<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended:
JUNE 30, 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)
<TABLE>
<S> <C>
DELAWARE 05-0481966
- ------------------------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
75 Fountain Street, Providence, RI 02902-9985
- --------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
</TABLE>
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 August 1, 1996 there were 25,998,450 shares of Class A Common Stock and
21,067,650 shares of Class B Common Stock outstanding.
<PAGE> 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in thousands, except per share data)
<CAPTION>
(unaudited)
June 30, December 31,
1996 1995
--------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,448 $ 87
Short-term investments 3,770 --
Accounts receivable, net of allowance for doubtful accounts of
$4,525 in 1996 and $4,328 in 1995 58,873 56,321
Television program rights, net 8,996 16,536
Inventories 883 1,283
Deferred income taxes 7,112 7,112
Prepaids 6,116 1,296
Other current assets 4,056 2,440
Notes receivable 17,726 --
Federal and state income taxes receivable 26,451 24,146
-------- --------
Total current assets 154,431 109,221
Investments in affiliated companies 10,077 22,171
Notes receivable 1,089 19,174
Television program rights, net 4,676 3,817
Property, plant and equipment, net of accumulated depreciation
of $219,141 in 1996 and $204,880 in 1995 182,024 171,649
License costs, goodwill, and other intangible assets net of
accumulated amortization of $75,822 in 1996 and $67,025 in 1995 376,252 354,411
Other assets 33,966 26,787
-------- --------
$762,515 $707,230
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 16,453 $ 16,837
Accrued expenses and other current liabilities 48,333 49,504
Current installments of long-term debt 100 100
Current portion of television program rights payable 6,648 16,463
-------- --------
Total current liabilities 71,534 82,904
Long-term debt 211,700 243,998
Television program rights payable 4,006 5,509
Other liabilities and deferrals 117,182 111,580
-------- --------
Total liabilities 404,422 443,991
-------- --------
Commitments and contingencies
Minority interest 15,768 --
-------- --------
Stockholders' Equity:
Class A common stock, par value $1.00 per share, authorized
150,000,000 shares; issued 24,929,700 in 1996; 17,331,300 in 1995 24,930 17,331
Class B common stock, par value $1.00 per share, authorized
46,825,000 shares; issued 21,067,650 in both 1996 and 1995 21,068 21,068
Additional paid-in capital 97,107 65
Retained earnings 198,454 226,028
Unrealized gain (loss) on securities held for sale, net 766 (1,253)
-------- --------
Total stockholders' equity 342,325 263,239
-------- --------
$762,515 $707,230
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
<CAPTION>
(unaudited) (unaudited)
Quarter Ended Six Months Ended
------------- ----------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Broadcasting $ 54,786 $ 47,167 $ 98,167 $ 86,071
Publishing 33,312 32,373 63,437 62,673
Programming and Electronic Media 3,237 894 4,845 1,419
----------- ----------- ----------- -----------
91,335 80,434 166,449 150,163
----------- ----------- ----------- -----------
Expenses:
Operating 50,980 41,269 94,508 81,695
Selling, general, and administative 24,442 19,602 47,493 39,513
Newspaper Consolidation Costs and
Newspaper Restructuring Costs 1,334 2,197 2,484 2,299
Depreciation and amortization 11,046 8,051 20,891 15,986
Stock-based compensation 1,606 499 13,336 1,997
Pension expense 214 347 428 391
----------- ----------- ----------- -----------
Total expenses 89,622 71,965 179,140 141,881
----------- ----------- ----------- -----------
Operating income (loss) 1,713 8,469 (12,691) 8,282
Interest expense (5,936) (2,566) (11,020) (5,313)
Equity in loss of affiliates (1,078) (1,753) (2,673) (3,025)
Other income, net 1,371 666 2,735 1,282
----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (3,930) 4,816 (23,649) 1,226
Income tax expense (benefit) (543) 2,894 (5,377) 2,110
----------- ----------- ----------- -----------
Income (loss) from continuing operations (3,387) 1,922 (18,272) (884)
Discontinued operations, net of tax of $1,843 -- -- (3,578) --
----------- ----------- ----------- -----------
Income (loss) before minority interests (3,387) 1,922 (21,850) (884)
Minority interests 2,857 (1,662) 4,043 (1,961)
----------- ----------- ----------- -----------
Net income (loss) $ (530) $ 260 $ (17,807) $ (2,845)
=========== =========== =========== ===========
Net loss per common share:
From continuing operations $ (0.09) $ 0.05 $ (0.47) $ (0.02)
From discontinued operations -- -- (0.09) --
Minority interests 0.08 (0.04) 0.10 (0.05)
----------- ----------- ----------- -----------
Net loss per common share $ (0.01) $ 0.01 $ (0.46) $ (0.07)
=========== =========== =========== ===========
Weighted average shares outstanding 38,821,172 38,110,050 38,610,662 38,110,050
=========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
<TABLE>
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow
(Dollars in thousands)
<CAPTION>
(Unaudited) (Unaudited)
Quarter Ended Six Months Ended
------------- ----------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Operating activities:
Cash flows provided by
(used in) continuing operations $ 4,070 $ 8,635 $ (2,216) $ 17,916
--------- -------- --------- --------
Investing activities:
Investments in affiliates (25,198) (6,878) (30,201) (9,028)
Additions to property, plant and equipment (4,414) (2,301) (14,922) (5,879)
Collections on notes receivable -- 1,435 -- 1,435
Increase in investment in discontinued
operations through disposal date -- (41,452) -- (33,646)
--------- -------- --------- --------
Cash flows provided by
(used in) investing activities (29,612) (49,196) (45,123) (47,118)
--------- -------- --------- --------
Financing activities:
Proceeds from long-term debt 60,063 53,500 88,765 53,500
Payments on long-term debt (121,063) (7,875) (121,063) (15,380)
Payments on television program rights payable (4,052) (3,940) (8,547) (8,103)
Dividends paid (7,322) (2,422) (9,763) (4,844)
Cash received from minority partners 12,000 -- 12,000 --
Issuance of Class A common stock 106,305 -- 106,308 --
--------- -------- --------- --------
Cash flows provided by
(used in) financing activities 45,931 39,263 67,700 25,173
--------- -------- --------- --------
Increase (decrease) in cash and cash equivalents 20,389 (1,298) 20,361 (4,029)
Cash and cash equivalents at the beginning of the period 59 2,166 87 4,897
--------- -------- --------- --------
Cash and cash equivalents at the end of the period $ 20,448 $ 868 $ 20,448 $ 868
========= ======== ========= ========
</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"), America's Health Network ("AHN") and Television Food Network ("TVFN")
have been consolidated in the accompanying condensed consolidated statements of
operations since January 1, 1995; January 1, 1996; and May 1, 1996,
respectively. 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 1996 presentation.
Financial information in the Notes to Condensed Consolidated Financial
Statements excludes discontinued operations, except where noted.
NOTE 2 -- STOCK SPLIT AND PUBLIC OFFERING
On June 18, 1996, the Board of Director's declared a 450 for 1 stock split of
its issued and outstanding common stock as of that date. Such stock split has
been reflected throughout these financial statements and this document.
On June 25, 1996, the Company completed an initial public offering and direct
placement (the "Offerings") of its Class A common stock. The number of Class A
shares sold in the underwritten offering was 7,125,000 and the number of Class A
shares sold to eligible employees in the direct placement program was 450,000.
Net proceeds from the Offerings, net of underwriter's commission, totaled
$106,277. Estimated expenses associated with the Offerings as of June 30, 1996
are $1,900. The net proceeds from the Offerings were used to repay a portion of
the Company's outstanding debt.
Subsequently, on July 10, 1996, the Company issued an additional 1,068,750 Class
A shares of common stock and raised an additional $14,995 net of underwrittten
commission, pursuant to the exercise of an overallotment option granted to the
underwriters by the Company.
NOTE 3 -- CASH EQUIVALENTS
Cash equivalents are those short-term highly liquid investments generally with
original maturities of 90 days or less. At June 30, 1996, cash equivalents
consisted primarily of commercial paper and totaled $19,414. There were no cash
equivalents at December 31, 1995.
5
<PAGE> 6
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 4 -- CONSOLIDATION OF AHN AND TVFN
During the quarter and six months ended June 30, 1996, the Company invested
$17,500 and $25,000, respectively in AHN, a 24-hour basic cable television
programming service devoted exclusively to health related issues and products.
The Company's total investment through June 30, 1996 is $35,250 and its interest
in AHN is approximately 65%. 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.
In May, 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 Company's investment in TVFN through June 30, 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 committee. As a result of the purchases, TVFN became a controlled
subsidiary of the Company and was consolidated into the Company's results of
operations effective May 1, 1996. 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.
<TABLE>
The following table presents unaudited pro forma summary results of operations
as if AHN and TVFN had been consolidated in operations since January 1, 1995,
and accordingly, includes 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 consolidation occurred on January 1,
1995 nor is it indicative of results which may occur in the future:
<CAPTION>
Pro forma (Unaudited)
---------------------------------------------
Quarters Ended Six Months Ended
-------------- ----------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues 92,466 82,155 170,606 153,091
Loss from continuing operations (4,250) (1,513) (20,830) (8,032)
Discontinued operations - - (3,578) -
Minority interests 3,247 (121) 5,466 1,043
------- ------- -------- --------
Net loss (1,003) (1,634) (19,942) (6,989)
======= ======= ======== ========
Net loss per common share $ (0.03) $ (0.04) $ (0.52) $ (0.18)
======= ======= ======== ========
</TABLE>
NOTE 5-- 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
June 30, 1996 and December 31, 1995.
6
<PAGE> 7
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 6 -- LONG-TERM DEBT
<TABLE>
At June 30, 1996 and December 31, 1995, long-term debt consists of the
following:
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Revolving credit and term loan facility at rates of interest averaging
7.72% in 1996 and 7.52% in 1995, respectively $202,000 $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 $211,800 $244,098
Less current installments 100 100
-------- --------
Long-term debt, excluding current installments $211,700 $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.
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 Company recorded additional interest expense
associated with the swap during the quarter and six months ended June 30, 1996
of $643 and $1,160, respectively and $230 and $340 for the corresponding 1995
periods. The fair value of interest rate swaps is the amount at which they could
be settled, based upon estimates obtained from dealers. At June 30, 1996, the
Company would be required to pay $1,707 to settle outstanding interest rate
swaps.
NOTE 7 -- NET INCOME (LOSS) PER SHARE AND DIVIDENDS PER COMMON SHARE
Net income (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 except for the second quarter of 1995, however
inclusion of such common stock equivalents for that period would not
7
<PAGE> 8
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
have materially changed the earnings per share and consequently only basic
earnings per share is presented.
Cash dividends of $0.0636 per share were declared and paid in the first quarter
of 1996. A special dividend of $0.1907 per share was declared and paid in the
quarter ended June 30, 1996. Dividends of $0.0636 per share were declared and
paid in each of the first and second quarter of 1995.
NOTE 8-- 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 amount of an estimated $20,530 adjustment to the
stock-based compensation plans. Of the $3,712 which was unvested at March 31,
1996, $1,273 became vested and was charged to operations in the second quarter
of 1996. Of the remaining $2,439 unvested portion at June 30, 1996, $1,273 will
be charged to the third quarter of 1996 and the remainder will be charged
evenly to operations over the remaining vesting period of the plans, through
the third quarter of 1998. The $20,530 adjustment to the stock-based
compensation plans was pursuant to provisions in the Company's incentive stock
units plan ("IUP"), restricted stock unit plan ("RSU") and certain stock option
plans ("Option Plans") for which participants in such 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, approximately 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. On May 8, 1996, the stockholders of the Company approved amendments to
the Options Plans which, among other things, increased the number of shares
reserved under the 1994 Providence Journal Employee Stock Option Plan (the
"Employee Plan") from 1,687,500 to 3,600,000 and similarly increased the number
of shares reserved under the 1994 Providence Journal Non-Employee Director Stock
Option Plan (the "Director Plan") from 180,000 to 238,500. The number of Class A
common shares reserved for the stock-based compensation plans equal 4,569,300
consisting of 730,800 for the RSU plan and 3,838,500 for the Option Plans. The
following table sets forth information relative to these stock-based
compensation plans:
<CAPTION>
Option Plans
------------
1994 1995 1996 Restricted
---- ---- ---- ----------
Options Options Options Stock Units*
------- ------- ------- ------------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1995 280,350 376,200 -- 567,450
Options canceled (2,250) -- -- --
Options exercised (23,400) -- -- --
Options granted June 25, 1996 -- -- 988,650 --
-------- -------- -------- -------
Options outstanding at June 30, 1996 254,700 376,200 988,650 567,450
======== ======== ======== =======
Options exercisable at June 30, 1996 58,275 -- -- --
======== ======== ======== =======
Option exercise price $ 1.47 $ 11.27 $ 15.00 --
======== ======== ======== =======
<FN>
* 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>
The options granted on June 25, 1996 vest 20% per year on the anniversary date
of the grant and have a term of ten years.
8
<PAGE> 9
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
NOTE 9 -- NEWSPAPER RESTRUCTURING
In the first and second quarter of 1996, the Company recorded additional charges
to operations of approximately $1,150 and $1,334, respectively, relating to
early retirement costs and voluntary separation benefits in connection with the
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.
NOTE 10 -- INCOME TAXES
The Company's effective tax rate for continuing operations differs from 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 11 -- CONTINGENT LIABILITIES
On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory
judgment action against Old PJC (the predecessor of the Company), 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 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.
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.
A final declaratory judgment in the action was entered in favor of Cable LP on
May 21, 1996. Such judgment requires, among other matters, Dynamic and Colony to
negotiate with Cable LP on a price to transfer Dynamic's interest in the general
partnership to Cable LP.
9
<PAGE> 10
THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
The Company has appealed this judgment and moved to stay the effect of the
judgment during the pendency of the appeal. On June 10, 1996, a hearing was
held on the Company's motion to stay. At such hearing, the judge declined to
grant or deny the Company's motion to stay at this time. The Company is unable
to predict at this time what the ultimate outcome of this litigation might be.
In accordance with applicable accounting principles, 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 proceeds received from the disposal of
the cable assets 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 $40,000 and could
have a material effect upon the Company's liquidity position.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
The following unaudited tables present a summary of financial results and other
data for the quarters and six months ended June 30, 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.
<CAPTION>
SUMMARY OF FINANCIAL RESULTS - CONSOLIDATED
Quarters Ended June 30, Six Months Ended June 30,
------------------------ -------------------------
1996 1995 1996 1995
-------- -------- --------- ---------
OPERATING DATA: (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Broadcasting $ 54,786 $47,167 $ 98,167 $ 86,071
Publishing 33,312 32,373 63,437 62,673
Programming and Electronic Media 3,237 894 4,845 1,419
-------- ------- -------- --------
91,335 80,434 166,449 150,163
-------- ------- -------- --------
Expenses:
Operating and administrative expenses:
Broadcasting 30,812 28,559 61,885 56,559
Publishing, excluding Newspaper Consolidation
and Newspaper Restructuring Costs 26,898 28,332 54,279 56,221
Programming and Electronic Media 14,641 996 19,630 1,894
Corporate 3,071 2,984 6,207 6,534
-------- ------- -------- --------
Total 75,422 60,871 142,001 121,208
Depreciation and amortization 11,046 8,051 20,891 15,986
Stock-based compensation 1,606 499 13,336 1,997
Pension expense 214 347 428 391
Newspaper Consolidation Costs
and Newspaper Restructuring Costs 1,334 2,197 2,484 2,299
-------- ------- -------- --------
Total expenses 89,622 71,965 179,140 141,881
-------- ------- -------- --------
Operating income (loss) 1,713 8,469 (12,691) 8,282
Interest expense (5,936) (2,566) (11,020) (5,313)
Equity in loss of affiliates (1) (1,078) (1,753) (2,673) (3,025)
Other income, net 1,371 666 2,735 1,282
-------- ------- -------- --------
Income (loss) from continuing operations
before income taxes (3,930) 4,816 (23,649) 1,226
Income tax expense (benefit) (543) 2,894 (5,377) 2,110
-------- ------- -------- --------
Income (loss) from continuing operations (3,387) 1,922 (18,272) (884)
Discontinued operations, net of tax of $1,843 -- -- (3,578) --
-------- ------- -------- --------
Income (loss) before minority interests (3,387) 1,922 (21,850) (884)
Minority interests 2,857 (1,662) 4,043 (1,961)
-------- ------- -------- --------
Net income (loss) $ (530) $ 260 $(17,807) $ (2,845)
======== ======= ======== ========
OTHER DATA:
EBITDA (2):
Broadcasting $ 23,974 $18,608 $ 36,282 $ 29,512
Publishing 6,414 4,041 9,158 6,452
-------- ------- -------- --------
Core EBITDA 30,388 22,649 45,440 35,964
Programming and Electronic Media (11,404) (102) (14,785) (475)
Corporate (3,071) (2,984) (6,207) (6,534)
-------- ------- -------- --------
Total EBITDA $ 15,913 $19,563 $ 24,448 $ 28,955
-------- ------- -------- --------
<FN>
Notes to table
- --------------
(1) Includes equity in loss of Linkatel Pacific, L.P. of $283, $186, $613 and
$386 for the quarter and six months 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. 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>
11
<PAGE> 12
<TABLE>
SUMMARY OF FINANCIAL RESULTS - BROADCASTING
<CAPTION>
Quarters Ended June 30, Six Months Ended June 30,
----------------------- ------------------------
1996 1995 1996 1995
------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
National $25,930 $23,866 $ 45,722 $ 42,074
Local and regional 34,437 28,133 61,359 51,779
Other 3,097 2,589 6,376 5,571
Agency commissions (8,678) (7,421) (15,290) (13,353)
------- ------- -------- --------
Net revenues 54,786 47,167 98,167 86,071
------- ------- -------- --------
Expenses:
Operating and administrative expenses 30,812 28,559 61,885 56,559
Depreciation and amortization 6,786 4,981 13,521 9,897
------- ------- -------- --------
Total expense 37,598 33,540 75,406 66,456
------- ------- -------- --------
Operating income $17,188 $13,627 $ 22,761 $ 19,615
======= ======= ======== ========
OTHER DATA:
EBITDA (1) $23,974 $18,608 $ 36,282 $ 29,512
EBITDA as percentage of net revenues 43.80% 39.50% 37.00% 34.30%
Corporate expense allocations 170 165 342 374
Program rights amortization 4,442 4,343 8,821 8,612
Program rights payments (4,052) (3,940) (8,547) (8,103)
------- ------- -------- --------
Broadcast Cash Flow (2) $24,534 $19,176 $ 36,898 $ 30,395
======= ======= ======== ========
<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>
12
<PAGE> 13
<TABLE>
SUMMARY OF FINANCIAL RESULTS -- PUBLISHING
<CAPTION>
Quarters Ended June 30, Six Months Ended June 30,
------------------------ ------------------------
1996 1995 1996 1995
-------- --------- -------- ---------
OPERATING DATA: (dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Advertising $ 24,581 $ 23,646 $ 46,128 $ 45,386
Circulation 8,392 8,030 16,531 15,919
Other 339 697 778 1,368
-------- -------- -------- --------
Total revenues 33,312 32,373 63,437 62,673
Expenses:
Operating and administrative expenses 26,898 28,332 54,279 56,221
Depreciation 2,687 2,782 5,351 5,499
-------- -------- -------- --------
Total expenses 29,585 31,114 59,630 61,720
-------- -------- -------- --------
Operating income before
newspaper consolidation and
newspaper restructuring costs 3,727 1,259 3,807 953
Newspaper Consolidation Costs (1) and
Newspaper Restructuring Costs (2) (1,334) (2,197) (2,484) (2,299)
-------- -------- -------- --------
Operating income (loss) $ 2,393 $ (938) $ 1,323 $ (1,346)
======== ======== ======== ========
OTHER DATA:
EBITDA (3) $ 6,414 $ 4,041 $ 9,158 $ 6,452
EBITDA as a percentage of revenues 19.3% 12.5% 14.4% 10.3%
======== ======== ======== ========
Average Net Paid Circulation:
Daily 172,122 184,091 170,812 182,387
Sunday 248,220 260,089 249,743 261,150
<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 and second quarters of 1996, such costs increased
approximately $1,150 and $1,334, respectively.
(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 flows from operating activities (as determined
in accordance with GAAP) as a measure of liquidity.
</TABLE>
13
<PAGE> 14
<TABLE>
SUMMARY OF FINANCIAL RESULTS -- PROGRAMMING AND ELECTRONIC MEDIA
<CAPTION>
Quarters Ended June 30, Six Months Ended June 30,
----------------------- ------------------------
1996 1995 1996 1995
--------- --------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
OPERATING DATA:
Revenues 3,237 894 4,845 1,419
Operating expenses 14,641 996 19,630 1,894
Depreciation and amortization 1,342 32 1,568 61
-------- ------- -------- -------
Operating loss $(12,746) $ (134) $(16,353) $ (536)
======== ======= ======== =======
EQUITY IN LOSS OF AFFILLIATES
AHN (1) -- (515) -- (515)
TVFN (2) (295) (1,002) (1,078) (2,024)
Peapod, LP (320) -- (622) --
Partner Stations Network (180) (50) (360) (100)
-------- ------- -------- -------
Total equity in loss of affiliates $ (795) $(1,567) $ (2,060) $(2,639)
======== ======= ======== =======
OTHER DATA:
EBITDA (3) $(11,404) $ (102) $(14,785) $ (475)
======== ======= ======== =======
</TABLE>
<TABLE>
Programming and Electronic Media operating businesses include:
<CAPTION>
Amounts Invested Cumulative Amounts
in Quarter Invested Through Ownership % as of
Ended June 30, 1996 June 30, 1996 June 30, 1996
------------------- ------------- -------------
<S> <C> <C> <C>
CONSOLIDATED BUSINESSES:
AHN (1) $17,500 $ 35,250 65%
TVFN (2) 27,050 44,700 46%
Northwest Cable News ("NWCN") 751 7,051 100%
Rhode Island Horizons 144 1,044 100%
------- --------
subtotal 45,445 88,045
------- --------
INVESTMENTS IN AFFILIATES:
Peapod, L.P. 1,000 6,338 17%
Partner Stations Network, L.P. 148 1,958 16%
------- --------
subtotal 1,148 8,296
------- --------
OTHER:
StarSight Telecast, Inc. -- 5,939 5%
------- --------
Total Investments $46,593 $102,280
======= ========
<FN>
Note to tables
- --------------
(1) AHN was consolidated into the Company's results of operations effective
January 1, 1996. During the second quarter of 1996, other investors of AHN
invested approximately $12,000 in AHN.
(2) TVFN was consolidated into the Company's results of operations effective
May 1, 1996. Of the $27,050 invested in the second quarter, $24,050 is
attributable to the purchase of equity ownership interests held by two of
the TVFN partners; the remainder was to fund the Company's share of TVFN
operating losses.
(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 flows from operating activities (as determined
in accordance with GAAP) as a measure of liquidity.
</TABLE>
14
<PAGE> 15
<TABLE>
The following table presents a summary of the Company's capitalization as of
June 30, 1996 on a historical and pro forma basis. The pro forma amounts
represent the historical amounts adjusted to reflect the issuance on July 10,
1996 of an additional 1,068,750 shares for approximately $14,994,562, net of
underwriters' commission in connection with the exercise of an overallotment
option granted to the underwriters by the Company in connection with its initial
public offering. The net proceeds from these offerings were used to reduce debt.
SUMMARY - CAPITALIZATION OF THE COMPANY
<CAPTION>
Historical Pro forma
------------- -------------
As of As of
June 30, 1996 June 30, 1996
------------- -------------
(dollars in thousands)
<S> <C> <C>
Long-term debt, less current installments:
Revolving credit and term loan facility $202,000 $187,005
Industrial Revenue Bonds 9,700 9,700
-------- --------
Total Long-term debt, less current installments 211,700 196,705
-------- --------
Less cash and short-term investments
Cash and cash equivalents 20,448 20,448
Short-term investments 3,770 3,770
-------- --------
24,218 24,218
-------- --------
Net Debt 187,482 172,487
Stockholders' Equity 342,325 357,320
-------- --------
Total capitalization $529,807 $529,807
======== ========
</TABLE>
15
<PAGE> 16
DEVELOPMENTS IN THE QUARTER
During the quarter ended June 30, 1996, the following significant developments
have occurred:
Initial Public Offering
On June 25, 1996, the Company raised $106.3 million, net of underwriter's
commission, in an initial public offering and direct placement of its Class A
Common stock. The number of Class A shares sold to the public in the
underwritten offering was 7,125,000 and the number of Class A shares sold to
eligible employees in the direct placement program was 450,000. Estimated
expenses associated with the offering as of June 30, 1996 are $1.9 million. On
July 10, 1996, the Company issued an additional 1,068,750 Class A shares and
raised an additional $15.0 million, net of underwritten commission, pursuant to
the exercise of an overallotment option granted to the underwriters by the
Company. The net proceeds from the offerings were used to repay a portion of the
Company's outstanding debt.
Increased Ownership Interest in Television Food Network, G.P.
As discussed in note 4 to the condensed consolidated financial statements, in
May 1996, the Company purchased the equity partnership interests held by
Landmark and 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 June 30, 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 committee. As a result of the purchases, TVFN became a
controlled subsidiary of the Company and was consolidated into the Company's
results of operations beginning in May, 1996. 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 $22.5 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 ten-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 payable at the Company's option in cash
or in shares of the Company's Class A common stock. The option is exercisable by
either the Company or KONG after such time as the Federal Communications
Commission (the "FCC") permits ownership of two television stations in a single
market. 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.
Until the option to purchase the station is 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.
16
<PAGE> 17
Execution of a Local Marketing Agreement -- KSKN- TV in Spokane, Washington
At the end of June, 1996 the Company entered into a ten-year LMA with KSKN-TV,
("KSKN"), channel 22 in Spokane, Washington and has an option to purchase the
station at an agreed upon exercise price payable at the Company's option in cash
or in shares of the Company's Class A common stock. The option is exercisable by
either the Company or KSKN after such time as the FCC permits ownership of two
television stations in a single market. Under the agreement, the Company will
spend approximately $1.5 million for equipment and will provide annual
programming and marketing services to the LMA station pursuant to which the
Company will receive all advertising revenues. Until the option to purchase the
station is exercised, the Company is required to make annual payments to KSKN of
approximately $0.24 million per year through October, 1997 and $0.36 million per
year thereafter.
Litigation
As discussed in Note 11 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
declaratory judgment in this action in favor of Cable LP was entered on May 21,
1996. Such judgment requires, among other matters, Dynamic and Colony to
negotiate with Cable LP on a price to transfer Dynamic's interest in the general
partnership to Cable LP.
The Company has appealed this judgment and moved to stay the effect of the
judgment during the pendency of the appeal. On June 10, 1996, a hearing was
held on the Company's motion to stay. At such hearing, the judge declined to
grant or deny the Company's motion to stay at this time. The Company is unable
to predict at this time what the ultimate outcome of this litigation might be.
In accordance with applicable accounting principles, 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 proceeds received from the disposal of
the cable assets 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.
RESULTS OF OPERATIONS-QUARTER & SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Consolidated
Consolidated revenues for the second quarter of 1996 increased 13.6% to $91.3
million from $80.4 million for the same period last year. Revenues for the six
months ended June 30, 1996 were $166.4 million, an increase of 10.8%, compared
to $150.2 million for the 1995 period. Continued strong growth in the second
quarter of 1996 in Broadcasting revenues contributed significantly to the
increase in consolidated revenues for the period. Broadcasting revenues for the
quarter increased 16.2% to $54.8 million for the 1996 period compared to $47.2
million for the 1995 period. Coupled with the 11.6% increase exhibited in the
first quarter of 1996, Broadcasting revenues for the six months ended June 30,
1996 of $98.2 million are 14.1% greater than Broadcasting revenues of $86.1
million for the same period last year. Publishing revenues of $33.3 million for
the second quarter of 1996 have improved $0.9 million, or 2.9%, over the second
quarter of 1995 revenues of $32.4 million, turning around the first quarter of
1996 slight decline of $0.2 million compared to the same period in 1995. Second
quarter's results led to an overall increase of $0.7 million in Publishing
revenues to $63.4 million from $62.7 million for the six months ended June 30,
1996 and 1995, respectively. Programming and Electronic Media segment revenues
of $3.2 million for the quarter and $4.8 million for the six months in 1996 have
increased over revenues for the same 1995 periods of $0.9 million and $1.4
million, respectively, primarily due to the consolidation of TVFN in May, 1996.
TVFN, which accounted for $2.2 million of the segment's revenue for the quarter
and six months ended June 30, 1996, was previously recorded by the Company on
the equity method of accounting. The remaining businesses in the Programming and
Electronic Media segment are in the early development phase of operations.
Consolidated operating and administrative expenses increased $14.5 million for
the second quarter of 1996 primarily due to the effects of consolidating AHN
since January, 1996 and TVFN since May, 1996, which together added $12.8 million
in operating and administrative expenses to the second quarter of 1996 in the
Programming and Electronic Media segment. Likewise, including the $15.4 million
added because of the effects of the consolidation of AHN and TVFN, consolidated
operating and administrative expenses
17
<PAGE> 18
increased 17.2%, or $20.8 million for the six months ended June 30, 1996 to
$142.0 million compared to $121.2 million for the 1995 period. Broadcasting
operating and administrative expenses increased 7.9% for the quarter and 9.4%
for the six months ended June 30, 1996 over the same periods last year due
primarily to the incremental costs of a start-up news operation in Honolulu.
Publishing operating and administrative expenses decreased 5.1%, or $1.4
million, for the second quarter of 1996 compared to 1995 and decreased 3.5%, or
$1.9 million, for the six months ended June 30, 1996 to $54.3 million from $56.2
million for the 1995 period primarily due to net payroll savings from the
Newspaper Consolidation and Newspaper Restructuring which totaled $1.6 million
for the second quarter of 1996 and $2.1 million year to date. Combined savings
for the quarter from the discontinuance of a local shopper and the elimination
of a Sunday magazine, nearly offset a charge recorded in the second quarter of
$1.0 million for Publishing employee gainsharing incentives. A favorable
variance of $0.2 million in the second quarter of 1996 for newsprint costs
helped reduce year to date unfavorable newsprint costs variances to $0.8 million
for the six months ended June 30, 1996. Corporate operating and administrative
expenses for the second quarter of 1996 were even with the 1995 period and 5.0%
lower for the six months ended June 30, 1996 compared with the same period in
1995.
Consolidated depreciation and amortization expense increased $2.9 million for
the second quarter of 1996 to $11.0 million from $8.1 million in the 1995 period
and increased $4.9 million to $20.9 million from $16.0 million for the six
months ended June 30, 1996. The increases are due primarily to the additional
amortization expense in 1996 of approximately $1.8 million per quarter
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"). The consolidation of TVFN and AHN
contributed $1.3 million to the increase in year to date depreciation
expense.
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. Of the $3.7 million which was unvested at March 31, 1996, $1.3 million
became vested and was charged to operations in the second quarter of 1996. Of
the $2.4 million unvested portion at June 30, 1996, $1.3 million will be
charged to the third quarter of 1996 and the remainder will be charged evenly
to operations over the remaining vesting period of the plans, through the third
quarter of 1998. The adjustment to the stock-based compensation plans was
pursuant to provisions in the Company's IUP, restricted stock unit plan and
certain stock option plans for which participants in such 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. In February,
1996, Continental and US West Media Group jointly announced 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>
In the first and second quarters of 1996, the Company recorded additional
charges to operations of approximately $1.1 million and $1.3 million,
respectively, relating to early retirement costs and voluntary separation
benefits in connection with a 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 following table illustrates the current status of the
restructuring accrual by component (in millions):
<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
Charge to second quarter operations 1.3 1.3
Utilization of accrual (0.3) (0.2) (0.5)
Funding by pension plan (6.3) (6.3)
----- ----- -----
Balance at June 30, 1996 $ 2.3 $ 0.1 $ 2.4
===== ===== =====
</TABLE>
The Newspaper Restructuring and Newspaper Consolidation are expected to generate
savings of approximately $10.0 million per year and a net full-time equivalent
("FTE") reduction of 170 of the Publishing work force is expected.
Interest expense increased $3.3 million to $5.9 million for the second quarter
of 1996 from $2.6 million in the same period last year and increased $5.7
million to $11.0 million for the six months ended June 30, 1996 from $5.3
million for
18
<PAGE> 19
the same period in 1995 due to increased interest 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. Effective interest rates were
8.2% for the quarter and 8.1% year to date for 1996 compared to 8.8% for the
1995 quarter and 8.9% for the 1995 six month period.
As a result of the additional stock-based compensation expense, additional
Newspaper Restructuring charges, and consolidations of AHN and TVFN together
offsetting the operating results of Broadcasting and Publishing, the loss from
continuing operations for the second quarter and six months ended June 30, 1996
was $3.4 million and $18.3 million, respectively, compared to income from
continuing operations of $1.9 million and loss of $0.9 million, respectively for
the same periods in 1995. The minority interest credits of $2.9 million and $4.0
million for the quarter and six months in 1996, respectively, represents the
minority partners' share of AHN and TVFN losses for those periods. The minority
interest charges of $1.7 million and $2.0 million, respectively, in the 1995
periods represent the minority partner's share of King Holding Corp. ("KHC")
income for those periods in 1995. Including the discontinued operations charge
discussed above, net loss for the second quarter and six months ended June 30,
1996 was $0.5 million and $17.8 million, respectively, compared to net income of
$0.3 million for second quarter of 1995 and net loss of $2.8 million for the six
months ended June 30, 1995.
Consolidated EBITDA (defined below), excluding Programming and Electronic Media
and corporate expenses, increased substantially at 34.2% to $30.4 million in the
second quarter of 1996 from $22.6 million in the second quarter of 1995 leading
to a year to date increase of 26.3% to $45.4 million for the six months ended
June 30, 1996 from $36.0 million for the same period in 1995. Broadcasting
experienced 28.8% EBITDA growth in the second quarter of 1996 to $24.0 million
from $18.6 million in the 1995 period. For the six months ending June 30, 1996
and 1995, Broadcasting EBITDA was $36.3 million and $29.5 million, respectively,
an increase of 22.9%. Broadcasting EBITDA margins for the quarter and six months
ended June 30, 1996 improved to 43.8% and 37.0%, respectively. Publishing EBITDA
increased $2.4 million, or 58.7%, in the second quarter of 1996 and grew 41.9%
for the six month 1996 period to $9.2 million from $6.5 million in the six month
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 $11.4
million in the second quarter of 1996 and a loss of $14.8 million for the six
months ended June 30, 1996. 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.
Broadcasting
Broadcasting consists of nine owned and operated stations and four (one of which
is under construction) stations operated under LMAs in which the Company
provides marketing and programming services. These thirteen stations serve
markets in Seattle, WA; Portland, OR; Charlotte, NC; Albuquerque, NM;
Louisville, KY; Honolulu, HI; Spokane, WA; Tucson, AZ; and Boise, ID. The KONG
and KSKN LMAs did not contribute to the operating results for the quarter or
six months ended June 30, 1996 as these were not operational under the Company
for the periods.
Broadcasting revenues for the quarter increased 16.2% to $54.8 million for the
1996 period compared to $47.2 million for the 1995 period. Coupled with the
11.6% increase exhibited in the first quarter of 1996, Broadcasting revenues for
the six months ended June 30, 1996 of $98.2 million are 14.1% greater than
Broadcasting revenues of $86.1 million for the same period last year. Revenues
from the Company's NBC affiliates increased 22.8% for the quarter and 18.6% year
to date for 1996 over the 1995 periods. Revenue growth for the second quarter of
1996 was particularly strong in Seattle (23.9%), Charlotte (23.6%) and Honolulu
(36.9%) with only Louisville and Spokane being relatively flat with 1995 in the
second quarter of 1996. All other stations exceeded 10% revenue growth over 1995
for the second quarter. National advertising revenues increased 8.6% for the
second quarter of 1996 to $25.9 million from $23.9 million for the 1995 period.
Local and regional advertising increased 22.4% in the second quarter of 1996 to
$34.4 million from $28.1 million for the same period in 1995. The Seattle
Supersonics participation in the NBA playoffs contributed approximately $0.8
million in advertising revenue in Seattle during the second quarter of 1996.
Also, improved ratings in Honolulu from local university sports coverage in
addition to the switch to affiliation with NBC in January, 1996 coupled with
increased political advertising in Portland, increased retail market growth in
Charlotte, and strong ratings in Boise have all contributed to the growth in the
second quarter of 1996 in Broadcasting revenues. For the six months ended June
30, 1996, Broadcasting national advertising revenues increased 8.7% to $45.7
million from $42.1 million for
19
<PAGE> 20
the 1995 period and local and regional advertising increased 18.5% to $61.4
million from $51.8 over the same period last year.
Broadcasting operating and administrative expenses increased 7.9% to $30.8
million in the second quarter of 1996 from $28.6 million for the 1995 period and
increased 9.4% for the six months ended June 30, 1996 to $61.9 million compared
to $56.6 million for the same periods last year. 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) coupled with the increased news costs associated with weather
coverage in the Northwest. Depreciation and amortization expense increased $1.8
million for the quarter and $3.6 million for the six months ended June 30, 1996
compared to the 1995 periods reflecting the increased amortization associated
with the step-up in carrying value of intangible assets acquired in the Kelso
Buyout.
Of the $7.6 million increase in the 1996 second quarter revenue compared to the
1995 period, 46.7% flowed directly to operating income, thereby increasing
operating income for the second quarter of 1996 by $3.6 million over 1995 to
$17.2 million from $13.6 million. Year to date operating income for the
Broadcasting segment is $22.8 million for the 1996 period compared to $19.6
million for the 1995 period, an increase of 16.0%.
Broadcasting experienced 28.8% EBITDA growth in the second quarter of 1996 to
$24.0 million from $18.6 million in the 1995 period. For the six months ending
June 30, 1996 and 1995, Broadcasting EBITDA was $36.3 million and $29.5 million,
respectively, an increase of 22.9%. Broadcasting EBITDA margins for the quarter
and six months ended June 30, 1996 improved to 43.8% and 37.0%, respectively.
The NBC affiliated stations showed a 47.0% growth in 1996 second quarter EBITDA
and 36.2% growth for the 1996 six month EBITDA over the same periods last year.
Broadcast Cash Flow, which represents Broadcasting EBITDA adjusted to add back
corporate expense allocations plus program rights amortization less program
rights payments, similarly grew 27.9% for the 1996 quarter and 21.4% for the
1996 six months compared to the same 1995 periods. Broadcast Cash Flow is not,
however, 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 in the Company's 1995 Annual Report as
filed on Form 10-K, in response to changing readership preferences and
declining circulation, primarily in The Evening Bulletin, and to reduce the
Company's cost structure, 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 of $33.3 million for the second quarter of 1996 have
improved $0.9 million, or 2.9%, over the second quarter of 1995 revenues of
$32.4 million. Advertising revenues improved in the second quarter of 1996 and
are 4.0% greater than the second quarter of 1995 due to increased lineage of
approximately 1.6% and an increase in average rate of 2.3%. As a result of the
Newspaper Consolidation, average daily circulation for the six months ended June
30, 1996 decreased 6.3% to 170,812 from an average of 182,387 for the six months
ended June 30, 1995. Average Sunday circulation for the 1996 six months was
249,743, down 4.4% from 261,150 for the same period last year, largely because
of increased price. Despite the decline in circulation levels, circulation
revenues are up 4.5% for the quarter and 3.8% for the six months ended June 30,
1996 as a result of price increases. Second quarter's results led to an overall
increase of $0.7 million in Publishing revenues to $63.4 million from $62.7
million for the six months ended June 30, 1996 and 1995, respectively.
Publishing operating and administrative expenses decreased 5.1%, or $1.4
million, for the second quarter of 1996 to $26.9 million from $28.3 million for
the 1995 period and decreased 3.5%, or $1.9 million, for the six months ended
June 30, 1996 to $54.3 million from $56.2 million for the 1995 period. These
declines were primarily due to net payroll savings from the Newspaper
Consolidation and Newspaper Restructuring which totaled $1.6 million for the
second quarter of 1996 and $2.1 million year to date. Combined savings for the
quarter from the discontinuance of a local shopper and the elimination of a
Sunday magazine, nearly offset a charge recorded in the second quarter of $1.0
million for Publishing employee gainsharing incentives. A reduction in newsprint
costs of $0.2 million in the second quarter of 1996 helped reduce year to date
unfavorable newsprint costs variances to $0.8 million for the six months
20
<PAGE> 21
ended June 30, 1996. The favorable newsprint variance was driven primarily due
to decreased consumption. Average price per metric ton increased 9.3% for the
second quarter of 1996 compared to the 1995 period.
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 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 charge to
operations of $1.1 million in the first quarter of 1996 and $1.3 million in the
second quarter of 1996. The Company expects annual savings from the Newspaper
Restructuring to be approximately $6.0 million, and together with the Newspaper
Consolidation annual savings of $10 million are anticipated. Substantially all
costs under both these plans have been or will be paid by the Company's pension
plans (in which plan assets exceed plan obligations).
Despite the $1.3 million additional restructuring charge during the quarter,
Publishing posted a $2.4 million operating profit for the second quarter of 1996
compared to a loss of $0.9 million in 1995. For the six months ending June 30,
1996 Publishing had operating income of $1.3 million compared to a loss of $1.4
million for the same period last year.
Publishing EBITDA increased $2.4 million, or 58.7%, in the second quarter of
1996 and grew 41.9% for the six month 1996 period to $9.2 million from $6.5
million in the six month 1995 period.
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 AHN, 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 half of 1996, the Company continues to fund its share of the
operations of its investment in TVFN and AHN. In 1995, the Company grouped these
investments together in a new segment called "Programming and Electronic Media."
The Company made significant investments in its Programming and Electronic Media
investments during the quarter ended June 30, 1996, totaling $46.6 million
including $17.5 million in AHN and $27.1 million in TVFN. Total cumulative
investments through June 30, 1996 in the Programming and Electronic Media
segment total $102.3 million. Effective January 1, 1996, the Company
consolidated its investment in AHN, and effective May 1, 1996 consolidated its
investment in TVFN reflecting management's decision to expand its holdings in
these entities and grow this segment. These investments were previously
accounted for under the equity method of accounting. In addition to AHN and
TVFN, the Company currently consolidates its wholly owned businesses NWCN and
Rhode Island Horizons. On July 31, 1996, Rhode Island Horizons ceased service on
the Prodigy network in order to focus attention on fully developing its web
site, http://www.projo.com, expected to debut on October 1, 1996.
Programming and Electronic Media segment revenues of $3.2 million for the
quarter and $4.8 million for the six months in 1996 have increased over revenues
for the same 1995 periods of $0.9 million and $1.4 million, respectively,
primarily due to the consolidation of TVFN in May, 1996. TVFN accounted for $2.2
million of the segment's revenue for the quarter and six months ended June 30,
1996 . Subscribers for TVFN have grown 35.8% to 16.7 million as of June 30, 1996
compared to 12.3 million as of June 30, 1995. AHN has 3.4 million subscribers
and NWCN has 1.4 million subscribers as of June 30, 1996.
The effects of consolidating AHN since January, 1996 and TVFN since May, 1996,
together added $12.8 and $15.4 million in operating and administrative expenses
to the second quarter and six months of 1996, respectively in the Programming
and Electronic Media segment.
Primarily because of the consolidation of TVFN and the start-up venture AHN in
1996, the Programming and Electronic Media segment operating losses were $12.7
million and $16.3 million, respectively, for the second quarter and six months
ended June 30, 1996.
21
<PAGE> 22
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 for the quarter and six months ended June 30, 1996. It is intended to
enhance the reader's understanding of, and reconciles EBITDA to, the cash flows
provided by (used in) operations as presented in the Company's condensed
consolidated statement of cash flows for the quarter and six months ended June
30, 1996 included elsewhere in this Form 10-Q. Cash inflows (outflows) from
operations can be analyzed as follows (in millions):
<CAPTION>
Quarter Six Months
Ended Ended
June 30, 1996 June 30, 1996
-----------------------------
<S> <C> <C>
EBITDA:
Broadcasting $ 24.0 $ 36.2
Publishing 6.4 9.2
Programming and Electronic Media (11.4) (14.8)
Corporate (3.1) (6.2)
-----------------------
Total 15.9 24.4
Program rights amortization 4.4 8.8
Interest expense (5.9) (11.0)
Other income 1.4 2.7
Income tax refunds received, net of payments made 0.1 4.2
Other working capital items, primarily accounts payable,
accounts receivable, and prepaids (11.7) (19.0)
-----------------------
Cash flow from operations before one-time cash payouts 4.2 10.1
One-time cash payouts
IRS and state tax settlements (1) (3.5)
Payment of working capital and other cable-related disposal adjustments (2) (0.1) (8.8)
-----------------------
Cash flow provided by (used in) operations $ 4.1 $ (2.2)
=======================
<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
The Company made significant investments in its Programming and Electronic Media
investments during the quarter ended June 30, 1996, totaling $46.6 million
including $17.5 million in AHN and $27.1 million in TVFN. See also "
Developments in the Quarter" discussed earlier.
Dividends
On May 8, 1996, the Board of Directors of the Company declared a dividend of
$0.1907 per share which was paid on June 14, 1996. Combined with dividends paid
during the first quarter of 1996, total dividends paid per share for the six
months ended June 30, 1996 equals $0.2542. No additional dividends are
contemplated for 1996 or the foreseeable future. The Company intends to
reevaluate this dividend policy in the event the US West Merger is not
consummated or should other circumstances change. The Company intends to
reevaluate this dividend policy in the event the US West Merger is not
consummated or should other circumstances change. Dividends paid for the quarter
and six months ended June 30, 1995 equaled $0.0636 and $0.1271, respectively.
22
<PAGE> 23
Financing
As discussed in Note 6 of the condensed consolidated financial statements
included elsewhere in this Form 10-Q, the Company's total debt outstanding at
June 30, 1996 was $211.8 million. The net decrease in debt during the six months
ended June 30, 1996 was a result of the $106.3 million net proceeds raised from
the Company's initial public offering and direct placement of Class A shares
discussed previously, offset by the funding of the above described investing and
operating activities. The amount of credit available under its revolving credit
facility at June 30, 1996 was $173.0 million. The Company's debt to equity ratio
at June 30, 1996 was 0.62 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" and those
discussed under "Developments in the Quarter." To the extent that the Company
makes significant acquisitions or investments or is required to meet significant
liquidity requirements other than as 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.
23
<PAGE> 24
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 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
declaratory judgment in this action in favor of Cable LP was entered on May 21,
1996. Such judgment requires, among other matters, Dynamic and Colony to
negotiate with Cable LP on a price to transfer Dynamic's interest in the general
partnership to Cable LP. The Company appealed this judgment and moved to stay
the effect of the judgment during the pendency of the appeal. On June 10, 1996,
a hearing was held on the Company's motion to stay. At such hearing, the judge
declined to grant or deny the Company's motion to stay at this time.
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 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 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 proceeds
received from the disposal of the cable assets 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".
See also the discussion of this action in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and the Company's Quarterly Report on
Form 10Q (as amended on June 11, 1996).
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
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of the Company on May 8, 1996, the shareholders approved
the following proposals except Proposal 5:
24
<PAGE> 25
(1) The election of four directors of the Company to serve a three-year
term, and until their successors are elected and qualified. The members of the
Board of Directors of the Company continuing in office were Henry P. Becton,
Jr., Fanchon M. Burnham, Stephen Hamblett, Paul A. Maeder, Trygve E. Myhren,
John W. Rosenblum, W. Nicholas Thorndike, John W. Wall and Patrick R.
Wilmerding.
(2) A proposal to approve an amendment of the 1994 Providence Journal
Employee Stock Option Plan to (a) increase the number of shares reserved for
issuance thereunder from 3,750 to 8,000, (b) increase the maximum number of
shares which may be issued to any one individual from 750 to 1,600 and (c)
extend the term of the Plan for one additional year. *
(3) A proposal to approve an amendment of the 1994 Providence Journal
Non-Employee Director Stock Option Plan to (a) increase from five to ten the
number of shares of the Company's Class A Common Stock that are subject to
option grants annually to each non-employee director, and (b) increase the
number of shares of the Company's Class A Common Stock reserved for issuance
thereunder from 400 to 530. *
(4) A proposal to amend the Company's Certificate of Incorporation (a)
to decrease (i) the number of authorized shares of the Company's Class A Common
Stock from 180,000,000 to 150,000,000 shares and (ii) the number of shares of
the Company's Class A Common Stock reserved under the Certificate of
Incorporation for issuance under the Rights Agreement (as herein defined) from
135,000,000 to 75,000,000 and the number of shares of the Company's Class B
Common Stock reserved under the Certificate of Incorporation for issuance under
the Rights Agreement from 35,118,750 to 23,412,500 and (b) to make certain other
technical amendments.
(5) A proposal to amend the Company's Certificate of Incorporation to
eliminate the ability of stockholders to act by written consent.
(6) The ratification of the selection by the Board of Directors of KPMG
Peat Marwick LLP as independent certified public accountants to audit the
financial statements of the Company for the fiscal year ending December 31,
1996.
* Share numbers are prior to the 450 for 1 stock split completed in connection
with the initial public offering of the Company's Class A Common Stock.
<TABLE>
The results of the Annual meeting were as follows:
<CAPTION>
Proposal 1 For Withheld
--- --------
<S> <C> <C>
Slate of Directors
F. Remington Ballou 125,571 64,502
Kay K. Clarke 125,571 64,502
Peter B. Freeman 125,571 64,502
Benjamin P. Harris, III 130,647 59,426
</TABLE>
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Proposal 2 113,548 1,059 75,466
Proposal 3 109,603 19,430 61,040
Proposal 4 137,164 558 52,351
Proposal 5 74,024 99,728 16,321
Proposal 6 132,562 168 57,343
</TABLE>
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:
3.1 Certificate of Incorporation of The Providence
Journal Company, as amended (incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on
Form S-1 (File No. 333-02703)).
3.2 By-laws of The Providence Journal Company, as amended
(incorporated by reference to Exhibit 3.2 of the Company's
Registration Statement on Form S-1 (File No. 333-02703)).
4.1 Form of Rights Agreement between The Providence Journal
Company and The First National Bank of Boston, as Rights
Agent (incorporated by reference to Exhibit 4.1 of the
Company's Current Report on Form 8-K dated May 8, 1996).
10.1 The Providence Journal Company 1994 Employee Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.1
of the Company's Registration Statement on Form S-1 (File
No. 333-02703))
25
<PAGE> 26
10.2 The Providence Journal Company 1994 Non-Employee Director
Stock Option Plan, as amended (incorporated by reference to
Exhibit 10.2 of the Company's Registration Statement on Form
S-1 (File No. 333-02703))
10.3 Form of Change of Control Agreement (incorporated by
reference to Exhibit 10.6 of the Registration Statement on
Form S-4 (File No. 33-57479), together with list of all
executive officers who are a party to such agreements and
the details in which such documents differ from the form of
the document as so filed (incorporated by reference to
Exhibit 10.6 of the Company's Registration Statement on Form
S-1 (No. 333-02703))
10.4 Partnership Interest Purchase and Sale Agreement dated April
2, 1996 between the Company and Landmark Programming, Inc.
(incorporated by reference to Exhibit 10.10 of the Company's
Registration Statements on Form S-1 (File No. 333-02703))
10.5 Partnership Interest Purchase and Sale Agreement dated April
2, 1996 between the Company and Scripps Howard Publishing,
Inc. (incorporated by reference to Exhibit 10.11 of the
Company's Registration Statement on Form S-1 (File No.
333-02703))
11 Statement of Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated May 8, 1996.
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: August 14, 1996
THE PROVIDENCE JOURNAL COMPANY
By: /s/ Thomas N. Matlack
---------------------------------------------------------------
Thomas N. Matlack
Vice President-Finance and Chief Financial Officer
(principal financial officer)
By: /s/ Robert G. Colucci
---------------------------------------------------------------
Robert G. Colucci
Corporate Controller
(chief accounting officer)
By: /s/ John L. Hammond
---------------------------------------------------------------
John L. Hammond
Vice President-General Counsel and Chief Administrative Officer
26
<PAGE> 1
Exhibit 11
----------
<TABLE>
THE PROVIDENCE JOURNAL COMPANY
STATEMENTS OF COMPUTATION OF
EARNINGS (LOSS) PER SHARE
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
Ouarter Ended Six Months Ended
------------- ----------------
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
SHARE INFORMATION
- -----------------
WEIGHTED AVERAGE SHARES OUTSTANDING 38,821 38,110 38,611 38,110
COMMON STOCK EQUIVALENTS
Options, restricted stock units (net)
outstanding 1,972 681 1,972 681
======= ======= ======= =======
Incremental shares outstanding using
the treasury stock method:
Primay (average fair value) 711 644 711 644
======= ======= ======= =======
Fully dilutive (ending fair value) 711 644 711 644
======= ======= ======= =======
CONTINGENTLY ISSUABLE
Approximate number of shares
issuable under US West Merger
stock-based adjustment (ending fair value) 501 -- 501 --
======= ======= ======= =======
EARNINGS (LOSS) PER SHARE ("EPS") INFORMATION AND CALCULATION
- -------------------------------------------------------------
FULLY DILUTIVE EPS
Net income (loss) $ (530) $ 260 $(17,807) $ (2,845)
======= ======= ======== =======
Average shares outstanding 38,821 38,110 38,611 38,110
Incremental shares of dilutive securities(1)
Common stock equivalents -- 644 -- --
Contingently issuable -- -- -- --
------- ------- ------- -------
Number of fully dilutive shares 38,821 38,754 38,611 38,110
======= ======= ======= =======
Fully dilutive EPS $ (0.01) $ 0.01 $ (0.46) $ (0.07)
======= ======= ======= =======
BASIC EPS(2) $ (0.01) $ 0.01 $ (0.46) $ (0.07)
======= ======= ======= =======
<FN>
(1) Common stock equivalents and contingently issuable shares are excluded in
loss periods as their effect is anti-dilutive.
(2) Because dilution of Basic EPS is not 3% or greater in calculating Fully
dilutive EPS, it is considered immaterial by the Company under current
accounting rules. Consequently, the Company presented only Basic EPS on its
condensed consolidated statements of operations for the periods covered by
this report.
</TABLE>
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
PROVIDENCE JOURNAL COMPANY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND
FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 20,448
<SECURITIES> 3,770
<RECEIVABLES> 58,873
<ALLOWANCES> 0
<INVENTORY> 883
<CURRENT-ASSETS> 154,431
<PP&E> 182,024
<DEPRECIATION> 0
<TOTAL-ASSETS> 762,515
<CURRENT-LIABILITIES> 71,534
<BONDS> 0
<COMMON> 45,998
0
0
<OTHER-SE> 296,327
<TOTAL-LIABILITY-AND-EQUITY> 762,515
<SALES> 0
<TOTAL-REVENUES> 91,335
<CGS> 0
<TOTAL-COSTS> 89,622
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (5,936)
<INCOME-PRETAX> (3,930)
<INCOME-TAX> (543)
<INCOME-CONTINUING> (3,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (530)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
