the Corporation. Every reference in these By-laws to the
stockholders of the Corporation shall be deemed to refer to the holders of the
Common Stock (both Class A and Class B) of the Corporation.
ARTICLE IV
BOARD OF DIRECTORS
SECTION 4.01. GENERAL POWERS. The business, property and affairs of the
Corporation shall be managed by the Board of Directors and the Board shall have,
and may exercise, all of the powers of the Corporation, except such as are
conferred by law, the Certificate of Incorporation or these By-laws, upon the
stockholders. The use of the phrase "whole board" herein refers to the total
number of directors which the Corporation would have if there were no vacancies.
SECTION 4.02. Number and Qualifications.
--------------------------
(a) The number of directors of the Corporation which shall constitute the
whole Board of Directors shall be determined according to the provisions of
Section 7 of the Certificate of Incorporation.
(b) No person who shall have attained the age of seventy (70) years prior
to the first day of January preceding a meeting of the stockholders for the
election of directors shall be nominated or be eligible to be elected or
re-elected a director.
SECTION 4.03. CLASSES, ELECTION AND TERMS. The Board of Directors shall be
divided into three classes, shall be elected and shall serve in accordance with
the provisions of Section 7 of the Certificate of Incorporation.
SECTION 4.04. Quorum and Manner of Acting.
----------------------------
(a) Except as otherwise provided by law or by the Certificate of
Incorporation, a majority of the directors at the time in office, but not less
than two (2) directors, shall constitute a quorum for the transaction of
business at any meeting and the affirmative vote of a majority of the directors
present at any meeting at which a quorum is present shall be required for the
taking of any action by the Board of Directors.
6
<PAGE> 11
(b) In the absence of a quorum at any meeting of the Board such meeting
need not be held, or a majority of the directors present thereat or, if no
director be present, the Secretary may adjourn such meeting from time to time
until a quorum shall be present. Notice of any adjourned meeting need not be
given.
(c) Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
SECTION 4.05. OFFICES, PLACE OF MEETING AND RECORDS. The Board of Directors
may hold meetings, have an office or offices and keep the books and records of
the Corporation at such place or places within or without the State of Rhode
Island as the Board may from time to time determine. The place of meeting shall
be specified or fixed in the respective notices or waivers of notice thereof,
except where otherwise provided by law, the Certificate of Incorporation or
these By-laws.
SECTION 4.06. ANNUAL MEETING. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable following each annual election of directors on
the same day and at the same place at which such election was held. No notice of
such meeting need be given. Such meeting shall be called and held at the place
and time specified in the notice or waiver of notice thereof as in the case of a
special meeting of the Board of Directors.
SECTION 4.07. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such places and at such times as the Board shall from time to
time by resolution determine. If any day fixed for a regular meeting shall be a
legal holiday at the place where the meeting is to be held, then the meeting
which would otherwise be held on that day shall be held at said place at the
same hour on the next succeeding business day. Notice of regular meetings need
not be given.
SECTION 4.08. Special Meetings; Notice.
-------------------------
(a) Special meetings of the Board of Directors shall be held whenever
called by the Chairman of the Board, the President or any director.
(b) The Secretary shall mail notice of each such meeting to each director,
addressed to him at his residence or usual place of business, at least three
days before the day on which the meeting is to be held, or such notice shall be
sent to him at his residence or at such place of business by telegraph, cable,
telecopier or other available means, or such notice shall be delivered
personally or by telephone, not later than two days before the day on which the
meeting is to be held.
(c) Each such notice shall state the time and place of the meeting but need
not state the purposes thereof except as otherwise herein expressly provided.
7
<PAGE> 12
(d) Notice of any such meeting need not be given to any director, however,
if waived by him in writing or by telegraph, cable, telecopier or otherwise,
whether before or after such meeting shall be held, or if he shall be present at
such meeting.
SECTION 4.09. Organization.
-------------
(a) At each meeting of the Board of Directors, the Chairman of the Board
or, in his absence, the President or, in the absence of each of them, a director
chosen by a majority of the directors present shall act as chairman.
(b) The Secretary or, in his absence an Assistant Secretary or, in the
absence of the Secretary and all Assistant Secretaries, a person whom the
chairman of such meeting shall appoint shall act as secretary of such meeting
and keep the minutes thereof.
SECTION 4.10. ORDER OF BUSINESS. At all meetings of the Board of Directors
business shall be transacted in the order determined by the Board.
SECTION 4.11. REMOVAL OF DIRECTORS. Any one or more directors of the
Corporation may be removed at any time, but only in accordance with Section 7 of
the Certificate of Incorporation.
SECTION 4.12. RESIGNATION. Any director of the Corporation may resign at
any time by giving written notice of his resignation to the Board of Directors,
the Chairman of the Board, the President or the Secretary of the Corporation.
Such resignation shall take effect at the date of receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.13. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancy in the
Board of Directors caused by death, resignation, removal, disqualification, an
increase in the number of directors, or any other cause shall be filled only in
accordance with the provisions of Section 7 of the Certificate of Incorporation.
SECTION 4.14. COMPENSATION. Each director, in consideration of his serving
as such, shall be entitled to receive from the Corporation, and to the extent
the Board of Directors shall from time to time determine, (i) an annual fee for
service, (ii) fees for attendance at directors' meetings or (iii) participation
in stock option, deferred compensation, retirement and other benefit plans, or
any combination of the foregoing. Each director shall also be entitled to
reimbursement for the reasonable expenses incurred by him in connection with the
performance of his duties. Nothing herein contained shall be construed to
preclude any director from serving the Corporation or its affiliates in any
other capacity and receiving proper compensation therefor.
SECTION 4.15. AMENDMENTS TO ARTICLE IV. Sections 4.02, 4.03, 4.11, 4.13 and
4.15 of this Article IV may be altered, amended or repealed only by the
affirmative vote of the holders of not less than eighty percent (80%) of the
votes entitled to be cast in respect thereof by the holders of the capital stock
of the Corporation entitled to vote generally in election of directors;
provided,
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however, this Section 4.15 shall not apply to, and such eighty percent (80%)
vote shall not be required for any amendment, alteration, or repeal of, any
provision recommended to the stockholders by the vote of not less than
two-thirds of the whole Board of Directors.
ARTICLE V
COMMITTEES
SECTION 5.01. Executive Committee.
--------------------
(a) The Board of Directors shall, by resolution or resolutions passed by a
majority of the whole Board at the annual meeting of the Board, appoint an
Executive Committee to consist of not less than three nor more than seven
members of the Board of Directors, including the Chairman of the Board and the
Chairman of the Executive Committee.
(b) Notwithstanding any limitation on the size of the Executive Committee,
the Committee may invite members of the Board to attend one at a time on a
rotational basis at its meetings. For the purpose of the meeting he so attends,
the invited director shall be entitled to vote on matters considered at such
meeting unless otherwise provided by the Board of Directors.
(c) Each member of the Executive Committee shall hold office, so long as he
shall remain a director, until the first meeting of the Board of Directors held
after the next annual election of directors and until his successor is duly
appointed and qualified.
(d) The Chairman of the Executive Committee or, in his absence, the
Chairman of the Board or a member of the Committee chosen by a majority of the
members present shall preside at meetings of the Executive Committee and the
Secretary or an Assistant Secretary of the Corporation, or such other person as
the Executive Committee shall from time to time determine, shall act as
secretary of the Executive Committee.
(e) The Board of Directors, by action of the majority of the whole Board,
shall fill vacancies in the Executive Committee.
SECTION 5.02. POWERS. During the intervals between the meetings of the
Board of Directors, the Executive Committee shall have and may exercise all of
the powers of the Board of Directors in all cases in which specific directions
shall not have been given by the Board of Directors.
SECTION 5.03. Procedure; Meetings; Quorum.
----------------------------
(a) The Executive Committee shall fix its own rules of procedure subject to
the approval of the Board of Directors, and shall meet at such times and at such
place or places as may be provided by such rules.
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(b) At every meeting of the Executive Committee the presence of a majority
of all the members shall be necessary to constitute a quorum and the affirmative
vote of a majority of the members present shall be necessary for the adoption by
it of any resolution. In the absence of a quorum at any meeting of the Executive
Committee such meeting need not be held, or a majority of the members present
thereat or, if no members be present, the secretary of the meeting may adjourn
such meeting from time to time until a quorum be present.
(c) The secretary of the Executive Committee shall keep minutes of the
actions taken at its meetings and shall present the minutes of the meeting to
the next following meeting of the Board of Directors.
SECTION 5.04. COMPENSATION. Each member of the Executive Committee shall be
entitled to receive from the Corporation such fee, if any, as shall be fixed by
the Board of Directors, together with reimbursement for the reasonable expenses
incurred by him in connection with the performance of his duties.
SECTION 5.05. Other Board Committees.
-----------------------
(a) The Board of Directors may from time to time, by resolution passed by a
majority of the whole Board, designate one or more committees in addition to the
Executive Committee, each committee to consist of two or more of the directors
of the Corporation.
(b) Any such committee, to the extent provided in the resolution of the
Board, shall have and may exercise the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation with
the exception of any authority the delegation of which is prohibited by Section
141 of the Delaware General Corporation Law, and may authorize the seal of the
Corporation to be affixed to all papers which may require it.
(c) A majority of all the members of any such committee may determine its
action and fix the time and place of its meetings, unless the Board of Directors
shall otherwise provide.
(d) The Board of Directors shall have power to change the members of any
committee at any time, to fill vacancies and to discharge any such committee,
either with or without cause, at any time.
SECTION 5.06. ALTERNATES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of the committee; provided, however, that in the absence of any such
designation of alternates the member or members of any committee present at any
meeting and not disqualified from acting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board to act at the
meeting in the place of any absent or disqualified member.
SECTION 5.07. Additional Committees.
----------------------
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(a) The Board of Directors may from time to time create such additional
committees of directors, officers, employees or other persons designated by it
(or any combination of such persons) for the purpose of advising with the Board,
the Executive Committee and the officers and employees of the Corporation in all
such matters as the Board shall deem advisable and with such functions and
duties as the Board shall by resolutions prescribe.
(b) A majority of all the members of any such committee may determine its
action and fix the time and place of its meetings, unless the Board of Directors
shall otherwise provide.
(c) The Board of Directors shall have power to change the members of any
committee at any time, to fill vacancies and to discharge any such committee,
either with or without cause, at any time.
ARTICLE VI
WAIVER OF NOTICE AND ACTION BY CONSENT
SECTION 6.01. Waiver of Notice.
-----------------
(a) Whenever any notice is required to be given by law, the Certificate of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
(b) Attendance in person, or in case of a meeting of the stockholders, by
proxy, shall be the equivalent to having waived notice thereof.
SECTION 6.02. Consent by Stockholders.
------------------------
(a) Any action required by the law to be taken at any annual or special
meeting of stockholders, or any action which may be taken at any annual or
special meeting of stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
(c) Action taken pursuant to this paragraph shall be subject to the
provisions of Section 228 of the Delaware General Corporation Law.
Section 6.03. CONSENT BY DIRECTORS. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a meeting if
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prior to such action a written consent thereto is signed by all members of the
Board or such committee, as the case may be, and such written consent is filed
with the minutes of the proceedings of the Board or such committee.
ARTICLE VII
OFFICERS
SECTION 7.01. NUMBER. The principal officers of the Corporation shall be a
Chairman of the Board, a Chairman of the Executive Committee, a President, one
or more Vice Presidents (the number thereof and variations in title to be
determined by the Board of Directors), a Treasurer and a Secretary. In addition,
there may be such other or subordinate officers, agents and employees as may be
appointed in accordance with the provisions of Section 7.04. Any two or more
offices, may be held by the same person.
SECTION 7.02. GENERAL POWERS. All officers of the Corporation shall have
such authority and perform such duties in the management and operation of the
Corporation as shall be prescribed in the resolutions of the Board of Directors
designating and choosing such officers and prescribing their authority and
duties, and shall have such additional authority and duties as are incident to
their office except to the extent that such resolutions may be inconsistent
therewith.
SECTION 7.03. Election, Qualifications and Term of Office.
--------------------------------------------
(a) Each officer of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 7.04, shall be elected
annually by the Board of Directors and shall hold office until his successor
shall have been duly elected and qualified, or until his death, or until he
shall have resigned or shall have been removed in the manner herein provided.
(b) The Chairman of the Board and the Chairman of the Executive Committee
shall be elected from the directors of the Corporation.
SECTION 7.04. Other Officers.
---------------
(a) The Corporation may have such other officers, agents, and employees as
the Board of Directors may deem necessary, including, without limitation, one or
more Associate or Assistant Vice Presidents, one or more Assistant Treasurers
and one or more Assistant Secretaries, each of whom shall hold office for such
period, have such authority, and perform such duties as the Board of Directors
or the Chief Executive Officer (as determined pursuant to Section 7.08) may from
time to time determine.
(b) The Board of Directors may delegate to any principal officer the power
to appoint or remove any such subordinate officers, agents or employees.
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SECTION 7.05. REMOVAL. Any officer may be removed, either with or without
cause, by the vote of a majority of the whole Board of Directors or, except in
case of any officer elected by the Board of Directors, by any committee or
officer upon whom the power of removal may be conferred by the Board of
Directors.
SECTION 7.06. Resignation.
------------
(a) Any officer may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, the President or the Secretary.
(b) Any such resignation shall take effect at the date of receipt of such
notice or at any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 7.07. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-laws for
regular election or appointment to such office.
SECTION 7.08. Chairman of the Board.
----------------------
(a) The Chairman of the Board shall be the Chief Executive Officer of the
Corporation and shall have general direction of its business and affairs,
subject, however, to the control of the Board of Directors and the Executive
Committee, provided, however, the Board of Directors may by resolution instead
designate the President as the Chief Executive Officer.
(b) The Chairman of the Board shall, when present, preside at all meetings
of the Board of Directors and at all meetings of the stockholders and shall have
such additional powers and shall perform such further duties as may from time to
time be assigned to him by the Board of Directors or the Executive Committee.
SECTION 7.09. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the
Executive Committee shall, when present, preside at all meetings of the
Executive Committee and, at the request of the Chairman of the Board, or in case
of his absence or disability, shall preside at all meetings of the Board of
Directors and at all meetings of the stockholders. In addition, the Chairman of
the Executive Committee shall have such additional powers and shall perform such
further duties as may from time to time be assigned to him by the Board of
Directors or the Executive Committee.
SECTION 7.10. President.
----------
(a) The President shall be the Chief Operating Officer of the Corporation
and shall have general direction of the operations and the administrative
affairs of the Corporation, subject to the control of the Board of Directors,
the Executive Committee and the Chairman of the Board.
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(b) If so designated by resolution of the Board of Directors as specified
in Section 7.08, he shall also be the Chief Executive Officer of the
Corporation.
(c) The President shall, in the absence or disability of the Chairman of
the Board, perform the duties of the Chairman of the Board and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Chairman of the Board. He shall, in the absence or disability of the Chairman of
the Board and the Chairman of the Executive Committee, preside at all meetings
of the Board of Directors and at all meetings of the stockholders. He shall have
such additional powers and shall perform such further duties as may from time to
time be assigned to him by the Board of Directors or the Executive Committee.
SECTION 7.11. VICE PRESIDENTS. Each Vice President shall have such powers
and perform such duties as the Board of Directors or the Executive Committee may
from time to time prescribe or as shall be assigned to him by the Chief
Executive Officer or the Chief Operating Officer.
SECTION 7.12. Treasurer.
----------
(a) The Treasurer shall have charge and custody of, and be responsible for,
all funds, securities, books and papers of the Corporation, and shall deposit
all such funds to the credit of the Corporation in such banks, trust companies
or other depositaries as shall be selected in accordance with the provisions of
these By-laws; he shall disburse the funds of the Corporation as may be ordered
by the Board of Directors or the Executive Committee, making proper vouchers for
such disbursements, and shall render to the Board of Directors or the
stockholders, whenever the Board may require him so to do, a statement of all
his transactions as Treasurer or the financial condition of the Corporation.
(b) He shall keep faithful books of account, and all such books shall at
all times be subject to inspection by the Board of Directors, any committee
thereof and the stockholders, and in general, he shall perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Board of Directors, any committee of the Board
designated by it so to act or the Chief Executive Officer of the Corporation.
SECTION 7.13. Secretary.
----------
(a) The Secretary shall record or cause to be recorded in books provided
for the purpose the minutes of the meetings of the stockholders, the Board of
Directors, and all committees of which a secretary shall not have been
appointed.
(b) He shall see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law.
(c) He shall be custodian of all corporate records (other than financial)
and of the seal of the Corporation and see that the seal is affixed to all
documents the execution of which on behalf
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of the Corporation under its seal is duly authorized in accordance with the
provisions of these By-laws.
(d) He shall keep, or cause to be kept, the list of stockholders as
required by Section 3.09, which includes the postoffice addresses of the
stockholders and the number of shares held by them, respectively, and shall make
or cause to be made, all proper changes therein, shall see that the books,
reports, statements, certificates and all other documents and records required
by law are properly kept and filed.
(e) In general, he shall perform all duties incident to the office of
Secretary and such other duties as may from time to time be assigned to him by
the Board of Directors, the Executive Committee or the Chief Executive Officer
of the Corporation.
SECTION 7.14. Assistant Treasurers.
---------------------
(a) At the request of the Treasurer or in his absence or disability, the
Assistant Treasurer designated by him or by the Board of Directors or the
Executive Committee shall perform all the duties of the Treasurer, and when so
acting, shall have all the powers of the Treasurer.
(b) The Assistant Treasurers shall perform such other duties as from time
to time may be assigned to them by the Board of Directors, Executive Committee,
the Chief Executive Officer of the Corporation or the Treasurer.
SECTION 7.15. Assistant Secretaries.
----------------------
(a) At the request of the Secretary or in his absence or disability, the
Assistant Secretary designated by him or by the Board of Directors or the
Executive Committee shall perform all the duties of the Secretary and, when so
acting, shall have all the powers of the Secretary.
(b) The Assistant Secretaries shall perform such other duties as from time
to time may be assigned to them by the Board of Directors, the Executive
Committee, the Chief Executive Officer of the Corporation or the Secretary.
SECTION 7.16. BONDING. Any officer, employee, agent or factor shall give
such bond with such surety or sureties for the faithful performance of his
duties as the Board of Directors may, from time to time, require.
SECTION 7.17. SALARIES. The salaries of the principal officers of the
Corporation shall be fixed from time to time by the Board of Directors, and none
of such officers shall be prevented from receiving a salary by reason of the
fact that he is a director of the Corporation.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 8.01. Right to Indemnification.
-------------------------
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Each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative, or investigative by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director or
officer of the Corporation or, while a director or officer of the Corporation,
is or was serving at the request of the Corporation as a director, officer,
employee or agent of any foreign or domestic corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan, whether the basis of
such proceeding is alleged action (or failure to act) in an official capacity as
a director or officer or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the Delaware General Corporation
Law as provided in the Certificate of Incorporation of the Corporation.
SECTION 8.02. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Article VIII and the Certificate of Incorporation shall not be exclusive
of any other right which such person may have or hereafter acquire under the
law, any agreement, the law, vote of stockholders or disinterested directors or
otherwise.
SECTION 8.03. INSURANCE. As provided in the Certificate of Incorporation,
the Corporation may purchase and maintain insurance, at its expense, to protect
itself and any person who is or was a director or officer of the Corporation, or
who, while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of any foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, against any such expenses, liability
or loss, whether or not the Corporation would have the power to indemnify such
person against such expenses, liability or loss under the Delaware General
Corporation Law.
ARTICLE IX
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 9.01. Execution of Contracts.
-----------------------
(a) Unless the Board of Directors or the Executive Committee shall
otherwise determine, the Chairman of the Board, the President, any Vice
President or the Treasurer and the Secretary or any Assistant Secretary may
enter into any contract or execute any contract or other instrument, the
execution of which is not otherwise specifically provided for, in the name and
on behalf of the Corporation.
(b) The Board of Directors or any committee designated thereby with power
so to act, except as otherwise provided in these By-laws, may authorize any
other or additional officer or officers or agent or agents of the Corporation to
enter into any contract or execute and deliver any instrument in the name and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.
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(c) Unless authorized so to do by these By-laws or by the Board of
Directors or by any such committee, no officer, agent or employee shall have any
power or authority to bind the Corporation by any contract or engagement or to
pledge its credit or to render it liable pecuniarily for any purpose or to any
amount.
SECTION 9.02. Loans.
------
(a) No loan shall be contracted on behalf of the Corporation, and no
evidence of indebtedness shall be issued, endorsed or accepted in its name,
unless authorized by the Board of Directors, the Executive Committee or other
committee designated by the Board so to act.
(b) Such authority may be general or confined to specific instances. When
so authorized, the officer or officers thereunto authorized may effect loans and
advances at any time for the Corporation from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes or other evidences of
indebtedness of the Corporation, and, when authorized as aforesaid, as security
for the payment of any and all loans, advances, indebtedness and liabilities of
the Corporation, may mortgage, pledge, hypothecate or transfer any real or
personal property at any time owned or held by the Corporation, and to that end
execute instruments of mortgage or pledge or otherwise transfer such property.
SECTION 9.03. CHECKS, DRAFTS, ETC. All checks, drafts, bills of exchange or
other orders for the payment of money, obligations, notes, or other evidence of
indebtedness, bills of lading, warehouse receipts and insurance certificates of
the Corporation, shall be signed or endorsed by such officer or officers, agent
or agents, attorney or attorneys, employee or employees, of the Corporation as
shall from time to time be determined by resolution of the Board of Directors or
Executive Committee or other committee designated by the Board so to act.
SECTION 9.04. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositaries as the Board of Directors, the
Executive Committee or other committee designated by the Board so to act may
from time to time designate, or as may be designated by any officer or officers
or agent or agents of the Corporation to whom such power may be delegated by the
Board of Directors, the Executive Committee or other committee designated by the
Board so to act and, for the purpose of such deposit and for the purposes of
collection for the account of the Corporation, all checks, drafts, and other
orders for the payment of money which are payable to the order of the
Corporation may be endorsed, assigned and delivered by any officer, agent or
employee of the Corporation or in such other manner as may from time to time be
designated or determined by resolution of the Board of Directors, the Executive
Committee or other committee designated by the Board so to act.
SECTION 9.05. PROXIES IN RESPECT OF SECURITIES OF OTHER CORPORATIONS.
Unless otherwise provided by resolution adopted by the Board of Directors, the
Executive Committee or other committee so designated to act by the Board, the
Chairman of the Board, the President, any Vice President or the Treasurer may
from time to time act as agent or agents of the Corporation, in the
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name and on behalf of the Corporation, to cast the votes which the Corporation
may be entitled to cast as the holder of stock or other securities in any other
corporation, association or trust, any of whose stock or other securities may be
held by the Corporation, at meetings of the holders of the stock or other
securities of such other corporation, association or trust, or to consent in
writing, in the name of the Corporation as such holder, to any action by such
other corporation, association or trust, and may instruct the person or persons
so appointed as to the manner of casting such votes or giving such consent, and
may execute or cause to be executed in the name and on behalf of the Corporation
and under its corporate seal, or otherwise, all such written proxies or other
instruments as he may deem necessary or proper in the premises.
ARTICLE X
BOOKS AND RECORDS
SECTION 10.01. Place.
------
(a) The books and records of the Corporation may be kept at such places
within or without the State of Rhode Island as the Board of Directors may from
time to time determine.
(b) The stock record books and the blank stock certificate books shall be
kept by the Secretary or by any other officer or agent designated by the Board
of Directors.
SECTION 10.02. ADDRESSES OF STOCKHOLDERS. Each stockholder shall furnish to
the Secretary of the Corporation or to the transfer agent of the Corporation an
address at which notices of meetings and all other corporate notices may be
served upon or mailed to him, and if any stockholder shall fail to designate
such address, corporate notices may be served upon him by mail, postage prepaid,
to him at his post-office address last known to the Secretary or to the transfer
agent of the Corporation or by transmitting a notice thereof to him at such
address by telegraph, cable, telecopier or other available method.
SECTION 10.03. Record Dates.
-------------
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
nor less than ten days before the date of such meeting.
(b) If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held.
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(c) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
(d) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors.
(e) If no record date has been fixed by the Board of Directors, the record
date for determining the stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its principal office in the State of Rhode Island, or
an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
(f) Delivery made to the Corporation's principal office shall be by hand or
by certified or registered mail, return receipt requested.
(g) If no record date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(h) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion, or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than fifty days prior to such
action.
(i) If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 10.04. CLOSING OF TRANSFER BOOKS. Insofar as permitted by law, the
Board of Directors may direct that the stock transfer books of the Corporation
be closed for a period not exceeding fifty (50) days preceding the date of any
meeting of stockholders or the date for the payment of any dividend or the date
for the allotment of rights or the date when any change or conversion or
exchange of shares of the Corporation shall go into effect, or for a period not
exceeding fifty (50) days in connection with obtaining the consent of
stockholders for any purpose.
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SECTION 10.05. AUDIT OF BOOKS AND ACCOUNTS. The books and accounts of the
Corporation shall be audited at least once in each fiscal year by certified
public accountants of good standing selected by the Board of Directors.
ARTICLE XI
SHARES AND THEIR TRANSFER
SECTION 11.01. Certificates for Shares.
------------------------
(a) Every owner of shares of capital stock of the Corporation shall be
entitled to have a certificate certifying the number of shares owned by him in
the Corporation and designating the class of shares to which such shares belong,
which shall otherwise be in such form, in conformity to law, as the Board of
Directors shall prescribe.
(b) Each such certificate shall be signed by the Chairman of the Board or
the President or a Vice President and the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer of the Corporation; provided, however,
that where such certificate is signed or countersigned by a transfer agent or
registrar, the signatures of such officers of the Corporation may be in
facsimile form. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on, any such certificate
or certificates shall cease to be such officer or officers of the Corporation
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered by the Corporation as
though the person or persons who signed such certificate or whose facsimile
signature or signatures shall have been used thereon had not ceased to be such
officer or officers of the Corporation.
SECTION 11.02. RECORD. A record shall be kept of the name of the person,
firm or corporation owning the stock represented by each certificate for stock
of the Corporation issued, the number of shares represented by each such
certificate, and the date thereof, and, in the case of cancellation, the date of
cancellation. The person in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
SECTION 11.03. Transfer of Shares; Restrictions.
---------------------------------
(a) Transfers of shares of the Corporation shall be made only on the books
of the Corporation by the registered holder thereof, or by his attorney
thereunto authorized, and on the surrender of the certificate or certificates
for such shares properly endorsed.
(b)
1. Restrictions on Transfer. Any person who receives or is entitled to
receive any shares of capital stock of the Corporation on the Effective Date
pursuant to the Distribution
20
<PAGE> 25
contemplated by the Agreement and Plan of Merger dated as of November 18, 1994,
by and among Continental Cablevision, Inc., Providence Journal Company, the
Corporation, King Holding Corp. and King Broadcasting Company, as amended and
restated as of August 1, 1995, as amended to date (the "Merger Agreement")
shall not Transfer (as defined herein), and the Corporation shall not be
required to register the Transfer of, any share of such capital stock of the
Corporation until the first anniversary of the Effective Date, except a
Permitted Transfer (as defined herein) to a Permitted Transferee (as defined
herein) of the economic owner of such share of capital stock of the Corporation
(the "Restricted Holder"). Capitalized terms used in this Section 11.03(b) and
not otherwise defined shall have the meaning prescribed therefor in the Merger
Agreement.
The term "Permitted Transferee" has the following meanings with respect to
each Restricted Holder:
a. the following persons shall be "Permitted Transferees" of each
Restricted Holder who is a natural person:
(1) The spouse or former spouse of such Restricted Holder, any
lineal descendant of a grandparent of such Restricted Holder or of a
grandparent of the spouse or former spouse of such Restricted Holder
and any spouse or former spouse of such lineal descendant (such
lineal descendants, their spouses or former spouses and the spouse or
former spouses shall constitute such Restricted Holder's "Family
Members");
(2) A voting trust, or the trustee or trustees of such voting
trust solely in their capacities as trustees of such voting trust, of
which a Controlling Number of such trustees are any of the following
(each a "Qualified Person"): such Restricted Holder, one of such
Restricted Holder's Family Members or an executive officer (as
defined in Rule 3b-7 of the General Rules and Regulations under the
Exchange Act, as in effect on June 7, 1995) of the Corporation or any
wholly-owned subsidiary of the Corporation;
(3) A trust (other than a voting trust), or the trustee or
trustees of such trust solely in their capacities as trustees of such
trust, solely for the benefit of such Restricted Holder or one or
more of such Restricted Holder's Permitted Transferees described in
any subclause of this clause (a) other than subclause (2) or this
subclause (3);
(4) A corporation of which a majority of the outstanding shares
of capital stock entitled to vote generally for the election of
directors is beneficially owned by and under the control of, or a
partnership of which a majority of the partnership interests entitled
to participate in the management of the partnership are beneficially
owned by and under the control of, such Restricted Holder or his or
her Permitted Transferees described in any subclause of this clause
(a) other than this subclause (4);
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<PAGE> 26
(5) If the Restricted Holder is deceased, bankrupt or insolvent,
the estate of such Restricted Holder; and
(6) A corporation, trust, partnership or financial institution
which shall hold any shares of capital stock of the Corporation in a
custodial or nominee arrangement.
b. the following persons shall be entitled to have the "Permitted
Transferees" indicated:
(1) In the case of any corporation or limited liability company
that is a Restricted Holder, "Permitted Transferee" means (x) any
person with economic ownership of any of the outstanding shares of
capital stock entitled to vote generally for the election of
directors of such corporation or limited liability company, as the
case may be, as of the Effective Date, and the Permitted Transferees
of such personor persons, or (y) any entity which is more than 90%
owned by such corporation or limited liability company.
(2) In the case of any partnership which is a Restricted Holder
and which is dissolved or liquidated, "Permitted Transferee" means
(x) each of the partners of such partnership as of the Effective
Date, and (y) the Permitted Transferees of such partners.
(3) In the case of any other corporation or partnership,
"Permitted Transferee" means (x) with respect to each share of
capital stock of the Corporation so transferred to such corporation
or partnership in a Permitted Transfer, the transferor in such
Permitted Transfer and any Permitted Transferee of such transferor,
and (y) with respect to each Subsequent Capital Share held by such
corporation or partnership, any person who is a Permitted Transferee
with respect to the share of capital stock in respect of which such
Subsequent Capital Share was issued.
(4) In the case of a revocable trust which is a Restricted
Holder, "Permitted Transferee" means (x) with respect to shares of
capital stock of the Corporation held by such trust as a Restricted
Holder, the settlor of such trust and Permitted Transferees of such
settlor and the beneficiaries of such trust as of the Effective Date
and Permitted Transferees of such beneficiaries, and (y) with respect
to each share of capital stock of the Corporation transferred to such
trust in a Permitted Transfer, any person who transferred such share
of capital stock of the Corporation to such trust and any Permitted
Transferee of any such transferor, and (z) with respect to each
Subsequent Capital Share, any person who is a Permitted Transferee
with respect to the share of capital stock of the Corporation in
respect of which such Subsequent Capital Share
was issued.
22
<PAGE> 27
(5) In the case of a trust (other than a voting trust) which was
irrevocable on the Effective Date, "Permitted Transferee" means with
respect to shares of capital stock of the Corporation held by such
trust as a Restricted Holder and with respect to each share of
capital stock of the Corporation transferred to such trust in a
Permitted Transfer and with respect to each Subsequent Capital Share,
any person to whom or for whose benefit principal may be distributed
either during or at the end of the term of such trust whether by
power of appointment or otherwise.
(6) In the case of a voting trust or any other trust (other than
a trust described in paragraph (4) or (5) above), "Permitted
Transferee" means (x) with respect to each share of capital stock of
the Corporation transferred to such trust in a Permitted Transfer,
any person who transferred such share of capital stock of the
Corporation to such trust and any Permitted Transferee of any such
transferor, and (y) with respect to each Subsequent Capital Share any
person who is a Permitted Transferee with respect to the share of
capital stock of the Corporation in respect of which such Subsequent
Capital Share was issued.
(7) In the case of a holder of capital stock of the Corporation
which is the estate of a deceased, bankrupt or insolvent Restricted
Holder, "Permitted Transferee" means, with respect to each share of
capital stock transferred of the Corporation to such estate in a
Permitted Transfer and with respect to each Subsequent Capital Share,
a Permitted Transferee of such deceased, bankrupt or insolvent
Restricted Holder.
(8) In the case of a corporation, trust, partnership or
financial institution which is the holder of record of capital stock
of the Corporation as nominee for the person who is the beneficial
owner of such shares, "Permitted Transferee" means such beneficial
owner and any Permitted Transferee of such beneficial owner.
2. Pledges. Notwithstanding anything to the contrary set forth
herein, any Restricted Holder may pledge his shares of capital stock of the
Corporation to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for indebtedness (which indebtedness must be full recourse
against the Restricted Holder) due to the pledgee, provided that such shares
shall not be transferred to or registered in the name of the pledgee and shall
remain subject to the provisions of this Section 11.03 (b). In the event of
foreclosure or other similar action with respect to such shares by the pledgee,
such pledged shares of capital stock of the Corporation may only be transferred
to a Permitted Transferee of the pledgor.
3. Definitions. For purposes of this Section 11.03(b):
a. The term "Controlling Number" means the minimum number of
trustees, in the case of a trust, or members of a governing body, in the
case of any other form of entity, whose affirmative vote is necessary to
take any action on, or whose negative vote, abstention or failure to
attend is sufficient to prevent any action with respect to the voting or
disposition of shares of capital stock held by such entity.
23
<PAGE> 28
b. The term "Exchange Act" means the Securities Exchange Act of
1934, as amended.
c. The term "Subsequent Capital Share" means any share of capital
stock of the Corporation issued by the Corporation to a Restricted Holder
in respect of an existing share of capital stock of the Corporation held
by such Restricted Holder.
d. The term "Permitted Transfer" means a Transfer not for any value
or consideration, including but not limited to, a Transfer by gift, by
bequest, pursuant to the terms of a trust or the laws of descent or
distribution, or by operation of law.
e. The term "Transfer" includes, but is not limited to, any
indirect or direct transfer, offer to sell, sale, assignment, grant of an
option to acquire, pledge, or other disposition.
f. The relationship of any person that is derived by or through
legal adoption shall be considered a natural one.
g. A minor for whom shares of capital stock of the Corporation are
held pursuant to the Uniform Gifts to Minors Act, as in effect in any
state, or any similar law, shall be considered a Restricted Holder.
h. Unless otherwise specified, the term "Person" means both natural
persons and legal entities.
i. Each reference to a corporation shall include any corporation
resulting from merger or consolidation, and each reference to a partnership
shall include any successor partnership resulting solely from the death,
bankruptcy or other withdrawal of a partner.
j. The term "beneficial owner" has the meaning ascribed to such
term in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on April 1, 1992 and the term "economic owner"
has the meaning ascribed to the term "beneficial owner" in Rule 16a-1(a)
(2) of the Exchange Act, as in effect on June 7, 1995.
4. Legend on Stock Certificates. The Corporation shall note on the
certificates for shares of capital stock of the Corporation issued at the
Effective Time and upon subsequent Transfer that the shares represented by such
certificates are subject to the restrictions on Transfer and registration of
Transfer imposed by this Section 11.03 (b).
5. Termination of Restrictions on Transfer. The provisions of this Section
11.03(b) shall terminate in their entirety on the first anniversary of the
Effective Date.
SECTION 11.04. Transfer Agent and Registrar; Regulations.
------------------------------------------
24
<PAGE> 29
(a) The Corporation shall, if and whenever the Board of Directors shall
determine, maintain one or more transfer offices or agencies, each under the
charge of a transfer agent designated by the Board of Directors, where the
shares of the capital stock of the Corporation shall be directly transferable,
and also if and whenever the Board of Directors shall so determine, maintain one
or more registry offices, each under the charge of a registrar designated by the
Board of Directors, where such shares of stock shall be registered.
(b) Unless prohibited by law or the rules or regulations of a stock
exchange or other body having jurisdiction in the circumstances, any transfer
agent or registrar designated by the Board of Directors may be an officer or
employee of the Corporation. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the Corporation.
SECTION 11.05. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case of the
alleged loss or destruction or the mutilation of a certificate representing
shares of capital stock of the Corporation, a new certificate may be issued in
place thereof, in the manner and upon such terms as the Board of Directors may
prescribe.
SECTION 11.06. SHARES LIABLE FOR DEBTS. The shares of capital stock of any
stockholder which may be pledged and liable to the Corporation for any debts and
demands due and owing from such stockholder to the Corporation, under and in
accordance with the Certificate of Incorporation, may be sold at any time for
the payment of such debts and demands at public auction in the City of
Providence, Rhode Island after first giving notice of the time and place of such
sale once in each week for three successive weeks in one or more of the public
newspapers published in said City of Providence.
SECTION 11.07. No Fractional Shares.
---------------------
(a) The shares of capital stock of the Corporation shall be full shares
only.
(b) The Corporation may not issue and the owner of shares of capital stock
of the Corporation may not transfer fractions of a share.
25
<PAGE> 30
ARTICLE XII
SEAL
The Board of Directors shall provide a corporate seal, which shall be in
the form of a circle and shall bear the name of the Corporation and the words
and figures "Incorporated 1994, Delaware."
ARTICLE XIII
FISCAL YEAR
Except as otherwise provided by the Board of Directors, the fiscal year of
the Corporation shall end on the last day of December in each year.
ARTICLE XIV
AMENDMENTS
Except as otherwise set forth in these By-Laws, all By-laws of the
Corporation shall be subject to alteration or repeal, and new By-laws not
inconsistent with the laws of the State of Delaware or any provision of the
Certificate of Incorporation may be made, either (i) by the affirmative vote of
a majority of the votes entitled to be cast in respect thereof by the holders of
record of the outstanding shares of capital stock of the Corporation present in
person or represented by proxy, given at an annual meeting or at any special
meeting at which a quorum shall be present, or (ii) by the affirmative vote of a
majority of the whole Board of Directors given at any meeting (except that the
Board of Directors may not amend Sections 4.02, 4.03, 4.ll, 4.13 and 4.15 of
these Bylaws to alter the range of the number of directors which may constitute
the Board of Directors), provided that in each case notice of the proposed
alteration or repeal or of the proposed new By-laws be included in the notice of
such meeting.
26
<PAGE> 1
Exhibit 10.5
August 29, 1995
Mr. Stephen Hamblett
Chairman of the Board
Providence Journal Company
75 Fountain Street
Providence, RI 02903
Dear Steve:
This letter summarizes the agreements reached this date with regard to my
resignation as Vice President-Finance and Chief Financial Officer of the
Providence Journal Company (the "Company") effective December 31, 1995 or such
earlier date as I commence other full-time employment (the "Effective Date"):
1. I will continue employment in my current capacity with my current
responsibilities to the extent requested by the Company until the Effective
Date. The Company agrees that I shall be permitted to commence a new job search
immediately. In the event I am offered fulltime employment by a new employer, I
will use reasonable efforts to be available to the Company as a consultant
through December 31, 1995 on mutually acceptable terms to provide an orderly
transition for my successor.
2. My base salary of $275,000 will be continued together with all employee
benefits until the Effective Date. I will receive a cash payment of $190,000
less required withholdings on the Effective Date.
3. On the Effective Date, I will be paid the so-called Change of Control
cash compensation benefit of 2.99 x $440,000 or $1,315,600 less required
withholdings.
4. On the Effective Date, I will receive my fully vested interests in the
Company Restricted Stock Awards (68 RSV units) and in the Stock Option Awards
(65 shares).
5. When the Company terminates the Incentive Unit Plan, I shall be paid all
of my vested benefits under such IUP (305 units) in accordance with the
Company's determination that 2/3 will be paid in cash and 1/3 in stock, net of
taxes. I will also receive any benefits attributable to an increase in the price
of Continental Common Stock, as provided in certain recent changes in the IUP,
on the same basis as all other IUP participants.
6. I shall be entitled to receive amounts payable to me under the terms
of the Company Supplemental Executive Retirement Plan (the "SERP"), which
shall provide an annual
<PAGE> 2
Mr. Stephen Hamblett
August 29, 1995
Page 2
lifetime retirement benefit of $63,000 per year when I reach age 65, subject to
actuarial reduction if I elect a joint and survivor annuity form of payment. If
at any time prior to my 65th birthday, the Company (or the New Providence
Journal Company post Continental Cablevision Closing) effects any public
offering of its capital stock or sells its assets or a majority of its stock is
sold in a single transaction, the Company will separately fund the retirement
benefit described above.
7. The Company will continue to provide my wife and me with health
insurance until the earlier of the third anniversary of my resignation or until
it is replaced by a subsequent employer.
8. I will, on September 30, 1995, purchase my Company provided vehicle
under the existing Company car policy.
9. The Company will provide me with up to $10,000 of out placement firm
services if I advise the Company of the need therefor, which notification will
be given before December 31, 1995, and if not then given, will be waived by me.
10. You will provide a letter of recommendation in the form attached. You
will advise other Company executives and employees that they should refer all
requests for references from potential new employers to you for response.
11. I shall be permitted to take with me all computer equipment, including
the attached printer fax, provided for my personal use by the Company.
12. You and I shall agree upon the content of all internal and external
notices relating to my resignation.
13. In consideration of the agreements set forth in this letter, the
Company hereby releases and forever discharges me from any and all liabilities,
causes of action, debts, claims and demands, both in law and in equity, known or
unknown, fixed or contingent, which the Company has or may have.
14. I acknowledge that the benefits in this letter are greater than would
otherwise have been provided under Company separation and benefit policies. In
consideration of the agreements set forth in this letter, I hereby release and
forever discharge the Company, its present and former directors, shareholders,
officers, employees, agents, subsidiaries, affiliated companies, and their
successors and assigns (collectively, the "Company Representatives"), from any
and all liabilities, causes of action, debts, claims and demands, both in law
and in equity, known or unknown, fixed or contingent (herein collectively
"claims"), which I have or may have including, without limitation, any claims
based upon or in any way related to my employment or the cessation of my
employment with the Company. The release set forth in this paragraph does not
release the Company of its obligations to me under Paragraphs 1-12, inclusive,
of this letter.
<PAGE> 3
Mr. Stephen Hamblett
August 29, 1995
Page 3
The foregoing release is based upon the agreements contained herein and is
given notwithstanding the fact that the termination of my employment is based
upon my decision to resign from the Company to seek other opportunities in view
of the downsizing of the Company as a result of the Continental Cablevision
transaction.
15. I understand that various State and Federal laws prohibit employment
discrimination based upon age, sex, race, color, national origin, religion,
handicap or veteran status. These laws are enforced through the Equal Employment
Opportunity Commission, Department of Labor and State Human Rights Agencies. I
acknowledge that I have been advised by the Company to discuss this letter with
my attorney, which I have done, and he has reviewed all of the above-referenced
laws with me. I have been encouraged to keep this letter for up to twenty-one
days so that I can thoroughly review and understand the effect of the release
set forth in Paragraph 14 before acting on it. I have carefully read and fully
understand all of the provisions of this letter and the release contained
herein. This letter sets forth the entire understanding between me and the
Company. This letter may be changed only by an agreement in writing signed by
the Company and me.
16. I understand that I may revoke this letter at any time during the
seven-day period immediately following the date of my signature below
("revocation period") by delivering written notice of my revocation to the
Company. This letter shall become effective upon expiration of the revocation
period.
Please confirm the agreement of the Company as to the foregoing.
Very truly yours,
/s/ James F. Stack
James F. Stack
Read and confirmed this 29th
day of August, 1995.
PROVIDENCE JOURNAL COMPANY
By: /s/ Stephen Hamblett
---------------------------------
Stephen Hamblett
Chairman of the Board
<PAGE> 4
The Providence [LOGO] Journal Company
75 Fountain Street, Providence, RI 02902 (401) 277-7000
STEPHEN HAMBLETT
CHAIRMAN AND PUBLISHER
CHIEF EXECUTIVE OFFICER
August 24, 1995
To Whom It May Concern:
James F. Stack was Vice President - Finance and Chief Financial Officer of the
Providence Journal Company from July 1991 through December 31, 1995. Jim was
recruited from his CFO position at Meredith Corporation.
As CFO of the Providence Journal Company some of Jim's significant contributions
include:
* Managing all financial elements (particularly tax planning) of the
very complex $1.4 billion merger of our cable television division with
Continental Cablevision.
* Initiated the improvement of our financial reporting systems
utilizing Oracle technology.
* Centralized the accounting functions for the corporation in
one location.
* Improved communication of financial information to our Board
of Directors and significant shareholders.
* Cleaned up several balance sheet items including, for example, the
sale of a hotel in a down market.
With the downsizing of the company (revenues will be reduced from $600 million
to $300 million a year), Jim requested approval to pursue other opportunities
outside the Company. Considering the dramatic change in the Company, his
decision is certainly understandable.
During my four year association with Jim, I found him to be a very diligent,
enthusiastic, reliable executive of the highest integrity.
I will be more than happy to discuss his qualifications in greater detail..
Respectfully,
/s/ Stephen Hamblett
Stephen Hamblett
The Providence Journal-Bulletin * Colony Communications * Providence Journal
Broadcasting * King Broadcasting
<PAGE> 1
Exhibit 10.6
SEPARATION AGREEMENT AND RELEASE
The Providence Journal Company (the "Company") and Trygve E. Myhren
("Executive") hereby agree as follows:
1. Effective on March 31, 1996 (the "Effect*e Date"), Executive and the
Company mutually agree that, at the request of the Executive, the
Executive's employment by the Company shall terminate.
2. On the Effective Date, the Company shall pay to Executive the amount of
base salary and accrued vacation pay owed as of the Effective Date.
Additionally, the Company shall pay to Executive a severance payment of
$2,394,100 to be made no later than 10 days after the Effective Date,
subject to withholdings required by law.
3. On the Effective Date, the Company will pay to Executive the amount of
$40,000 as a full and final settlement, except as otherwise provided
herein, of all obligations of the Company to Executive in connection with
medical, dental, life insurance and other employee benefits generally
available to the Company's employees.
4. All Company provided perquisites received by Executive shall terminate on
the Effective Date, except as otherwise provided herein. On or prior to the
Effective Date, Executive will purchase his Company-provided vehicle
pursuant to the existing Company car policy.
5. The Company will pay to Executive the amounts payable under the Company's
Supplemental Executive Retirement Plan (the "SERP"), which shall provide
a vested annual benefit of $143,735 payable at age 65 in accordance with
SERP rules, subject to actuarial reduction if Executive elects a joint
and survivor form of annuity payment. In the event Executive is recalled
pursuant to Paragraph 13 of this Agreement, the foregoing annual benefit
shall be increased to reflect Executive's additional period of employment
by the Company. If at any time prior to Executive's 65th birthday, the
Company effects any public offering of its capital stock or sells its
assets or a majority of its stock is sold in a single transaction, the
Company will separately fund the retirement benefit described above.
6. On the Effective Date, Executive's 245 restricted stock units (the
"Restricted Stock Units") in the Company's Restricted Stock Unit Plan will
become fully vested and will be distributed in October, 1996 in conjunction
with the final distribution to all other Plan participants by the Company
to Executive, net of taxes, in shares of common stock of the Company.
7. On the Effective Date, Executive's 1994 grant of 115 options (the "1994
option grant") pursuant to the Company's 1994 Employee Stock Option Plan
(the "Employee Option Plan") will become fully vested and the options will
remain in effect and exercisable in accordance with the terms of the
Employee Option Plan.
-1-
<PAGE> 2
8. The Company will distribute to Executive the remainder of his
account (120 Units) under the Company's Incentive Stock Unit Plan (the
"IUP") in conjunction with the final distribution to all other Plan
participants. Executive will also receive additional payments in cash or
Company stock reflecting any increase in the price of the Class A Common
Stock of Continental Cablevision, Inc. established after a public offering
thereof or in certain other circumstances, as further described on page 32
of the Company's Joint Proxy Statement-Prospectus dated August 31, 1995,
with respect to the IUP final distribution, the 1994 option grant and
Executive's Restricted Stock Units.
9. Executive will be eligible for payment pursuant to the Company's
Management Incentive Compensation Plan for 1996. Any such payment will be
pro-rated based upon three months of service in 1996 and will be made in
1997, based solely on the Company's financial results and not on
non-financial objectives, when the Company's 1996 financial results have
been finalized.
10. Executive will continue as a member of the Board of Directors of
the Company through his present term, which expires in 1997, unless prior
thereto Executive or the Company's Board of Directors determine that
Executive should resign as a result of a conflict of interest with the
Company. From and after the Effective Date, Executive will receive the
annual retainer (on a pro rata basis for 1996) and meeting fees paid to
non-employee members of the Company's Board of Directors. Executive will
not be eligible for the award of stock options pursuant to the 1994
Non-Employee Director Stock Option Plan (the "Director Option Plan"), in
light of Executive's stock option awards received as an employee described
in Paragraph 15 of this Agreement; PROVIDED, HOWEVER, that Executive shall
be eligible for the award of options under the Director Option Plan after
the Recall Period (as hereinafter defined) has expired if Executive is
still a non-employee member of the Board of Directors of the Company. The
Company will reimburse Executive for expenses incurred in attending
meetings of the Company's Board of Directors in accordance with past
practice regarding Executive.
11. Executive will continue to serve as a member of the Board of
Directors of Continental Cablevision, Inc. ("CCI") through his present
term. All compensation and reimbursement of travel expenses with respect
to Executive's service as a CCI Board member shall be paid by CCI.
Executive will resign as a member of the Board of Directors of CCI if the
Company so requests during the remainder of Executive's first term as a
CCI Director.
12. From and after the Effective date, Executive will continue to
serve, at the discretion of the Company, as a member of the Board of
Directors or equivalent governing body of Peapod, L.P. or its successor
("Peapod"). Any compensation received by Executive from Peapod for serving
in such capacity shall be turned over to the Company during the twelve
month period commencing on the Effective Date and, thereafter, shall be
retained by Executive. Executive will be reimbursed for travel expenses in
connection with serving as a Peapod Board member by Peapod.
13. In the event that the Chairman and Chief Executive Officer of the
Company (the "Company CEO") dies, becomes disabled or resigns, at the
request of the Company's Board of Directors during the twelve month period
commencing on the Effective Date, unless earlier terminated as hereinafter
provided (the "Recall Period"), Executive will
-2-
<PAGE> 3
return to full-time employment with the Company as Chief Executive
Officer. If Executive is recalled as provided herein, Executive's
compensation, including all incentive compensation and related benefits,
will be at the existing Chief Executive Officer level. Also, Executive's
reporting relationship will be the same as the existing Chief Executive
Officer. During the Recall Period, unless recalled, Executive will
function only as a Director of the Company and will not be involved in the
management of the Company's operations except at the request of the
Company CEO. The agreement contemplated by this Paragraph 13 may be
cancelled by the Company or by Executive upon thirty days notice at any
time during the Recall Period. In the event of a return to work, in light
of the severance and other payments provided under this Agreement, the
Company will not provide any severance benefits to Executive upon
re-employment.
14. During the Recall Period, the Company will reimburse Executive for
travel and other expenses in accordance with past practice regarding
Executive for attendance at media and communications industry meetings,
provided that the Company has approved such attendance in advance. In
addition, during the Recall Period, the Company will provide Executive a
facsimile machine, long distance telephone credit card and a cellular
phone, and reimburse Executive for business use thereof, as well as a
computer, a printer and continued subscriptions to media and
communications industry publications.
15. Executive's 1995 stock option grant of 115 options pursuant to the
Employee Option Plan (the "1995 option grant") shall continue in effect
during the Recall Period in consideration of Executive's agreement to
remain available and return to work if requested. The 1995 option grant
shall be forfeited by Executive if during the Recall Period he becomes
employed full-time elsewhere, declines to return to work at the Company or
resigns from the Board of Directors of the Company. The 1995 option grant
will continue to vest during the Recall Period and in the event Executive
returns to full-time employment with the Company. If the Company does not
request that Executive return to full-time employment with the Company
during the Recall Period, upon expiration of the Recall Period the 1995
option grant will become fully vested and exercisable over the remaining
term of the 1995 option grant agreement.
16. During a period ending one year following the Effective Date,
Executive shall not, without the prior written consent of the Company,
engage in any competitive activity. For purposes of this Agreement, the
term "competitive activity" shall mean Executive's participation, without
the written consent of the Chairman of the Board of the Company, in the
management of any business enterprise if such enterprise engages in
substantial and direct competition with the business of the Company (as
constituted on the Effective Date) and such enterprise's sales of any
product or service competitive with any product or service of the Company
amounted to 25 % of such enterprises's net sales for its most recently
completed fiscal year and if the Company's net sales of said product or
service amounted to 25 % of the Company's net sales for its most recently
completed fiscal year. "Competitive activity" shall not include the
ownership of securities in any such enterprise and exercise of any rights
appurtenant thereto or participation in management of any such enterprise
other than in connection with the competitive operations of such
enterprise.
17. The terms and existence of this Agreement are confidential and shall not
be made public by either the Company or Executive, except as required by
law or if necessary in order to enforce this Agreement. In addition,
Executive agrees that information that is not
-3-
<PAGE> 4
generally known to the public to which Executive has been exposed as a
result of Executive's being employed by the Company is confidential
information that belongs to the Company. This includes information
developed by Executive, alone or with others, or entrusted to the Company
by its customers or others. Executive agrees to hold the Company's
confidential information in strict confidence, and not disclose or use it
except as authorized by the Company. If anyone tries to compel Executive
to disclose any of the Company's confidential information, by subpoena or
otherwise, Executive agrees to immediately notify the Company so that the
Company may take any actions it deems necessary to protect its interest.
18. In consideration of the foregoing, Executive hereby releases and
forever discharges the Company, its present and former directors,
shareholders, officers, employees, agents, subsidiaries, affiliated or
related companies and successors and assigns from any and all liabilities,
causes of action, debts, claims and demands, both in law and in equity,
known or unknown, fixed or contingent, which Executive may have or claim
to have, based upon or in any way related to employment or cessation of
employment with the Company and hereby agrees not to file a lawsuit or
charge to assert such claims. This includes, but is not limited to claims
arising under federal, state or local laws prohibiting employment
discrimination, including specifically the Age Discrimination in
Employment Act of 1967, as amended ("ADEA") and claims under the Agreement
dated October 11, 1993 between the Company, as successor to Providence
Journal Company, and Executive. The release set forth in this Paragraph 18
is based upon the agreements contained in this Agreement and is given
notwithstanding the fact that the cessation of Executive's employment is
based upon Executive's decision alone to resign from the Company to seek
other opportunities in view of the downsizing of the Company subsequent to
the Continental Cablevision, Inc. transaction.
19. The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
20. Executive understands that various laws prohibit employment discrimination
based on age, sex, race, color, national origin, religion, handicap or
disability, or veteran status. These laws are enforced through the Equal
Employment Opportunity Commission, Department of Labor, and state and
local human rights commissions.
21. Executive represents to the Company that Executive is aware,
understands and agrees that:
(a) Executive is voluntarily entering into and signing this
Agreement;
(b) The claims waived, released and discharged in Paragraph 18
of this Agreement include any and all claims Executive has or may
have arising out of or related to Executive's employment with the
Company or Executive's resignation, including any and all claims
under the ADEA;
(c) The claims waived, released and discharged in Paragraph 18
of this Agreement do not include, and Executive is not waiving,
releasing or discharging, any claims that may arise after the date of
this Agreement;
-4-
<PAGE> 5
(d) The compensation and benefits provided pursuant to this Agreement
provide consideration that Executive was not entitled to receive
before signing this Agreement;
(e) Executive was given twenty-one (21) days within which to consider
this Agreement;
(f) Executive had and has the right to consult with an attorney
regarding this Agreement before the date of this Agreement;
(g) Executive may revoke this Agreement at any time within seven (7)
days after the day Executive signs this Agreement by notice to the
Chairman and Chief Executive Officer of the Company (that is, at any
time within seven (7) days after the date of this Agreement), and
this document will not become effective or enforceable until the
eighth (8th) day after it is signed by Executive (on which day this
Agreement will automatically become effective and enforceable unless
previously revoked within that seven-day period); and
(h) EXECUTIVE HAS CAREFULLY READ THIS DOCUMENT AND FULLY UNDERSTANDS
EACH AND EVERY TERM.
22. This Agreement sets forth the entire understanding between Executive
and the Company and may be changed only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. Executive acknowledges
that Executive has not relied upon any representation or statement,
written or oral, not set forth in this document.
23. The validity, interpretation and effect of this Agreement shall be
governed by and construed in accordance with the laws of the State of
Rhode Island.
IN WITNESS WHEREOF, the undersigned have executed this Agreement this 9th
day of February, 1996.
THE PROVIDENCE JOURNAL COMPANY
By: /s/ Stephen Hamblett Date: February 9, 1996
-----------------------------
Stephen Hamblett
/s/ Trygve E. Myhren Date: February 9, 1996
-----------------------------
Trygve E. Myhren
-5-
<PAGE> 1
Exhibit 21.0
Subsidiaries of The Providence Journal Company.
The following is a list of subsidiaries of The Providence Journal Company as of
December 31, 1995:
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
<S> <C>
Colony Cable Networks, Inc. Rhode Island
Colony/Linkatel Networks, Inc. California
Colony/PCS, Inc. Rhode Island
Fountain Street Corporation Rhode Island
Mathewson Street Parking Corporation Rhode Island
M/I Acquisition Corporation Rhode Island
PJ Health Programming, Inc. Rhode Island
PJ Programming Inc. Rhode Island
Washington Street Garage Corporation Rhode Island
Providence Journal Broadcasting Corp. Delaware
Journal Broadcasting of Charlotte, Inc. North Carolina
Journal Broadcasting of Kentucky, Inc. Kentucky
Journal Broadcasting of New Mexico, Inc. New Mexico
Mountain States Broadcasting, Inc. Arizona
Providence Journal Satellite Services, Inc. Rhode Island
King Holding Corp. Delaware
King Broadcasting Company Washington
King News Corporation Washington
</TABLE>
97
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and
Shareholders of The Providence
Journal Company:
We consent to incorporation by reference in the registration statement (No.
33-63883) on Form S-8 of The Providence Journal Company of our report dated
February 16, 1996, except for notes 2 and 13 which are dated March 4, 1996 and
February 27, 1996, respectively, relating to the consolidated balance sheets of
The Providence Journal Company and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, cash flows and
stockholders' equity for each of the years in the three-year period ended
December 31, 1995 and related schedule, which report appears in the December 31,
1995 annual report on Form 10-K of The Providence Journal Company.
/s/ KPMG Peat Marwick LLP
Providence, Rhode Island
April 1, 1996
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and
Shareholders of The Providence
Journal Company:
We consent to incorporation by reference in the registration statement (No.
33-63883) on Form S-8 of The Providence Journal Company of our report dated
February 10, 1995 relating to the consolidated balance sheet of King Holding
Corp. and subsidiaries as of December 31, 1994 and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
two years in the period ended December 31, 1994 and related schedule, which
report appears in the December 31, 1995 annual report on Form 10-K of The
Providence Journal Company.
/s/ Deloitte & Touche LLP
Providence, Rhode Island
April 1, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PROVIDENCE JOURNAL COMPANY CONSOLIDATED FINANCIAL STATEMENT AS OF AND FOR
THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE RATE> 1
<CASH> 87
<SECURITIES> 0
<RECEIVABLES> 56,321
<ALLOWANCES> 0
<INVENTORY> 5,019
<CURRENT-ASSETS> 109,221
<PP&E> 171,649
<DEPRECIATION> 0
<TOTAL-ASSETS> 707,230
<CURRENT-LIABILITIES> 82,904
<BONDS> 243,998
<COMMON> 86
0
0
<OTHER-SE> 263,153
<TOTAL-LIABILITY-AND-EQUITY> 707,230
<SALES> 0
<TOTAL-REVENUES> 312,506
<CGS> 0
<TOTAL-COSTS> 299,120
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11,395)
<INCOME-PRETAX> (1,047)
<INCOME-TAX> 3,956
<INCOME-CONTINUING> (5,003)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,086)
<CHANGES> 0
<NET-INCOME> (9,648)
<EPS-PRIMARY> (112.74)
<EPS-DILUTED> (112.74)
</TABLE>
