<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
( X ) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended:
MARCH 31, 1996
( ) 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
incorporation or organization) Identification No.)
75 Fountain Street, Providence, RI 02902-9985
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 277-7000
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
----- -----
As of May 31, 1996 there were 38,526 shares of Class A Common Stock and 46,817
shares of Class B Common Stock outstanding.
<PAGE> 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<CAPTION>
(unaudited)
March 31, December 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 59 $ 87
Accounts receivable, net of allowance for doubtful accounts of
$4,198 in 1996 and $4,328 in 1995 48,484 56,321
Television program rights, net 9,767 16,536
Inventories, prepaid expenses, deferrals and other current assets 13,544 12,131
Notes receivable, current 17,726 -
Federal and state income taxes receivable 30,905 24,146
-------- --------
Total current assets 120,485 109,221
Investments in affiliated companies 17,164 22,171
Notes receivable 1,162 19,174
Television program rights, net 3,387 3,817
Property, plant and equipment, net of accumulated depreciation
of $210,549 in 1996 and $204,880 in 1995 177,916 171,649
License costs, goodwill, intangibles and other assets, net 383,599 381,198
-------- --------
$703,713 $707,230
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,926 $ 16,837
Accrued expenses and other current liabilities 49,952 49,504
Current installments of long-term debt 100 100
Current portion of television program rights payable 10,138 16,463
-------- --------
Total current liabilities 71,116 82,904
Long-term debt 272,700 243,998
Television program rights payable 4,519 5,509
Other liabilities and deferrals 111,367 111,580
-------- --------
Total liabilities 459,702 443,991
-------- --------
Commitments and contingencies
Minority interest 49 -
-------- --------
Stockholders' Equity:
Class A common stock, par value $1.00 per share, authorized 180,000,000
shares: issued 38,519 and 38,514 shares in 1996 and 1995, respectively 39 39
Class B common stock, par value $1.00 per share, authorized 46,825,000
shares; issued 46,817 in both 1996 and 1995 47 47
Additional paid-in capital 96 71
Retained earnings 244,617 264,335
Unrealized loss on securities held for sale, net (837) (1,253)
-------- --------
Total stockholders' equity 243,962 263,239
-------- --------
$703,713 $707,230
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
<CAPTION>
(unaudited)
Quarters Ended
March 31,
-----------------------
1996 1995
-------- -------
<S> <C> <C>
Revenues:
Broadcasting $ 43,381 $38,904
Publishing 30,125 30,300
Programming and Electronic Media 1,608 525
-------- -------
75,114 69,729
-------- -------
Expenses:
Operating 43,528 40,426
Selling, general, and administative 23,051 19,911
Newspaper Consolidation Costs and Newspaper Restructuring Costs 1,150 102
Depreciation and amortization 9,845 7,935
Stock-based compensation 11,730 1,498
Pension expense 214 44
-------- -------
Total expenses 89,518 69,916
-------- -------
Operating loss (14,404) (187)
Interest expense (5,084) (2,747)
Equity in loss of affiliates (1,595) (1,272)
Other income, net 1,364 616
-------- -------
Loss from continuing operations before income tax benefits (19,719) (3,590)
Income tax benefits (4,834) (784)
-------- -------
Loss from continuing operations (14,885) (2,806)
Discontinued operations, net of tax of $1,843 (3,578) -
-------- -------
Loss before minority interests (18,463) (2,806)
Minority interests 1,186 (299)
-------- -------
Net loss $(17,277) $(3,105)
======== =======
Net loss per common share:
From continuing operations $(174.43) $(33.13)
From discontinued operations (41.93) -
Minority interests 13.90 (3.53)
-------- -------
Net loss per common share $(202.46) $(36.66)
======== =======
Weighted average shares outstanding 85,334 84,689
======== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
<TABLE>
Condensed Consolidated Statements of Cash Flow
(Dollars in thousands)
<CAPTION>
(Unaudited)
Quarters Ended
March 31, March 31,
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Cash flows provided by (used in) continuing operations $ (6,286) $ 9,281
-------- --------
Investing activities:
Investments in and advances to affiliated companies (12,503) (2,150)
Additions to property, plant and equipment (3,008) (3,578)
Decrease in investment in discontinued operations through disposal date -- 7,806
-------- --------
Cash flows provided by (used in) investing activities (15,511) 2,078
-------- --------
Financing activities:
Proceeds from long-term debt 28,702 --
Payments on long-term debt -- (7,505)
Payments on television program rights payable (4,495) (4,163)
Dividends paid (2,441) (2,422)
Issuance of Class A Stock 3 --
-------- --------
Cash flows provided by (used in) financing activities 21,769 (14,090)
-------- --------
Decrease in cash (28) (2,731)
Cash at the beginning of the period 87 4,897
-------- --------
Cash at the end of the period $ 59 $ 2,166
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements present the financial position
and results of operations of The Providence Journal Company ("Registrant") and
its subsidiaries (collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated and minority interests have been
recorded in consolidation. The results of operations for King Holding Corp.
("KHC") have been consolidated in the accompanying condensed consolidated
statement of operations since January 1, 1995. The Company is a diversified
communications company with operations and investments in several media and
electronic communications businesses. The principal areas of the Company's
activities are television broadcasting ("Broadcasting"), newspaper publishing
("Publishing") and programming and electronic media ventures ("Programming and
Electronic Media", formerly called "Programming and New Media").
The accompanying condensed consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
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.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for interim periods are not necessarily indicative of
the results that may be expected for the fiscal year. For further information,
refer to the consolidated financial statements and accompanying notes included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
Certain amounts in 1995 have been reclassified to conform to the first quarter
1996 presentation. Financial information in the Notes to Condensed Consolidated
Financial Statements excludes discontinued operations, except where noted.
NOTE 2 -- CONSOLIDATION OF AHN
During the quarter ended March 31, 1996, the Company invested approximately
$7,500 in America's Health Network ("AHN"), a 24-hour basic cable television
programming service devoted exclusively to health related issues and products.
The Company's total investment through March 31, 1996 is $17,750 and its
interest in AHN is approximately 59%. Effective January 1, 1996, the results of
AHN's operations have been consolidated with the Company. Prior to January 1,
1996, the Company accounted for this investment under the equity method of
accounting.
5
<PAGE> 6
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 3 -- 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
forbearance agreement until January 2, 1997. Amounts bear interest at a floating
rate of prime plus 1.25%. The advance is collateralized by all assets of the
Lowell Sun Companies and a pledge of a majority of Lowell Sun Companies' stock.
The principal balance due from the Lowell Sun Companies totaled $23,575 at both
March 31, 1996 and December 31, 1995.
NOTE 4 -- LONG-TERM DEBT
<TABLE>
At March 31, 1996 and December 31, 1995, long-term debt consists of the following:
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Revolving credit and term loan facility at rates of interest averaging
7.68% in 1996 and 7.52% in 1995, respectively $263,000 $234,298
Industrial revenue bonds ("IRB") payable at various rates of interest
averaging 3.5% payable through December 2022 9,800 9,800
-------- --------
Total long-term debt $272,800 $244,098
Less current installments 100 100
-------- --------
Long-term debt, excluding current installments $272,700 $243,998
======== ========
</TABLE>
On October 5, 1995, the Company incurred indebtedness pursuant to a credit
agreement with a syndicate of banks (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 decreases quarterly commencing December 31,
1996 by a pro-rata portion of the following annual 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.
6
<PAGE> 7
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
In connection with the Credit Agreement, the Company maintains an interest rate
swap arrangement in the notional amounts of $200,000 in 1996, $175,000 in 1997
and $150,000 in 1998 and 1999. The fair value of interest rate swaps is the
amount at which they could be settled, based upon estimates obtained from
dealers. At March 31, 1996, the amount required to settle outstanding interest
rate swaps approximated $3,640.
NOTE 5 -- NET LOSS PER SHARE AND DIVIDENDS PER COMMON SHARE
Net loss per share is based on the weighted average number of shares of Class A
and Class B common stock outstanding during the period. 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. Cash dividends of $28.60 per share were declared
and paid in each of the quarters ended March 31, 1996 and March 31, 1995.
NOTE 6-- STOCK-BASED COMPENSATION PLANS
In the first quarter of 1996, the Company recorded a charge to continuing
operations of $11,397 and a pre-tax charge to discontinued operations of $5,421
to reflect the vested portion of an estimated $20,530 adjustment to stock-based
compensation plans. The difference of $3,712 will be charged to operations over
the remaining vesting period of the plans, primarily in the second and third
quarters of 1996. The adjustment to the stock-based compensation plans was
pursuant to which participants in the Company's incentive stock units plan
("IUP"), restricted stock unit plan ("RSU") and certain stock option plans
("Option Plans") would receive additional consideration to the extent the value
ascribed to the Company's former cable operations had increased upon a final
determination. The Company's cable operations were merged with Continental
Cablevision, Inc. ("Continental") in October, 1995 (the "Merger"). Continental
and US West Media Group jointly announced a merger of their operations in
February, 1996 (the "US West Merger"). The final amount of additional
consideration is subject to the closing of the US West Merger, expected by the
end of 1996, and will be paid in the case of the Option Plans and RSU in Class
A Common Stock, and in the case of the IUP, two-thirds in cash and one-third in
Class A Common Stock. Following the payout of the additional consideration,
the IUP will be fully liquidated and terminated.
<TABLE>
As described in Note 13 to the Consolidated Financial Statements in the
Company's 1995 Annual Report, the Company has various stock-based compensation
plans. The following table sets forth information relative to these stock-based
compensation plans:
<CAPTION>
Option Plans Restricted
------------ ----------
1994 Options 1995 Options Stock Units*
------------ ------------ -----------
<S> <C> <C> <C>
Options outstanding at December 31, 1995 623 836 1,261
Options exercised during the quarter ended March 31,1996 (5) - -
---- ------ -----
Options outstanding at March 31, 1996 618 836 1,261
==== ====== =====
Options exercisable at March 31, 1996 177 - -
==== ====== =====
Option exercise price $662 $5,072 -
==== ====== =====
* Represents gross units. The actual amount of shares to be paid out at the end of the vesting period will be
net of payroll tax withholdings.
</TABLE>
Total amount of shares reserved for the stock-based compensation plans total
5,774 consisting of 1,624 for the RSU plan and 4,150 for the Option Plans.
7
<PAGE> 8
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 7 -- NEWSPAPER RESTRUCTURING
In the first quarter of 1996, the Company recorded an additional charge to
operations of approximately $1,150 relating to early retirement costs and
voluntary separation benefits in connection with an on-going plan of
reorganization and restructuring of the Company's Publishing business adopted by
the Company in the fourth quarter of 1995 (the "Newspaper Restructuring") at
which time a $6,800 charge was recorded. The Newspaper Restructuring is expected
to be completed by the second quarter of 1996 and, when fully implemented,
result in annual savings of $6,000 and a net full-time equivalent ("FTE")
reduction of 110, or approximately 9% of the Publishing work force.
Substantially all costs will be paid from the Company's pension plans
(in which plan assets exceed plan obligations).
NOTE 8 -- INCOME TAXES
The Company's effective tax rate for continuing operations exceeds the federal
statutory income tax rate due principally to state taxes and permanent state and
federal tax differences related to the non-deductible amortization of goodwill.
NOTE 9 -- CONTINGENT LIABILITIES
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., a wholly owned subsidiary of Colony
("Dynamic") in the Circuit Court of the Eleventh Judicial Circuit in and for
Dade County, Florida. Colony was a cable television subsidiary of Old PJC,
which was transferred to Continental 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 claimed that (i) Dynamic was
obligated to offer to sell to Cable LP Dynamic's general partnership interest
to Cable LP before Old PJC entered into the Merger Agreement with Continental
and (ii) Dynamic's offer to purchase Cable LP's limited partnership interest
for $13.1 million triggered a right of first refusal entitling Cable LP to
purchase the general partnership interest for $115 million. Cable LP sought a
declaration by the court that the right of first refusal it is asserting
applies.
A motion to strike allegations of bad faith and breach of fiduciary duty
against Old PJC, Colony and Dynamic was granted by the court, and an answer to
the Complaint and a Counterclaim was filed by them on March 16, 1995, seeking 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. violated Dynamic's right of first
refusal under the Dynamic Partnership Agreement. The case was tried in December
1995. See Note 10 -- Subsequent Events.
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 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.
8
<PAGE> 9
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 10 -- SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the following significant events have occurred:
(a) Litigation
A final judgment in the action discussed in Note 9 was entered in favor of
Cable LP on May 21, 1996. Such judgment requires, amoung other matters, the
conveyance of the partnership interest in such cable system now held by
Continental to Cable LP at a price to be negotiated by Cable LP and
Continental.
The company intends to appeal this judgment and moved to stay the effect of the
judgment during the pendency of the appeal. On June 10, 1996, a preliminary
hearing on the declaratory judgment was held on the Company's motion to stay.
At such hearing, the judge refused to grant or deny the Company's motion to
stay. The Company is unable to predict at this time what the ultimate outcome
of this litigation might be. Should any loss resulting from this litigation
ultimately prove to be probable and reasonably estimable, such loss, at that
time, would result in a charge to stockholders' equity to reflect the
estimated decrease in net book value of the cable assets disposed of in 1995
prusuant to the Merger Agreement. Such a charge could have a material effect
upon the company's financial condition. If any payment obligations are
ultimately required under the terms of the Merger Agreement, it is currently
anticipated that such payments could be up to $40,000 and could have a
material effect upon the Company's liquidity position. It is currently
contemplated that any such payment would be funded by borrowings under the
Company's revolving credit facility.
(b) Increased Ownership Interest in Television Food Network, G.P.
On May 14, 1996 The Company purchased the equity partnership interests held by
Landmark Programming, Inc. ("Landmark") and Scripps Howard Publishing, Inc.
("Scripps"), two of the partners of TVFN, for respective purchase prices of
approximately $12,650 and $11,400. Prior to such purchase, Landmark and Scripps
each owned a 10.8% and 9.7% general partnership interest, respectively, in TVFN.
The agreements with each of Landmark and Scripps contain covenants by such
parties not to compete with TVFN and its affiliates for a period of one year
following such purchase. The Company's investment in TVFN through May 31, 1996,
including these purchases and funding of its share of operating losses, totaled
$44,700, which represents an equity interest of approximately 46%. Following
these recent purchases, the Company now holds three of the five voting seats on
the management committees. As a result of the purchases, TVFN became a
controlled subsidiary of the Company and, effective May 14, 1996, was
consolidated into the Company's results of operations. The Company is pursuing a
proposed transaction to purchase all of the equity partnership interests held by
a third partner which would increase its ownership percentage in TVFN to
approximately 55% and result in control of four of the five voting seats on the
management committee. The Company estimates its additional investment in TVFN
for the third partner's equity interest plus funding of the Company's share of
operating losses of TVFN will total approximately $22,500 for the remainder of
1996.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following unaudited tables present a summary of financial results and other
data for the quarters ended March 31, 1996 and 1995 on a consolidated basis and
for each of the Company's three segments: Broadcasting, Publishing and
Programming and Electronic Media. The information should be read in conjunction
with the condensed consolidated financial statements of the Company and
respective notes thereto, included elsewhere in this document.
<TABLE>
SUMMARY OF FINANCIAL RESULTS - CONSOLIDATED
<CAPTION>
Quarters Ended March 31,
------------------------
1996 1995
-------- -------
(in thousands)
<S> <C> <C>
OPERATING DATA:
Revenues:
Broadcasting $ 43,381 $38,904
Publishing 30,125 30,300
Programming and Electronic Media 1,608 525
-------- -------
75,114 69,729
-------- -------
Expenses:
Operating and administrative expenses:
Broadcasting 31,073 28,000
Publishing, excluding newspaper consolidation 27,381 27,889
and newspaper restructuring costs
Programming and Electronic Media 4,989 898
Corporate 3,136 3,550
-------- -------
Total 66,579 60,337
Depreciation and amortization 9,845 7,935
Stock-based compensation 11,730 1,498
Pension expense 214 44
Newspaper Consolidation Costs and Newspaper Restructuring Costs 1,150 102
-------- -------
Total expenses 89,518 69,916
-------- -------
Operating loss (14,404) (187)
Interest expense (5,084) (2,747)
Equity in loss of affiliates (1) (1,595) (1,272)
Other income, net 1,364 616
-------- -------
Loss from continuing operations before income tax benefits (19,719) (3,590)
Income tax benefits (4,834) (784)
-------- -------
Loss from continuing operations $(14,885) $(2,806)
======== =======
OTHER DATA:
EBITDA (2):
Broadcasting $ 12,308 $10,904
Publishing 2,744 2,411
-------- -------
EBITDA excluding programming and new media and corporate 15,052 13,315
Programming and Electronic Media (3,381) (373)
Corporate (3,136) (3,550)
-------- -------
Total EBITDA $ 8,535 $ 9,392
======== =======
Broadcast Cash Flow (3) $ 12,364 $11,219
======== =======
<FN>
Notes to Table
- ---------------------
(1) Includes equity in loss of Linkatel Pacific, L.P. of $330 and $200 in 1996
and 1995, respectively.
(2) EBITDA is defined by the Company as operating income (loss) plus Newspaper
Consolidation Costs and Newspaper Restructuring Costs plus depreciation,
amortization, stock-based compensation, and pension expense. Neither EBITDA
nor Broadcast Cash Flow (defined below) is intended to represent cash flow
from operations and should not be considered as an alternative to operating
or net income computed in accordance with GAAP as an indicator of the
Company's operating performance or as an alternative to cash flows from
operating activities (as determined in accordance with GAAP) as a measure
of liquidity.
(3) Broadcast Cash Flow is defined by the Company as Broadcasting EBITDA plus
corporate expense allocations, plus program rights amortization less
program rights payments. See also note 2 to this table.
</TABLE>
10
<PAGE> 11
<TABLE>
Summary of Financial Results - Broadcasting
<CAPTION>
Quarters Ended March 31,
------------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
OPERATING DATA:
Revenues:
National $19,792 $18,208
Local and regional 26,922 23,646
Other 3,279 2,982
Agency commissions (6,612) (5,932)
------- -------
Net revenues 43,381 38,904
------- -------
Expenses:
Operating and administrative expenses 31,073 28,000
Depreciation and amortization 6,735 4,916
------- -------
Total expenses 37,808 32,916
------- -------
Operating income $ 5,573 $ 5,988
======= =======
OTHER DATA:
EBITDA (1) $12,308 $10,904
EBITDA as percentage of net revenues 28.4% 28.0%
Corporate expense allocations 172 209
Program rights amortization 4,379 4,269
Program rights payments (4,495) (4,163)
------- -------
Broadcast Cash Flow (2) $12,364 $11,219
======= =======
<FN>
Notes to table
- -----------------------
(1) EBITDA is defined by the Company as operating income (loss) plus Newspaper
Consolidation Costs and Newspaper Restructuring Costs plus depreciation,
amortization, stock-based compensation, and pension expense. Neither
EBITDA nor Broadcast Cash Flow (defined below) is intended to represent
cash flow from operations and should not be considered as an alternative
to operating or net income computed in accordance with GAAP as an
indicator of the Company's operating performance or as an alternative to
cash flows from operating activities (as determined in accordance with
GAAP) as a measure of liquidity.
(2) Broadcast Cash Flow is defined by the Company as Broadcasting EBITDA plus
corporate expense allocations, plus program rights amortization less
program rights payments. See also note 1 to this table.
</TABLE>
11
<PAGE> 12
<TABLE>
SUMMARY OF FINANCIAL RESULTS - PUBLISHING
<CAPTION>
Quarters Ended March 31,
------------------------
1996 1995
-------- --------
(in thousands, except circulation data)
<S> <C> <C>
OPERATING DATA:
Revenues:
Advertising $ 21,547 $ 21,740
Circulation 8,139 7,889
Other 439 671
-------- --------
Total revenues 30,125 30,300
Expenses:
Operating and administrative expenses before Newspaper Consolidation
and Newspaper Restructuring Costs 27,381 27,889
Depreciation 2,664 2,717
-------- --------
Total expenses 30,045 30,606
-------- --------
Operating income (loss) before Newspaper Consolidation
and Newspaper Restructuring Costs 80 (306)
Newspaper Consolidation Costs(1) and Newspaper Restructuring Costs(2) (1,150) (102)
-------- --------
Operating loss $ (1,070) $ (408)
======== ========
OTHER DATA:
EBITDA (3) $ 2,744 $ 2,411
======== ========
Average Net Paid Circulation:
Daily 169,500 180,700
Sunday 251,300 262,200
<FN>
Notes to table
- -----------------------
(1) Newspaper Consolidation Costs are those costs incurred in 1995 to consolidate the Company's
morning and afternoon daily newspapers into one daily newspaper.
(2) Newspaper Restructuring Costs are estimated severance costs associated with management's plan to
reorganize and restructure operating and administrative departments of the Publishing business.
In the fourth quarter of 1995, a charge to operations of $6,800 was recorded pursuant to this
plan. In the first quarter of 1996, such costs increased approximately $1,150.
(3) EBITDA is defined by the Company as operating income (loss) plus Newspaper Consolidation Costs
and Newspaper Restructuring Costs plus depreciation, amortization, stock- based compensation and
pension expense. EBITDA is not intended to represent cash flow from operations and should not
be considered as an alternative to operating or net income computed in accordance with GAAP as
an indicator of the Company's operating performance or as an alternative to cash flow from
operating activities (as determined in accordance with GAAP) as a measure of liquidity.
</TABLE>
12
<PAGE> 13
<TABLE>
SUMMARY OF FINANCIAL RESULTS - PROGRAMMING AND ELECTRONIC MEDIA
<CAPTION>
Quarters Ended March 31,
------------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
OPERATING DATA:
Revenues $ 1,608 $ 525
------- -------
Expenses:
Operating and administrative expenses 4,989 898
Depreciation 226 30
------- -------
Total expense 5,215 928
------- -------
Operating loss $(3,607) $ (403)
======= =======
Equity in loss of affiliates $(1,265) $(1,072)
======= =======
OTHER DATA:
EBITDA (1) $(3,381) $ (373)
======= =======
<FN>
Note to table
- --------------------
(1) EBITDA is defined by the Company as operating income (loss) plus Newspaper
Consolidation Costs and Newspaper Restructuring Costs plus depreciation,
amortization, stock-based compensation and pension expense. EBITDA is not
intended to represent cash flow from operations and should not be considered
as an alternative to operating or net income computed in accordance with GAAP as
an indicator of the Company's operating performance or as an alternative to
cash flows from operating activities (as determined in accordance with GAAP) as
a measure of liquidity.
</TABLE>
13
<PAGE> 14
RECENT DEVELOPMENTS
Subsequent to March 31, 1996, the following significant events have occurred:
Litigation
- ----------
As discussed in Notes 9 and 10 to the condensed consolidated financial
statements, a declaratory judgment action was brought by Cable LP on January
17, 1995, against Old PJC, among other parties, claiming that a subsidiary of
Colony, a wholly owned subsidiary of Old PJC, had breached a right of first
refusal entitling Cable LP to purchase a general partnership interest in a
cable system Colony had transferred to Continental in connection with the
Merger Agreement. A final judgment in this action in favor of Cable LP was
entered on May 21, 1996. Such judgment requires, among other matters, the
conveyance of the partnership interest in such cable system now held by
Continental to Cable LP at a price to be negotiated by Cable LP and
Continental.
The Company intends to appeal this judgment and moved to stay the effect of the
judgment during the pendency of the appeal. On June 10, 1996, a preliminary
hearing on the declaratory judgment was held on the Company's motion to stay.
At such hearing, the judge refused to grant or deny the Company's motion to
stay. The Company is unable to predict at this time what the ultimate outcome
of this litigation might be. Should any loss resulting from this litigation
ultimately prove to be probable and reasonably estimable, such loss, at that
time, would result in a charge to stockholders' equity to reflect the
estimated decrease in net book value of the cable assets disposed of in 1995
pursuant to the Merger Agreement. Such a charge could have a material effect
upon the Company's financial condition. If any payment obligations are
ultimately required under the terms of the Merger Agreement, it is currently
anticipated that such payments could be up to $40 million and could have a
material effect upon the Company's liquidity position. It is currently
contemplated that any such payment would be funded by borrowings under the
Company's revolving credit facility.
Increased Ownership Interest in Television Food Network G.P.
- ------------------------------------------------------------
As discussed in note 10 to the consensed consolidated financial statements, on
May 14, 1996, the Company purchased the equity partnership interests held by
Landmark Programming, Inc. ("Landmark") and Scripps Howard Publishing, Inc.
("Scripps"), two of the partners of TVFN, for respective purchase prices of
approximately $12.6 million and $11.4 million. Prior to such purchase, Landmark
and Scripps each owned a 10.8% and 9.7% general partnership interest,
respectively, in TVFN. The Company's investment in TVFN through May 31, 1996,
including these purchases and funding of its share of operating losses, totaled
$44.7 million, which represents an equity interest of approximately 46%.
Following these recent purchases, the Company now holds three of the five
voting seats on the management committees. As a result of the purchases, TVFN
became a controlled subsidiary of the Company and, effective May 14, 1996, was
consolidated into the Company's results of operations. The Company is pursuing a
proposed transaction to purchase purchase all of the equity partnership
interests held by a third partner which would increase its ownership percentage
in TVFN to approximately 55% and result in control of four of the five voting
seats on the management committee. The Company estimates its additional
investment in TVFN for the third partner's equity interest plus funding of the
Company's share of operating losses of TVFN will total approximately $22.5
million for the remainder of 1996.
Increased Ownership Interest in America's Health Network
- --------------------------------------------------------
On May 9, 1996, the Company increased its investment in AHN to $35.3 million
which represents an equity interest of approximately 65%. The Company does not
anticipate any additional funding of its share of operating losses for the
remainder of 1996 but is committed to investing an additional $19.5 million by
the first quarter of 1997 upon the achievement of certain operating milestones,
including entering into carriage agreements and meeting certain revenue and
ratings objectives.
Execution of a Local Marketing Agreement -- KONG(TV) in Seattle, Washington
- ---------------------------------------------------------------------------
In May 1996, the Company entered into a 10-year local marketing agreement
("LMA") with KONG(TV), ("KONG"), which holds a permit to construct a television
station in the Seattle, Washington market, and has an option to purchase the
station at an agreed upon exercise price. The option is exercisable by either
the Company or KONG after such time as the Federal Communications Commission
("FCC") permits ownership of two television stations in a single market.
14
<PAGE> 15
The present duopoly rules prohibit attributable interests in two television
stations in the same designated market area. Although the FCC is currently
reviewing ownership rules, there can be no assurance that the FCC will change
or repeal the duopoly rules. Under the agreement, the Company will spend
approximately $2.0 million for equipment in the first year and, once
operational, will provide annual programming and marketing services to the LMA
station pursuant to which the Company will receive all advertising revenues. If
the option to purchase the station is not exercised, the Company is required to
make annual payments to KONG of approximately $0.4 million in years one through
five and $0.7 million in years six through ten of the contract term.
RESULTS OF OPERATIONS-QUARTERS ENDED MARCH 31, 1996 TO MARCH 31, 1995
Consolidated
Consolidated revenues for the first quarter of 1996 were $75.1 million, an
increase of 7.7%, compared to $69.7 million for the first quarter of 1995.
Broadcasting revenues contributed significantly to the increase in consolidated
revenues with an increase of 11.6% in the 1996 period to $43.4 million from
$38.9 million in the 1995 period due to increased advertising rates as a result
of improved ratings, local market growth, and, for the Portland station,
increased political advertising revenue. Publishing contributed substantially
the same revenue in the first quarter of 1996 as in the prior year with $30.1
million for the 1996 period and $30.3 million in the 1995 period. The
operations in the Programming and Electronic Media segment are in the early
development phase and contributed $1.6 million in revenue in the 1996 period
compared to $0.5 million in the 1995 period.
Consolidated operating and administrative expenses increased 10.4% to $66.6
million in the first quarter of 1996 from $60.3 million in the first quarter of
1995. This increase was due primarily to the consolidation of AHN in 1996,
described below, which contributed $2.6 million of the $4.1 million increase
in Programming and Electronic Media operating expenses to $5.0 million in the
1996 period from $0.9 million in the 1995 period. Broadcasting operating and
administrative expenses increased 11.1% to $31.1 million in the 1996 period
from $28.0 million in the 1995 period due primarily to the incremental costs
of a start-up news operation in Honolulu. Publishing operating and
administrative expenses decreased 1.8% in the 1996 period to $27.4 million
from $27.9 million in the 1995 period, as savings totaling $1.5 million
generated by net payroll decreases from the Newspaper Consolidation, the
discontinuance of a local shopper, and the elimination of a Sunday magazine
more than offset an increase of $1.0 million in newsprint costs. Corporate
operating and administrative expenses declined 13.9% to $3.1 million from
$3.6 million due to savings from corporate restructurings associated with
the cable operations disposed of in the fourth quarter of 1995.
In the first quarter of 1996, the Company recorded an $11.4 million charge (of
which $10.1 million related to the IUP plan) to continuing operations and a
$5.4 million (pre-tax) charge to discontinued operations to reflect the vested
portion of an estimated $20.5 million adjustment to stock-based compensation
plans. The difference of $3.7 million will be charged to operations over the
remaining vesting period of the plans, primarily in the second and third
quarters of 1996. The adjustment to the stock-based compensation plans was
pursuant to which participants in the Company's IUP, restricted stock unit plan
and certain stock option plans would receive additional consideration to the
extent the value ascribed to the Company's former cable operations had
increased upon a final determination. The Company's cable operations were
merged with Continental in October, 1995. Continental and US West Media Group
jointly announced a merger of their operations in February, 1996 (the "US West
Merger"). The final amount of additional consideration is subject to the
closing of the US West Merger, expected by the end of 1996 and will be paid, in
the case of the Option Plans and RSU in Class A Common Stock, and in the case of
the IUP, two-thirds in cash and one-third Class A common stock. Following the
payout of the additional consideration, the IUP will be fully liquidated and
terminated.
In the first quarter of 1996, the Company recorded an additional charge to
operations of approximately $1.1 million relating to early retirement costs and
voluntary separation benefits in connection with an on-going plan of
reorganization and restructuring of the Company's Publishing business adopted by
the Company in the fourth quarter of 1995 (the "Newspaper Restructuring") at
which time a $6.8 million charge was recorded. The Newspaper Restructuring is
expected to be completed by the second quarter of 1996 and when fully
implemented result in annual savings of $6.0 million and a net full-time
equivalent ("FTE") reduction of 110, or approximately 8% of the Publishing work
force. Substantially all costs are expected to be paid from the Company's
pension plans (in which plan assets exceed plan obligations). The following
table illustrates the current status of the restructuring accrual by component
(in millions):
15
<PAGE> 16
<TABLE>
<CAPTION>
Employee Outplacement
Severance Costs & Other costs Total
--------------- ------------- -----
<S> <C> <C> <C>
Balance at December 31, 1995 $ 6.5 $ 0.3 $ 6.8
Charge to first quarter operations 1.1 1.1
Utilization of accrual (0.1) (0.1) (0.2)
----- ----- -----
Balance at March 31, 1996 $ 7.5 $ 0.2 $ 7.7
===== ===== =====
</TABLE>
Consolidated depreciation and amortization expense for the 1996 period
increased $1.9 million to $9.8 million from $7.9 million in 1995 primarily due
to the additional amortization expense in 1996 of $1.9 million attributable to
the step-up in carrying value of the intangible assets acquired in the
acquisition in October 1995 of the Company's joint venture partner's interest
in KHC (the "Kelso Buyout").
Other expense, net increased $1.9 million to $5.3 million for the first quarter
of 1996 from $3.4 million in the same period last year primarily due to an
increase in interest expense of $2.4 million charged to continuing operations in
the 1996 period. In 1995, approximately 75% of the debt was attributable to
cable operations and accordingly the related interest expense was allocated to
discontinued cable operations.
As a result of the additional stock-based compensation expense, additional
Newspaper Restructuring charges, and consolidation of AHN, loss from continuing
operations for the first quarter of 1996 was $14.9 million compared to $2.8
million for the same period in 1995. The minority interest credit of $1.2
million in 1996 represents the minority partners' share of AHN losses for the
first quarter of 1996. The minority interest charge of $0.3 million in 1995
represented the minority partner's share of King Holding Corp. ("KHC") income
for the first quarter of 1995. Net loss for the first quarter of 1996, including
the discontinued operations charge discussed above, was $17.3 million compared
to $3.1 million for the same period in 1995.
EBITDA, a common performance indicator used in the industry, is defined by the
Company as operating income (loss) plus Newspaper Consolidation Costs,
Newspaper Restructuring Costs, depreciation, amortization, stock-based
compensation, and pension expense. EBITDA is not intended to represent cash
flow from operations and should not be considered as an alternative to
operating or net income computed in accordance with GAAP as an indicator of the
Company's operating performance or as an alternative to cash flows from
operating activities (as determined in accordance with GAAP) as a measure of
liquidity. Consolidated EBITDA, excluding Programming and Electronic Media and
corporate expenses, increased 13.5% to $15.1 million in the first quarter of
1996 from $13.3 million in the first quarter of 1995. Broadcasting experienced
12.8% EBITDA growth in the first quarter of 1996 to $12.3 million from $10.9
million in the 1995 period. Publishing EBITDA increased $0.3 million, or 12.5%,
in the 1996 period to $2.7 million from $2.4 million in the 1995 period.
Primarily because of the consolidation of the start-up venture AHN in 1996, the
Programming and Electronic Media segment EBITDA was a loss of $3.4 million in
the first quarter of 1996 compared to a loss of $0.4 million in the first
quarter of 1995.
Broadcasting
Broadcasting in the first quarter of 1996 consisted of nine owned and operated
stations and two stations operated under local marketing agreements ("LMA") in
which the Company provides marketing and programming services. These eleven
stations serve markets in Seattle, WA; Portland, OR; Charlotte, NC; Albuquerque,
NM; Louisville, KY; Honolulu, HI; Spokane, WA; Tucson, AZ; Boise, ID.
Broadcasting revenues grew 11.6% in the first quarter of 1996 to $43.4 million
compared to the first quarter of 1995 revenues of $38.9 million. Revenue growth
was particularly strong in Seattle (9.1%); Portland (12.3%); Charlotte (20.6%);
Albuquerque (17.9%); Honolulu (28.3%); and Boise (11.2%). National advertising
revenues increased 8.8% to
16
<PAGE> 17
$19.8 million in the 1996 period from $18.2 million in the 1995 period
as a result of market growth and increased advertising rates from improved
ratings in Seattle, Portland and Charlotte. Local and regional advertising
revenues exhibited strong growth in the 1996 period of 14.0% to $26.9 million
from $23.6 million for the same period in 1995. In addition to the improved
ratings in Seattle and Portland, the increase in local and regional revenues
was also attributable to political advertising revenue of $0.6 million in the
first quarter of 1996 from a special U.S. Senate race in Portland and the
affiliation switch in Honolulu to NBC leading to an increased share of local
business in that market.
Operating and administrative expenses increased 11.1% to $31.1 million in the
first quarter of 1996 from $28.0 million in the first quarter of 1995, a change
of $3.1 million. This increase primarily reflects the incremental costs of a
start-up news operation and promotion expenses in Honolulu (required by KHNL's
affiliation switch from Fox to NBC on January 1, 1996). Depreciation and
amortization expense increased $1.8 million to $6.7 million in the 1996 period
from $4.9 million in the 1995 period, reflecting the increased amortization
associated with the step-up in carrying value of intangible assets acquired in
the Kelso Buyout.
The increased amortization expense in the 1996 period offset the revenue
increases during the 1996 period and consequently, operating income declined to
$5.6 million in the 1996 period from $6.0 million in the 1995 period. However,
EBITDA for Broadcasting increased 12.8% to $12.3 million in the 1996 period
from $10.9 million in the 1995 period. KING-TV in Seattle, KGW (TV) in
Portland, and WHAS-TV in Louisville contributed approximately 42%, 19% and 11%,
respectively, of the first quarter 1996 EBITDA of the Company's stations. No
other station represents more than 10% of the segment's 1996 EBITDA. EBITDA
margin for the 1996 period and the 1995 period was 28% of Broadcasting net
revenues. Broadcast Cash Flow, which represents Broadcasting EBITDA adjusted to
add back corporate expense allocations plus program rights amortization less
program rights payments, grew 10.7% to $12.4 million in the 1996 period from
$11.2 million in the 1995 period. Broadcast Cash Flow is not intended to
represent cash flow from operations and should not be considered as an
alternative to operating or net income computed in accordance with GAAP as an
indicator of the Company's operating performance or as an alternative to cash
flows from operating activities (as determined in accordance with GAAP) as a
measure of liquidity.
Publishing
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, in response to changing
readership preferences and declining circulation, primarily in The Evening
Bulletin, and to reduce the Company's cost basis, the Company consolidated the
afternoon newspaper with the morning newspaper (the "Newspaper Consolidation"),
and now publishes a morning only daily Providence Journal-Bulletin (Monday
through Saturday) in addition to The Providence Sunday Journal.
Publishing revenues for the first quarter of 1996 remained relatively even at
$30.1 million compared with $30.3 million for the first quarter of 1995.
Advertising revenues remained substantially the same at $21.5 million in the
1996 period and $21.7 million in the 1995 period. As a result of the Newspaper
Consolidation, average daily circulation for the three months ended March 31,
1996 approximated 169,500 a decrease of 6.2% from an average of 180,700 for the
three months ended March 31, 1995. Average Sunday circulation for the quarter
was 251,300, down by 4.2% from 262,200 for the same quarter last year, largely
because of increased price. Despite the decline in circulation levels,
circulation revenues of $8.1 million in the first quarter of 1996 were 2.5%
ahead of circulation revenues of $7.9 million for the first quarter of 1995 as a
result of price increases.
Operating and administrative expenses decreased 1.8% in the 1996 period to $27.4
million from $27.9 million in the 1995 period, a decrease of $0.5 million.
Payroll savings from the Newspaper Consolidation, the elimination of a Sunday
magazine, and reduced costs from the discontinuance of a local shopper each
saved $0.5 million in the first quarter of 1996 which more than offset the
increase in newsprint costs of $1.0 million in the first quarter of 1996
compared to the first quarter of 1995.
As previously discussed, management approved a plan of reorganization and
restructuring of substantially all departments of Publishing at the end of 1995
in an effort to improve efficiencies. Under the plan, the Company targeted a
reduction in work force of approximately 100 full-time equivalents through a
combination of early retirement and voluntary and
17
<PAGE> 18
involuntary separation assistance plans. A charge of $6.8 million was
recorded in the fourth quarter of 1995 relating to employee severance costs,
outplacement, and other costs associated with the restructuring. As a result of
a greater than anticipated response to the voluntary programs, management
recorded an additional $1.1 million charge to operations in the first quarter
of 1996. The Company expects annual savings from the restructuring to be
approximately $6.0 million. Substantially all costs are expected to be paid by
the Company's pension plans (in which plan assets exceed plan obligations) in
1996.
Due primarily to the $1.1 million additional restructuring charge, operating
loss for the 1996 period was $1.1 million compared to $0.4 million in the 1995
period.
As a result of cost savings, however, EBITDA increased 12.5% to $2.7 million in
the first quarter of 1996 from $2.4 million in the first quarter of 1995.
Programming and Electronic Media
In December, 1995 the Company launched the NorthWest Cable News ("NWCN")
channel, which provides 24-hour news service to cable television viewers in
Washington, Oregon, and Idaho, and in the second quarter of 1995 launched Rhode
Island Horizons, its electronic on-line information service. Beginning in May,
1995, the Company made new investments in America's Health Network, a 24-hour
health cable programming channel that launched on March 25, 1996. In July,
1995, the Company invested in Peapod, an existing interactive
grocery delivery service. Through the first quarter of 1996, the Company
continues to fund its share of the operations of its investment in Television
Food Network and America's Health Network. In 1995, the Company grouped these
investments together in a new segment called "Programming and Electronic Media."
Effective January 1, 1996, the Company consolidated its investment in AHN, which
it previously had accounted for under the equity method of accounting,
reflecting management's decision to expand its holdings in this entity. In
addition to AHN, the Company currently wholly owns and operates NWCN and Rhode
Island Horizons and has significant equity investment positions in the other
entities. Subsequent to March 31, the Company completed the purchase of two
equity partnership interests held by two partners of TVFN and increased its
investments in AHN, See "--Recent Developments" discussed previously herein.
Investments in Programming and Electronic Media operating businesses include
(dollars in thousands):
<TABLE>
<CAPTION>
Cumulative Amounts
Invested Through Ownership % as of
March 31, 1996 (1) March 31, 1996
------------------ -----------------
<S> <C> <C> <C> <C>
Consolidated Subsidiaries
-------------------------
AHN (2) $17,750 59%
NWCN 6,300 100%
Rhode Island Horizons 900 100%
-------
subtotal 24,950 Equity in loss of affiliates (3)
------- Quarters Ended March 31,
--------------------------------
1996 1995
Investments in Affiliates ---- ----
-------------------------
TVFN 17,650 20% $ (783) $(1,022)
Peapod 5,338 17% (302) -
Partner Stations Network, L.P. 1,810 16% (180) (50)
------- ------- -------
subtotal 24,798 $(1,265) $(1,072)
------- ======= =======
Total Investments $49,748
=======
<FN>
(1) In addition to the amounts included in the table, the Company has invested $5.9 million in Starsight
Telecast, Inc., a company whose stock is publicly traded and in which the Company has an approximate
4% equity interest.
(2) AHN was consolidated into the Company's results of operations as of January 1, 1996.
(3) Excludes the Company's equity in loss of Linkatel Pacific, L.P. of $330 and $200 in 1996 and 1995,
respectively which is an investment held for sale.
</TABLE>
The operations in the Programming and Electronic Media segment are in the early
development phase and contributed
18
<PAGE> 19
$1.6 million in revenue in the first quarter of 1996 and $0.5 million
in revenue in the first quarter of 1995. Operating and administrative expenses,
as a result of the consolidation of AHN and start-up operations of NWCN,
increased to $5.0 million for the first quarter of 1996 compared to $0.9
million in the same period last year. Consequently, operating losses were $3.6
million in the first quarter of 1996 compared with $0.4 million in the first
quarter of 1995.
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.
Cash Flows from Operations
<TABLE>
The following table identifies significant cash inflows and outflows from
operations. It is intended to enhance the reader's understanding of, and
reconciles EBITDA to, the cash flows used in operations of $6.3 million as
presented in the Company's condensed consolidated statement of cash flows for
the first quarter of 1996 included elsewhere in this Form 10-Q. Cash inflows
(outflows) from operations can be analyzed as follows (in millions):
<CAPTION>
Quarter
Ended,
March 31,
1996
---------
<S> <C>
EBITDA:
Broadcasting $12.3
Publishing (excluding Newspaper Consolidation and Newspaper
Restructuring costs) 2.7
Programming and Electronic Media (3.4)
Corporate (3.1)
-----
Total 8.5
Program rights amortization 4.4
Interest paid (4.7)
Income tax refunds received, net of payments made 4.1
Other working capital items, primarily accounts payable (6.3)
-----
Cash flow from operations before one-time cash payouts 6.0
One-time cash payouts
IRS and state tax settlement(1) (3.5)
Payment of working capital and other cable-related disposal adjustments (2) (8.8)
-----
Cash flow from operations $(6.3)
=====
<FN>
Note to table
- -------------
(1) Relates to amounts paid in connection with final settlements reached with
Internal Revenue Service and applicable states relating to examinations
of the Company's income tax returns for the years 1984 through 1989.
(2) Includes working capital and other basis adjustments in disposal of cable
operations of $4.3 million and approximately $4.5 million in cash paid for
severance costs associated with the cable operations disposed of.
</TABLE>
Investments
19
<PAGE> 20
During the first quarter of 1996, the Company made significant investments in
Programming and Electronic Media, including investments in the cable networks
AHN and TVFN of $7.5 million and $5.0 million, respectively, during the first
quarter of 1996. See also "-Recent Developments" discussed earlier.
Dividends
The cash dividend per share of $28.60 per share declared in the first quarter of
1996 is consistent with that of the first quarter of 1995. It is anticipated
that total dividends for 1996 will be equivalent to those paid in 1995. On May
8, 1996 the Board of Directors of the Company declared a dividend of $86.80 per
share, payable June 14, 1996. No additional dividends are contemplated for 1996
or the foreseeable future.
Financing
As discussed in Note 4 of the condensed consolidated financial statements
included elsewhere in this Form 10-Q, the Company's total debt outstanding at
March 31, 1996 was $273.0 million. The increases in debt during the quarter
ended March 31, 1996 were to fund the above described investing activities and
the one-time cash payments in connection with the discontinued operations
adjustments and tax settlements discussed above. The amount of credit
available under its revolving credit facility at March 31, 1996 was $112.0
million. The Company's debt to equity ratio at March 31, 1996 was 1.12 to 1.00.
Future Funding and Capital Resources
The Company anticipates that amounts available under its revolving credit
facility and cash flow from operations will be sufficient to meet the liquidity
requirements described above under "Liquidity and Capital Resources". To the
extent that the Company makes significant acquisitions or investments or is
required to meet significant liquidity requirements other than described above,
the Company may need to obtain additional financing. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company.
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.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 17, 1995, Cable LP brought a declaratory judgment action against Old
PJC, Colony and Dynamic in the Circuit Court of the Eleventh Judicial Circuit in
and for Dade County, Florida. Colony was a cable television subsidiary of Old
PJC, which was transferred to Continental in connection with the Merger. This
case relates to the Dynamic Partnership, in which Dynamic is the general partner
with an 89.8% interest and Cable LP is the limited partner with a 10.2%
interest. In this action, Cable LP claimed that (i) Dynamic was obligated to
offer to sell to Cable LP Dynamic's general partnership interest to Cable LP
before Old PJC entered into the Merger Agreement with Continental and (ii)
Dynamic's offer to purchase Cable LP's limited partnership interest for $13.1
million triggered a right of first refusal entitling Cable LP to purchase the
general partnership interest for $115 million. Cable LP sought a declaration by
the court that the right of first refusal it is asserting applies.
A motion to strike allegations of bad faith and breach of fiduciary duty against
Old PJC, Colony and Dynamic was granted by the court, and an answer to the
Complaint and a Counterclaim was filed by them on March 16, 1995, seeking 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 in December 1995. A final
judgment in this action in favor of Cable LP was entered on May 21, 1996. Such
judgment requires, among other matters, the conveyance of the interest in such
cable system now held by Continental to Cable LP at a price to be negotiated by
Cable LP and Continental. The Company intends to appeal this judgment and moved
to stay the effect of the judgment during the pendency of the appeal. On
June 10, 1996, a preliminary hearing on the declaratory judgment was held on
the Company's motion to stay. At such hearing, the judge refused to grant or
deny the Company's motion to stay.
In the event that, as a result of such litigation, Dynamic is ultimately
required to sell its interest in the Dynamic partnership to Cable LP, the
Merger Agreement provides that the Company will pay to Contintental
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 unable to predict at this time what the ultimate
outcome of this litigation might be. Should any loss resulting from this
litigation ultimately prove to be probable and reasonably estimable, such loss,
at that time, would result in a charge to stockholders' equity to reflect the
estimated decrease in net book value of the cable assets disposed of in 1995
pursuant to the Merger Agreement. Such a charge could have a material effect
upon the Company's financial condition. If any payment obligations are
ultimately required under the terms of the Merger Agreement, it is currently
anticipated that such payments could be up to $40 million and could have a
material effect upon the Company's liquidity position. It is currently
contemplated that any such payment would be funded by borrowings under the
Company's revolving credit facility. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
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 2. CHANGES IN SECURITIES
On May 8, 1996, the Company declared a dividend of one Class A right for each
outstanding share of Class A Common Stock, and one Class B right for each
outstanding share of Class B Common Stock (collectively, the "Rights"). For
additional information regarding the Rights, see the Company's Current Report
on Form 8-K dated May 8, 1996.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
21
<PAGE> 22
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
4.1 Form of rights Agreement filed between The Providence
Journal Company and The First National Bank of Boston, as
Rights Agent (incorporated by reference to Exhibit 4 of the
Registrant's Current Report on Form 8-K dated May 8, 1996.)
27.0 Financial Data Schedule (previously filed).
(b) Reports on Form 8-K
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 11, 1996
THE PROVIDENCE JOURNAL COMPANY
By: /s/ Thomas N. Matlack
---------------------
Thomas N. Matlack
Vice President-Finance and Chief Financial Officer
(principal financial officer and chief accounting officer)
By: /s/ John L. Hammond
---------------------
John L. Hammond
Vice President-General Counsel and Chief Administrative Officer
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PROVIDENCE JOURNAL COMPANY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS
OF AND FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 48,484
<ALLOWANCES> 0
<INVENTORY> 13,544
<CURRENT-ASSETS> 120,485
<PP&E> 177,916
<DEPRECIATION> 0
<TOTAL-ASSETS> 703,713
<CURRENT-LIABILITIES> 71,116
<BONDS> 272,700
<COMMON> 86
0
0
<OTHER-SE> 243,876
<TOTAL-LIABILITY-AND-EQUITY> 703,713
<SALES> 0
<TOTAL-REVENUES> 75,114
<CGS> 0
<TOTAL-COSTS> 89,518
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,084)
<INCOME-PRETAX> (19,719)
<INCOME-TAX> (4,834)
<INCOME-CONTINUING> (14,885)
<DISCONTINUED> (3,578)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,277)
<EPS-PRIMARY> (202.46)
<EPS-DILUTED> (202.46)
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