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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to _________
Commission file number 1-10263
T/SF COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 73-1341805
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2407 East Skelly Drive, Tulsa, Oklahoma 74105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (918) 747-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange
- ------------------- on which Registered
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Common Stock, $0.10 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [___]
As of March 15, 1996, 3,349,985 shares of the registrant's Common Stock
were outstanding. The aggregate market value of those shares held by
nonaffiliates of the registrant on March 15, 1996, was approximately
$26,200,000. For this purpose, the Common Stock was valued at $13.88 per share,
being the closing price on March 15, 1996, on the American Stock Exchange on
which the stock is traded. For purposes of this computation, only officers and
directors of the registrant, the chief operating officer(s) of each of its
material subsidiaries, and beneficial owners of more than 10 percent of the
combined voting power of all voting securities of the registrant, and affiliates
of such persons, were deemed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Form
10-K:
1. Registrant's Current Report on Form 8-K, dated August 16, 1995,
with respect to events occurring on August 2, 1995 (Part I, Item
1).
2. Registrant's definitive Proxy Statement for its 1996 Annual Meeting
of Stockholders to be filed by April 29, 1996. (Part III, Items 10,
11, 12 and 13).
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PART I
Item 1. Business
General
The Company, operating through subsidiaries, is a diversified
communications and information company.
The Company was incorporated in Delaware on March 17, 1989. Unless the
context otherwise requires, references to the "Company" include T/SF
Communications Corporation and its consolidated subsidiaries. During 1995, the
Company operated with three operating divisions: publishing, exposition services
and information. In the first half of 1995, the publishing division consisted of
four trade journals, Convenience Store News, United States Distribution Journal,
and The Journal of Petroleum Marketing (these three journals are referred to as
the "Distribution Titles") and International Gaming and Wagering Business
("IGWB"), and their related activities, including, as to IGWB, owning and/or
managing trade shows and conferences directed to the legalized gaming industry
(as used hereafter, "IGWB" shall include such related activities). As described
below, the Company sold the Distribution Titles in August, 1995, effective July
1, 1995. The Company's exposition services business consists of the business of
Galaxy Registration, Inc. ("Galaxy"), the provider of trade show/convention
registration services and exhibitor information and marketing services, and,
through Atwood Convention Publishing, Inc. ("Atwood"), the publication of
various convention and trade show related publications, such as directories and
convention daily newspapers, primarily on a contract basis, Expo, The Magazine
for Exposition Management ("Expo") and promotion and marketing services for
corporate exhibitors. The Company's information division is engaged in the
business of obtaining, processing and providing motor vehicle reports, truck
driver employment information, criminal records and other pre-employment
screening services primarily to the insurance and trucking industries.
Before October 1, 1992, the Company published a daily newspaper, The
Tulsa Tribune, in Tulsa, Oklahoma. On September 30, 1992, the Company and World
Publishing Company ("World"), the publisher of the morning daily newspaper in
Tulsa, ended their 51 year joint operating arrangement. As a result of this
transaction, the Company received approximately $12,850,000 in 1992, plus
proceeds from liquidation of accounts receivable and inventory, received
$450,000 per month through March 1, 1996, and The Tulsa Tribune was closed.
Merger with Tribune/Swab-Fox
On January 25, 1995, the Company entered into an Agreement and Plan of
Merger (as amended on March 3, 1995, the "Merger Agreement") with Tribune/Swab-
Fox Companies, Inc. ("Tribune/Swab-Fox"), the then owner of 78% of the issued
and outstanding shares of the Company's Common Stock, $0.10 par value (the
"Company Common Stock"), whereby Tribune/Swab-Fox was merged with and into the
Company (the "Merger"). In the Merger, Tribune/Swab-Fox stockholders (other than
the Company) received, with respect to each share of Tribune/Swab-Fox Common
Stock, $0.10 par value ("Tribune/Swab-Fox Common Stock")
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owned, 0.1255 of a share of Company Common Stock or, at the election of the
stockholder and subject to certain limitations described in the Merger
Agreement, $0.88 in cash (the "Cash Alternative"). The Merger Agreement was
approved by the stockholders of both companies. A Registration Statement on Form
S-4 (File No. 33-57587), effective April 27, 1995, was filed with the Securities
and Exchange Commission for use in securing stockholder approval and the Joint
Proxy Statement/Prospectus constituting a part thereof was mailed in April,
1995, for stockholder meetings of the companies held on May 24, 1995, at which
the aforesaid approvals were received.
In the Merger, the Company acquired 8,850,000 shares of Tribune/Swab-
Fox Common Stock, $0.10 par value, or 1,110,675 equivalent shares of Company
Common Stock (based on the 0.1255 conversion ratio in the Merger, as described
above), for cash in the Cash Alternative (for a total cash payment of
$7,788,000). The remaining shares of Tribune/Swab-Fox Common Stock were
converted to shares of Company Common Stock. Because Tribune/Swab-Fox was merged
with and into the Company and, therefore, the Company, in effect, acquired
3,777,500 shares of Company Common Stock owned by Tribune/Swab-Fox, the effect
of the Merger, after considering the number of shares of Tribune/Swab-Fox
electing the Cash Alternative, was to reduce the number of shares of Company
Common Stock outstanding from 4,894,024 shares immediately prior to the Merger
to 3,839,801 shares after the completion of the Merger and the repurchase of
shares under the Cash Alternative.
While, from a legal standpoint, Tribune/Swab-Fox merged with and into
the Company, the Merger is accounted for as a down stream merger. Thus, for
accounting and financial reporting purposes, the acquisition has been treated as
a recapitalization of Tribune/Swab-Fox with Tribune/Swab-Fox as the survivor.
Accordingly, the historical financial statements of the Company, as the
surviving legal entity, are those historical financial statements of
Tribune/Swab-Fox. In connection with the Merger, the Board of Directors of
Tribune/Swab-Fox declared a one time dividend of $0.0344 per share ($0.27 per
equivalent share of Company Common Stock) which was paid on May 24, 1995, to
holders of Tribune/Swab-Fox Common Stock of record on April 5, 1995.
Sale of Distribution Titles
On August 2, 1995, the Company completed the sale of the Distribution
Titles and certain related activities, including the CSN/NAG Expo (a trade show
directed to the convenience store industry) owned by its BMT Communications,
Inc. subsidiary (now named G.E.M. Communications, Inc., the publisher of IGWB),
to Trade Publishing L.L.C., a Delaware limited liability company ("Buyer"), an
affiliate of Macfadden Publishing, Inc., a Delaware corporation, pursuant to the
terms of that certain Asset Purchase Agreement, dated June 16, 1996, as amended
(the "Asset Purchase Agreement"). In such sale, Buyer paid $21,000,000 in cash
at closing. An additional $387,000 will be received based on certain working
capital adjustments. Reference is made to the Company's current report on Form
8-K, dated August 16, 1995, with respect to events occurring on August 2, 1995,
for a complete description of this transaction, as well as certain pro forma
financial information.
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Stock Repurchases
In addition to the Company Common Stock effectively repurchased as part
of the Cash Alternative in the Merger, the Company has also recently acquired
additional shares of Company Common Stock, as follows:
(i) Pursuant to a letter agreement, dated August 14, 1995, the
Company acquired 464,814 shares of Company Common Stock from
The Prudential Insurance Company of America, for a purchase
price of $11.00 per share or a total of $5,112,954. This sale
was closed on August 16, 1995.
(ii) Pursuant to a Settlement Agreement, dated as of December 12,
1995 (the "Settlement Agreement"), the Company settled certain
disputes and other matters arising from that certain
Retirement Agreement, dated December 14, 1994 (the "Retirement
Agreement"), entered into between Tribune/Swab-Fox and Robert
J. Swab ("Swab"), which became the obligation of the Company
as a result of the Merger. Under the Retirement Agreement,
Swab was indebted to the Company for $300,000, as of December
12, 1995, plus accrued interest. There were 50,200 shares of
Company Common Stock pledged as security for such loan. In
addition, pursuant to the Retirement Agreement, the Company
had a "call" and Swab had a "put" on such 50,200 shares of
Company Common Stock, at $8.77 per share and $5.98 per share,
respectively. Such "call" and "put" arrangement also applied
to an additional 37,650 shares of Company Common Stock owned
by Swab, with such "put" and "call" rights accreting to the
Company over the next several years. A dispute had arisen
concerning the intent of the parties in entering into such
"put" and "call" arrangements and, at its meeting held
December 12, 1995, the Board of Directors of the Company
agreed to settle all disputes and eliminate the "puts" and
"calls", which agreement was memorialized in the Settlement
Agreement. The Settlement Agreement was closed on January 2,
1996, by the Company purchasing 30,000 shares of Company
Common Stock from Swab for $10.50 per share, or $315,000. Swab
then repaid in full his loan from the Company, plus accrued
interest. All "puts" and "calls" were eliminated thereafter.
Description of Business
The following information describes the activities of the Company on a
line of business or industry segment basis. Information is also provided with
respect to the development of the business of each division during 1995.
Reference is made to Note 10 to the Financial Statements included in this Form
10-K for summary financial information on each segment of the Company's
business. For the year ended December 31, 1993, the Publishing segment
contributed 77 percent of the total revenues of the Company with substantially
all the remainder for that year being generated by the Information segment. For
the year ended December 31, 1994, the Publishing segment contributed 33 percent
of total revenues of the Company, with the Information segment
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contributing 27 percent and the Exposition Services segment generating 37
percent. For the year ended December 31, 1995, the Publishing segment which
included the gain on the sale of the trade journals contributed 37 percent of
total revenues of the Company, the Information segment contributed 25 percent
and the Exposition Services segment contributed 37 percent.
Publishing
For 1995, the Company's publishing activities included the Distribution
Titles for only the first half of the year. As described above, effective July
1, 1995, the assets and businesses of the Distribution Titles were sold. The
discussion in this section shall, therefore, not describe the Distribution
Titles and reference is made to Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of the financial
impact of the Distribution Titles and their sale in 1995.
IGWB is managed by G.E.M. Communications, Inc. ("G.E.M."), (formerly
BMT Communications, Inc.), and EXPO is managed by Atwood as part of the
exposition services division. Therefore, IGWB's activities are discussed in this
section and EXPO is included in the discussion of the exposition services
division.
IGWB is a trade journal directed to the legalized gaming industry
worldwide and, as such, generates most of its revenues from "business-to-
business" advertising directed to the targeted readers of the journal. As part
of its business, G.E.M. also owns or operates, either directly or in partnership
with others, several trade shows and conferences directed to the gaming
industry. G.E.M. also began publishing two gaming related newsletters in 1995
which are subscription supported.
G.E.M. has enjoyed significant growth in revenues from trade show and
publishing activities in 1995. The trade shows/conferences had an increase in
revenues in 1995 of $1,095,000 over 1994, with gross profit (revenues minus only
direct expenses) from trade shows increasing from $2,501,000 in 1994 to
$2,857,000 in 1995. This occurred despite a loss of approximately $150,000 on a
new start-up conference in Europe. IGWB, the trade journal, increased its total
advertising pages to 531 pages in 1995, as compared to 493 pages in 1994. For
the year, IGWB's activities recorded revenues of $8,220,000, as compared with
$6,750,000 for 1994.
The industry served by IGWB supports several competing journals or
other print products targeted to the same readers and there are many other trade
shows and conferences for the gaming industry. Additionally, the money allocated
for "trade" advertising has not grown as fast in recent years because
alternative media/marketing techniques have competed effectively for advertising
budgets. Because of this, in 1995, G.E.M. began aggressively pursuing an
international strategy, increasing both editorial and circulation coverage
outside of the United States. It is planned that the added costs from this
effort can be recouped in the future from additional advertising revenues.
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The Company's publishing activities were negatively impacted by the
steep rise in the costs of newsprint and coated paper prices, the primary raw
material used in the Company's publishing activities. These prices firmed and
began rising in the second half of 1994, and increased approximately 54 percent
in 1995. These increases in newsprint costs together with the 14 percent postage
increase effective in 1995, had a significant effect on 1995 earnings for IGWB.
Additional smaller increases in such costs are expected in 1996.
Exposition Services
The Company's exposition services division consists of the activities
conducted through Atwood and Galaxy. Atwood's principal line of business has
traditionally consisted of the publication of daily newspapers and related
products for the attendees of trade shows and conventions, the management of
which contracts with Atwood to provide such services. The vast majority of
Atwood's revenues have been generated from advertisers -- who are usually also
exhibitors at the trade show or otherwise have a presence there -- who utilize
Atwood's services to promote their products and presence before, at and after
the show or convention.
Many trade show managers or other publishers are involved in this kind
of publishing activity, but there are rarely more than two or three at any one
show and Atwood only publishes when it contracts directly with the owner or
manager of the show. This approach to the business allows Atwood to always have
the "official" publications at the show or convention.
After several years of significant growth, Atwood's operating income
decreased in 1995 from 1994 (pre-tax income or "operating income" being $483,000
in 1995, including losses referred to below in developing electronic publishing,
as compared to $1,073,000 in 1994). While Atwood's revenues increased from
$13,200,000 in 1994 to $15,052,000 in 1995, margins were lower in 1995 due in
part to the significantly increased newsprint prices described above plus the
cost of the added people to support the increased business volume. In addition,
Atwood invested significant amounts (approximately $350,000 in pre-tax losses),
in developing its electronic publishing capabilities (generally, CD-ROM and
internet-based publishing services). It is intended that these and other
additional investments will begin to be recouped in 1996 and thereafter as
customers are attracted for these new services.
Over the past several years Atwood has been successful in increasing
its revenues and profits from activities other than its core business of daily
newspapers for conventions and trade shows. These "non-core" publishing and
information service activities which have become a major part of the Atwood
business mix include the publication of industry and show directories, show and
industry buying guides, publishing services for association magazines, including
advertising sales, promotional and marketing services for exhibitors in the
trade show context, digital publishing services for trade shows and associations
and the publication of EXPO, The Magazine for Exposition Management. EXPO, which
is dedicated to serving management of the exposition industry, is the official
publication of the International Association for Exposition Management. Atwood
generated slightly less than 50% of its 1995 revenue from its traditional show
daily publishing activities, and expects that figure to continue to drop as a
percentage of 1996 revenue.
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Wayne Atwood, co-founder and, until 1995, President and Chief Operating
Officer of Atwood, reduced his activities with the Company in 1995 due to a
major illness. Mr. Atwood is now in a part-time position focused on marketing,
new products and future direction. At the end of 1995, Laurie Johnson, a 12-year
employee of Atwood, became Chief Operating Officer.
In 1995 Atwood performed publishing, communication and/or promotional
services at approximately 145 shows and conventions and provided services to
approximately 5,600 exhibitors.
The Company acquired Galaxy, located in Frederick, Maryland, in March,
1994. Thus, comparative financial information is affected because only ten
months of Galaxy's activities are included in 1994 results, and significant
accounting changes occurred effective with the acquisition, thus rendering the
first two months of Galaxy's pre-acquisition results non-comparable. Galaxy
serves the convention and trade show management and corporate exhibitor markets
with registration, information and marketing services on a national basis. In
the course of providing registration and data management services for trade
shows and conventions, Galaxy uses the "Galaxy Expocard" and related technology,
which employs the use of the so-called "smart card" technology. Through
Expocard, exhibitors and trade show managers gather information on registrants
and, through the use of software and other technologies, better manage their
results from a trade show or convention, thereby aiding show managers in the
marketing of their shows and exhibitors in their sales, marketing and lead
management efforts.
The Company acquired Galaxy with the payment of $1,200,000 in cash at
closing for the 30 percent of Galaxy's capital stock owned by the Galaxy
Employee Stock Ownership Plan, plus a note for $900,000 to John Laughlin
("Laughlin"), Galaxy's founder and owner of the remaining 70 percent of the
outstanding capital stock of Galaxy. In addition, the Company agreed to pay
Laughlin a so-called "earnout" based on the net earnings performance of Galaxy
over 1994, 1995 and 1996. If the required earnings targets are achieved, up to
an additional $2,900,000 could be paid to Laughlin. Also, Laughlin was employed
for an initial term of three years as the President and Chief Operating Officer
of Galaxy, and he entered into a noncompetition agreement with the Company which
provides for the payment of $400,000 to him over four years. In the summer of
1995, the Company determined that it could better utilize Laughlin in connection
with National Employment Screening Services ("NESS"), which is described below
under "Information Services." Accordingly, it was necessary to restructure the
arrangement with Laughlin. Based on the Company's perception that a substantial
majority of Laughlin's remaining earn-out would be earned, the Company
"guaranteed" the remaining earn-out to Laughlin, other than $400,000, which was
allocated to Laughlin's activities for NESS. As a result, Robert Lucke and
Edward J. Staley are now the Co-Chief Operating Officers of Galaxy. Messers.
Lucke and Staley are long-time employees of Galaxy, with Lucke, a co-founder of
Galaxy with Mr. Laughlin, having been employed for 15 years and Staley having
been employed for 13 years.
Galaxy's operating results for 1995 were less than its results for 1994
(taking the accounting adjustments and ten months ownership, as described above,
into account). The main reason for this was a significant increase in employees
which were added in the first quarter of
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1995 to meet the customer service demand from the significant business increases
seen in 1994 and 1995. By the end of 1994, it had become obvious that Galaxy
could not, without significant additional investments in equipment and people,
meet customer expectations at its then substantially increased business level.
The Company recognized this and added a significant number of employees to
deliver promised levels of customer service, with the result that operating
margins were reduced on already contracted business. However, it is believed
that the increased level of customer service will allow the Company to gradually
increase the value of its services and the prices it receives therefor, and to
attract additional business in the future. In the fourth quarter of 1995, Galaxy
was able to increase its prices significantly and to improve margins for the
shows produced during that period.
In 1995, Galaxy performed registration services at approximately 190
different shows and events, and provided lead management and related services to
approximately 37,000 exhibitors.
Information Services
Transportation Information Services, Inc. ("TISI") is the Company's
information division. This division provides motor vehicle reports, credit
reports, worker compensation information, criminal reports and truck driver
employment histories primarily to trucking companies (for pre-employment
screening purposes) and the insurance industry (for underwriting purposes). Many
of this division's information services are competitive with those provided by
other companies, many of which are significantly larger than the Company. Thus,
many of such services are effectively commodities with the Company competing
primarily with price. However, the Company's truck driver employment history
data base is proprietary to the Company.
In 1994, TISI began a significant new thrust through NESS which was
designed to provide pre-employment screening services to other industries by
exploiting information resources of TISI and its pre-employment screening
experience in the trucking industry. This effort incurred pre-tax losses of
$408,000 in 1994 and $1,054,000 in 1995. The Company effected a major
restructuring of NESS in the summer of 1995 to significantly reduce its
operating losses and to refocus it into industry specific marketing efforts. To
this end, Laughlin was moved to NESS, operating out of Galaxy's offices in
Frederick, Maryland. Laughlin's function was to expose the NESS pre-employment
screening services to trade associations with whom he had developed a
relationship during his years with Galaxy. The intent is for such trade
associations to ultimately endorse the NESS products for their members, thus
aiding the marketing efforts. Laughlin has been successful in getting pre-
endorsement assistance from a number of trade associations and NESS intends to
exploit these opportunities in 1996. In addition, NESS has continued to market
generally. Significant additional losses are expected in 1996, though it is
planned that the losses will narrow significantly.
TISI enjoyed significant growth in its "core business" (meaning,
without NESS), with pre-tax income increasing to $4,447,000 as compared to
$3,660,000 in 1994 (also before NESS). This increase also comes after pre-tax
losses of $790,000 in 1995 for new products and services development/launches in
addition to NESS.
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TISI's core information services of selling motor vehicle reports
("MVR's") and employment history information was up in 1995. With regard to MVR
processing, margins continue to be pressured by competition unlike that of the
employment history database which continued to enjoy healthy margins. Revenue
growth can be attributed to not only an increase in the trucking customer base
(with which the company has a significant competitive advantage due to the truck
driver employment history database being proprietary), but, also the increase in
the number of tractor/trailers purchased in late 1994 and early 1995. This
increase in equipment led to filling more driver positions which in turn
increases the need for pre-employment screening services. This is demonstrated
by the increase of approximately $1,000,000 in revenues generated by the
employment history file in 1995, as compared with 1994.
Most of the rest of this division's products showed improvement in
1995. In addition to continued growth in sales from its proprietary data base of
truck driver employment histories, gains were registered in this division's
smaller, but profitable lines of worker's compensation claims reports and credit
histories. The biggest gain came in the area of criminal records checking, which
began in 1993. Revenues from this service were $2,469,000 in 1995, as compared
to $1,456,000 in revenues in 1994.
Other Assets
As part of the Merger with Tribune/Swab-Fox, the Company acquired the
discontinued business of real estate investments from Tribune/Swab-Fox. As a
discontinued operation, the Company continued Tribune/Swab-Fox's effort to
liquidate the assets and was successful in generating $487,000 in proceeds from
real estate sales from the date of the Merger (May 24, 1995) through March 1,
1996. Subject to a closing on the last significant piece of real estate, which
is under option and scheduled for closing in the summer of 1996, the Company has
effectively liquidated these real estate assets.
The Company also acquired from Tribune/Swab-Fox in the Merger certain
other assets, including, in particular, 7,161,000 shares of common stock, $.001
par value, of Midwest Energy Companies, Inc. ("MECI"), (a small publicly traded,
over the counter symbol "MWE", oil and gas exploration and development company)
which represents approximately 6.8% of the outstanding shares of MECI. MECI is
indirectly controlled by Mr. Martin Vaughan, a director of the Company.
Seasonal Factors
The exposition services business is affected by the timing of
conventions and trade shows, with most such shows operating in the March-May and
September-November time frames. IGWB's results are significantly impacted by the
timing of its largest owned trade show, World Gaming Congress, which was held in
September in 1994, and in October in 1995, and will again be held in October in
1996.
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Employees
As of March 15, 1996, the Company employed 465 persons on a full-time
basis, none of whom is subject to a collective bargaining agreement. Of these,
the following were employed in the various segments of the Company's business:
Number of Full
Time Employees
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General and administrative 13
G.E.M. 29
TISI 168
Atwood 98
Galaxy 157
Most employees are salaried, with sales personnel receiving commissions
on sales.
Regulation
The providing of motor vehicle reports and much of the other
information provided by TISI on individuals is subject to various state and
federal regulations concerning fair credit reporting. Generally, such laws
regulate maintenance of records and responses to inquiries regarding possible
errors in information provided. In addition, recent legislation, including the
Americans With Disabilities Act, limits the salability of this division's
worker's compensation information.
Item 2. Properties
Except as noted, the following description of properties is as of
December 31, 1995. The Company leases all of its offices except the main
executive and administrative offices of the Company, located at 2407 East Skelly
Drive, Tulsa, Oklahoma, totaling approximately 5,400 square feet. The Company
also leases approximately 35,000 square feet of space in Tulsa for TISI.
G.E.M. leases approximately 10,400 square feet in New York City, as
well as small offices in Chicago, Illinois, and Las Vegas, Nevada.
In March, 1995, Atwood began occupying new leased space (18,000 square
feet) in Overland Park, Kansas.
Galaxy leases approximately 26,000 square feet of office and warehouse
space from Laughlin pursuant to a lease entered into in connection with the
acquisition of Galaxy, as well as 15,000 square feet from an independent lessor.
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The above leases expire at various times from 1996 through 2000,
required rental payments of $1,080,000 in 1995 and will require rental payments
of $1,037,000 in 1996. See Note 8 to the Financial Statements included in this
Form 10-K for more information on the Company's lease obligations.
The Company believes that its facilities are suitable and adequate for
its immediate needs and that additional or substitute space is available if
needed to accommodate expansion.
Additionally, at December 31, 1995, the Company owned 28 acres of
undeveloped real estate in Tulsa, Oklahoma, which is subject to an option which
expires in June, 1996. In February, 1996, the Company received notice from the
option holder whereby such option was exercised, subject to a closing no later
than August, 1996. This agreement provides for a purchase price of $24,000 per
acre, payable in cash at closing.
The Company owns a 49.99% interest in an Oklahoma limited liability
company known as 1995 Land Company, L.L.C., which owns certain undeveloped real
estate in Tulsa, Oklahoma. The Company's partner in this operation has sole
management responsibility for these properties and this business.
Item 3. Legal Proceedings
Until September 30, 1992, the Company published a daily newspaper, The
Tulsa Tribune. The Tulsa Tribune and its personnel, like other newspapers and
their reporters, are sued from time to time for articles that were published.
Even though The Tulsa Tribune has been discontinued, the Company or its
subsidiary, Tulsa Tribune Company ("Tribune"), remains liable for any such
actions. The shopper-newspapers formerly published by the Company are also
subject to this type of litigation. Typically, the suit is based on libel or
defamation and includes a claim for punitive damages. While the Company believes
it has substantial and meritorious defenses to each of the actions cited below
in which the Company is a named defendant, should any of the various defenses of
the Company not be available to it, and if any of the plaintiffs' claims for
damages were upheld against the Company, it could have a substantial adverse
impact. Tribune and the shopper-newspapers carry publisher's liability insurance
covering libel and defamation. In addition, the Company is subject to certain
claims for indemnity from World by reason of certain employment discrimination
and overtime claims filed after September 30, 1992, but which relate in part to
the time World and Tribune jointly employed the plaintiffs through Newspaper
Printing Corporation ("NPC") (pursuant to a Joint Operating Agreement, which was
terminated on September 30, 1992, World and Tribune employed NPC as their joint
agent to conduct their various publishing activities). The final two payments
due from World, totaling $900,000, are escrowed pending resolution of certain
claims for indemnity from World.
The following material cases were pending against the Company (or
relate to the Company's indemnity obligation to World) as of March 15, 1996:
1. Robert E. Cotner v. The Tulsa Tribune, Steve Ward and Newspaper
---------------------------------------------------------------
Printing Corporation; Case No. CT 81-531; District Court of Tulsa County,
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Oklahoma. This is a
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defamation action in which Cotner seeks damages of $50,000 against Steve Ward,
$300,000 from The Tulsa Tribune, and $300,000 from NPC. The action was filed
June 22, 1981. Cotner obtained service on Ward, but his service on an agent of
NPC, which was intended to be service on Tribune, was quashed on motion by
Tribune. Ward's motion for summary judgment was granted and Cotner appealed that
ruling, which was affirmed by the Oklahoma Court of Appeals, and the Oklahoma
Supreme Court. Cotner has obtained service of process on Tribune and, arguably,
NPC, on whose behalf a claim has been made that the actions are barred by the
statute of limitations. In September, 1992, the Company moved the Court to
dismiss for failure to prosecute. Cotner responded and the Court has not ruled
on the motion.
If the action is not deemed barred by the statute of limitations, the
case could result in substantial legal fees and costs, but legal counsel
considers the possibility of Cotner recovering damages in excess of $100,000 to
be remote.
2. Tulsa World Litigation. Pursuant to the terms of the Amendment and
Termination Agreement of July 31, 1992 (the "Termination Agreement"), which
terminated the joint operating arrangement ("JOA") between World, Tribune and
NPC, Tribune may be responsible for indemnification with respect to a portion of
any liability established for conduct occurring prior to the termination date of
the JOA -- September 30, 1992. The following cases relate to claimed indemnity
from World under the Termination Agreement (The Company has been informed that
all of these cases have been settled, but no formal claim for indemnity has been
made as of March 15, 1996):
A. Brenda George, Juli L. Andersen, Nancy Hill, Ira Jean Love, Anna L.
-------------------------------------------------------------------
Devers, Shantel Johnson and Niesha Byers v. World Publishing Company and
- -------------------------------------------------------------------------
Newspaper Printing Corporation; United States District Court for the Northern
- ------------------------------
District of Oklahoma; Case No. 93-C-755-E.
This action was filed on August 23, 1993. The original complaint
asserted claims of race discrimination under 42 U.S.C. ss. 1981 and sought
actual damages of $500,000 and punitive damages of $500,000 for each Plaintiff.
On September 3, 1993, an Amended Complaint was filed which added Ebony Nash,
Connie Williams, and Kia Taylor as Plaintiffs. On March 1, 1994, a Second
Amended complaint was filed, pursuant to the Court's order, which provided a
more definite statement of the factual allegations underlying each of the
Plaintiffs' claims. On July 27, 1994, this case was consolidated with the next
case described below (Anna L. Devers v. World Publishing Company). The Company
-------------------------------------------
has been informed by the attorneys for Tulsa World that the claims of four of
the Plaintiffs were tried to a jury and that the jury returned a verdict in the
total amount of $205,000 in favor of the Plaintiffs. (The claims of the other
six plaintiffs were to be tried at a later date.) The Company has also been
informed by the attorneys for the Tulsa World that no final judgment was entered
on the jury's verdict. Finally, the attorneys for the Tulsa World have informed
the Company that a settlement conference was held, that the claims of all ten
Plaintiffs have now been settled, and that the terms of the settlement are
confidential.
13
<PAGE>
B. Anna L. Devers v. World Publishing Company; United States District
------------------------------------------
Court for the Northern District of Oklahoma; Case No. 94-C-84-K
This action was filed on January 31, 1994. The original Complaint
asserted a claim of race discrimination under Title VII, U.S.C. ss. 2000e, et
seq. and sought actual and punitive damages in the amount of $500,000. On March
9, 1994, Plaintiff filed an Amended Complaint which clarified the factual
allegations underlying her Title VII claim. On July 27, 1994, this case was
consolidated with the previous case (Brenda George, et al. v. World Publishing
-----------------------------------------
Company, et al.). For disposition of this case, see the preceding case.
- ---------------
C. Dale Reed v. Tulsa World Publishing Company and Newspaper Printing
-------------------------------------------------------------------
Corporation; United States District Court for the Northern District of Oklahoma;
Case No. 94-C-61-K.
This action was originally filed in State Court on December 16, 1993.
In the original petition, the Plaintiff asserted three claims: (1) a claim of
race discrimination under Title VII, 42 U.S.C. ss. 2000e et seq.; (2) a state
law, tort claim for violation of Oklahoma public policy; and (3) a state law,
tort claim for intentional infliction of emotional distress. Pursuant to
Oklahoma law, the amount of actual damages sought on each claim was stated as
being in excess of $10,000. Likewise, the amount of punitive damages sought was
stated as being in excess of $10,000. On January 20, 1994, the action was
removed to Federal Court on the basis of federal question jurisdiction. On
January 24, 1994, the Defendants filed their Answer and Counterclaims. In the
counterclaims, the Defendants asserted a claim for breach of contract, a claim
for abuse of process, and a claim for malicious prosecution. These counterclaims
were based on an earlier settlement agreement with the Plaintiff arising out of
a charge of discrimination that he had filed with the Oklahoma Human Rights
Commission. On February 22, 1994, Plaintiff moved to dismiss Defendants' claims
for breach of contract and malicious prosecution. Also on February 22, 1994,
Plaintiff moved for partial summary judgment on Defendants' abuse of process
claim. On June 20, 1994, the Defendants moved to dismiss their malicious
prosecution claim without prejudice and the Court granted said motion on July 8,
1994. On July 12, 1994, Plaintiff was granted leave to amend and/or supplement
his complaint to add a separate claim for discrimination under 42 U.S.C. ss.
1981. On July 20, 1994, the Court denied Plaintiff's motion to dismiss
Defendants' breach of contract claim and Plaintiff's motion for partial summary
judgment on Defendants' abuse of process claim. The end result of the foregoing
is that Plaintiff retained four claims against the Defendants: (1) a claim of
race discrimination under Title VII, 42 U.S.C ss. 2000e et seq.; (2) a state
law, tort claim for violation of Oklahoma public policy; (3) a state law, tort
claim for intentional infliction of emotional distress; and (4) a claim of race
discrimination under 42 U.S.C ss. 1981. The Defendants had two remaining
counterclaims against the Plaintiff: (1) a claim for breach of contract; and (2)
a claim for abuse of process. The Company has been informed by the attorneys for
the Tulsa World that this matter was submitted to alternate dispute resolution
and that Plaintiff was awarded $15,000 on his claims, while the Defendants were
awarded $1.00 on the counterclaims
14
<PAGE>
D. Paula R. Boyes, Elaine P. Bynum, Bettie Sorenson, Perta G. Spessard
----------------------------------------------------------------------
and Christopher J. Vokoun v. World Publishing Company; United States District
- -----------------------------------------------------
Court for the Northern District of Oklahoma; Case No. 94-C-258-K.
This action was originally filed in State Court on February 17, 1994.
In the original Petition, each of the Plaintiffs asserted two claims: (1) a
claim for unpaid overtime and liquidated damages under the Fair Labor Standards
Act, 19 U.S.C. ss. 201 et seq. (the "FLSA"); and (2) a claim for liquidated
damages in the amount of 2% of the unpaid wages under Oklahoma statute, 40 O.S.
1991, ss. 165.3(A). The amount of damages originally claimed for each Plaintiff
was as follows: (1) Boyes -- $45,507 for unpaid overtime under the FLSA, $45,507
as liquidated damages under the FLSA, and 2% of $45,507 under the Oklahoma
statute; (2) Bynum -- $54,876 for unpaid overtime under the FLSA, $54,876 as
liquidated damages under the FLSA, and 2% of $54,876 under the Oklahoma statute;
(3) Sorenson -- $43,586 for unpaid overtime under the FLSA, $43,586 as
liquidated damages under the FLSA, and 2% of $43,586 under the Oklahoma statute;
(4) Spessard -- undetermined; and (5) Vokoun -- $21,885 for unpaid overtime
under the FLSA, $21,885 as liquidated damages under the FLSA, and 2% of $21,885
under the Oklahoma statute. On March 17, 1994, the action was removed to Federal
Court on the basis of federal question jurisdiction. On April 28, 1994,
Plaintiffs filed a First Amended Complaint which clarified the wage rates and
damages for each of the Plaintiffs. The Company has been informed by the
attorneys for the Tulsa World that the claims of the Plaintiffs were settled and
the terms of the settlement are confidential.
3. The Company is subject to several audits by the Internal Revenue
Service, including an audit of the manner in which income from the JOA was
treated for tax purposes. In connection with this latter audit, the Company has
filed a protest with respect to the accrued amounts. See Note 8 to the
Consolidated Financial Statements included in this Form 10-K for a further
discussion of these tax audits.
4. The Company is also a named defendant in other lawsuits and is a
party in governmental proceedings from time to time in the ordinary course of
business. While the outcome of such other lawsuits or proceedings against the
Company cannot be predicted with certainty, management does not expect these
matters to have a material adverse effect on the financial position or results
of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of 1995.
15
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company Common Stock became publicly held as a result of the
Company's initial public offering effective June 15, 1989. Most of the Company's
shares are held of record in "nominee" or "street" names. As of March 15, 1996,
there were approximately 250 holders of record of Company Common Stock.
The following table sets forth the high and low sales prices of the
Company Common Stock for each quarter of 1995 and 1994, as reported by the
American Stock Exchange on which such stock is traded:
<TABLE>
<CAPTION>
High Sales Price Low Sales Price
---------------- ---------------
<S> <C> <C>
1994
1st Quarter 5 4-1/8
2nd Quarter 5 4-3/8
3rd Quarter 6 4-1/2
4th Quarter 6-1/4 5-3/8
1995
1st Quarter 8 5-3/4
2nd Quarter 9-1/8 7-1/4
3rd Quarter 12-1/8 8-7/8
4th Quarter 13-1/2 10-5/8
</TABLE>
Since inception, the Company has not paid any cash or other dividends
on Company Common Stock. The Company, however, will reevaluate from time to time
its dividend payment policy based on its judgment as to the best interests of
the Company and its stockholders. The determination of the amount of future cash
dividends, if any, to be declared and paid will, however, depend upon, among
other things, the Company's financial condition, funds received from operations,
the level of its capital expenditures and its future business prospects. The
Company's current policy of not paying dividends is based on belief of the
Company's Board of Directors that, at this time, reinvestment of the Company's
earnings into its businesses to foster future growth is in the best interest of
the Company's stockholders.
Tribune/Swab-Fox's Board of Directors declared a one-time dividend of
$0.0344 per share ($0.27 per equivalent share of Company Common Stock) in
connection with the Merger, which was paid on May 24, 1995.
16
<PAGE>
Item 6. Selected Financial Data
The following table sets forth certain selected financial data for the
Company. It should be read in conjunction with the consolidated financial
statements of the Company included elsewhere herein. Refer to Item 1.
Description of Business --Merger with Tribune/Swab-Fox.
<TABLE>
<CAPTION>
Year Ended December 31,(1)
--------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operating Data: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Continuing operations (2)
Revenues ............................................... $72,078 $56,919 $58,980 $95,233 $94,443
Operating costs ........................................ 51,506 46,931 65,019 85,954 87,958
Depreciation and amortization .......................... 3,601 3,118 3,779 7,378 4,891
Operating income (loss) before interest,
unusual gain, and income taxes ......................... 16,971 6,870 (9,818) 1,974 1,661
Interest ................................................. 859 736 1,921 2,692 3,221
Unusual gain ............................................. -- -- -- 24,412 --
Income (loss) from continuing operations ................. 15,788 2,564 (5,713) 9,142 (1,033)
Net income (loss) ........................................ 15,825 (252) (11,073) 8,352 (1,569)
Earnings (loss) per share of common stock:
Continuing operations .................................. 4.19 .65 (1.54) 2.17 (.27)
Net income (loss) ...................................... 4.20 (.10) (2.95) 1.98 (40)
Weighted average number of common and common
equivalent shares outstanding .......................... 3,766 3,733 3,801 4,208 3,885
Dividends per common share ............................... .27 -- -- -- --
Summary Balance Sheet Data
(at period end):
Total assets ............................................. 53,444 53,581 60,059 88,102 78,760
Total liabilities other than long- term debt ............. 16,429 24,821 24,336 33,221 26,104
Long-term debt, net of current installments .............. 4,529 4,905 9,273 16,593 22,421
Stockholders' equity ..................................... 32,486 23,855 26,450 38,288 30,235
</TABLE>
(1) The Company was a party to several events/transactions which affect the
comparability of the historical information presented above. Effective July
1, 1995, the Company sold three trade journals and the assets related
thereto of BMT Communications, Inc. ("BMT"). On April 30, 1994, the Company
sold the assets of Shopper's Guide, Inc., (the "New Jersey Shopper") one of
the Company's shopper-newspaper operations. Effective March 1, 1994, the
Company acquired the stock of Galaxy. During the third quarter of 1993, the
Company's Board of Directors made the decision to offer for sale its
shopper-newspaper operations. On November 1, 1993, the Company sold the
operating assets of Marks-Roiland Communications, Inc. (the "New York
Shopper"), its other shopper-newspaper operation. On September 30, 1992,
the Company ceased publishing The Tulsa Tribune as a result of the
termination of a joint operating agreement. See the Company's Notes to
Financial Statements included in this Annual Report on Form 10-K for
additional information on these transactions/events.
(2) Restated to reflect real estate as a discontinued operation as of November
30, 1994.
17
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
As noted under Item 1. Description of Business -- Merger with
Tribune/Swab-Fox, though the Company was the surviving legal entity in the
Merger, because Tribune/Swab-Fox owned 78% of the Company Common Stock prior to
the Merger, the transaction is accounted for as a recapitalization of
Tribune/Swab-Fox with Tribune/Swab-Fox as the survivor (i.e., a downstream
merger). Thus, for accounting and financial reporting purposes, Tribune/Swab-Fox
is the acquiring entity even though, from a legal or structural standpoint, the
Company is the acquiring and surviving entity. Accordingly, the historical
financial statements of the Company, as the surviving legal entity, are those
historical financial statements of Tribune/Swab-Fox. Thus, the comparison of
results of operations and the financial condition of the Company are based on
the historical financial statements of Tribune/Swab-Fox prior to the Merger.
Therefore, results of operations include activities previously conducted by
Tribune/Swab-Fox separate from those conducted by the Company, such as real
estate management and investment.
Year Ended December 31, 1995, Versus Year Ended December 31, 1994
Operations for the year ended December 31, 1995, have three major
variations from the same period ended December 31, 1994. First, the Merger of
the Company and Tribune/Swab-Fox was completed in May, 1995, which is treated as
a downstream merger for accounting, tax and financial reporting purposes.
Accordingly, the Company was able to utilize substantially all of the income tax
net operating loss carryforward which Tribune/Swab-Fox had prior to the Merger,
and this significantly reduced the 1995 income tax provision. Second, the sale
of three G.E.M. Communications, Inc. ("G.E.M.") (formerly BMT Publications,
Inc.) trade journals in August, 1995, effective July 1, 1995, resulted in a pre-
tax gain of $11,739,000 and the publishing segment for the last half of 1995
only included the International Gaming and Wagering Business trade journal and
the related conference and trade show, World Gaming Congress. Third, operations
of Galaxy Registration, Inc., acquired effective March 1, 1994, are included in
exposition services for twelve months in 1995 as compared with only ten months
in 1994.
Revenues of $72,078,000 for 1995 were $15,159,000 higher than for 1994.
The major revenue increase is the $11,739,000 pre-tax gain on the sale of the
three G.E.M. trade journals. Exposition services revenue increased $5,534,000 in
1995, consisting of significant growth during the year and 1995 including two
more months of Galaxy's operations. Publishing revenues decreased $5,174,000 in
1995 mainly as a result of the sale of the three trade journals, effective June
30, 1995. Thus the last half of 1995, as compared with 1994, included revenue
from only one trade journal. An increase in advertising pages and two new
executive seminars (one in Europe) in 1995 partially offset the decrease from
the trade journals sold. Revenue from the World Gaming Congress increased
approximately $1,000,000 in 1995. Information services revenue increased
$2,859,000 in 1995 as compared with 1994 with a majority of the increase
18
<PAGE>
relating to an increase in the volume of employment histories and criminal
records sold. Long distance telephone resale revenue was approximately $725,000
lower in 1995 as a result of the Company exiting this business during the latter
part of the first quarter of 1994 due to competitive and regulatory
considerations.
Interest income related to the contract receivable from the World
Publishing Company is approximately $400,000 lower in 1995 because of continued
payments received on the contract receivable, although interest income on cash
received from the sale of the trade journals substantially offsets this
reduction.
Operating costs were $4,596,000 higher in 1995, as compared with 1994.
Publishing costs and expenses were $2,228,000 lower in 1995, as compared with
1994. The decrease is related to the three trade journals sold in 1995 partially
offset by the costs related to the European executive seminar, the costs related
to the increase in advertising pages, a significant increase in the cost of
paper and a postal rate increase. In addition, direct costs related to the World
Gaming Congress increased as a result of continued expansion of this trade show
in 1995. Exposition services costs and expenses were $4,401,000 higher in 1995,
as compared with 1994. Printing costs for the convention publishing business
increased $1,025,000 in 1995 related to the higher cost of paper and an increase
in the number of conventions, directories and services provided. In 1995, both
Galaxy and Atwood had an increase in their number of personnel (approximately
$2,000,000 increase in combined personnel costs) in order to continue to provide
high quality service to their customers and to handle the increase in the number
of trade shows. Also, Galaxy was included in twelve months operations in 1995
versus ten months in 1994. Information services costs and expenses were
$2,423,000 higher for 1995, as compared with 1994. The increases in costs are
related primarily to the new employment screening service of approximately
$700,000, the increase in criminal record volume of approximately $430,000, and
additional personnel related to higher volumes and new product development
costs. Netted against these increases is a decrease of approximately $500,000 in
1995, related to long distance telephone resale costs because of exiting this
business in the latter part of the first quarter of 1994.
General and administrative expenses were approximately the same in 1995
as in 1994. The reduction in expenses from the publishing division during the
last half of 1995, and the reduction of expenses resulting from the Merger, as
compared with 1994, were generally offset by Galaxy's general and administrative
expenses for the twelve months in 1995, as compared with ten months in 1994, and
the accrual for potential costs under the indemnity provisions of the
Termination Agreement between the Company, Tulsa World Corporation ("World") and
Newspaper Printing Corporation ("NPC") as related to settlement of lawsuits
against World and NPC.
Interest expense increased $123,000 for 1995, as compared with 1994,
resulting from average interest rates on variable rate debt being 2 1/2% higher
(an approximate 35% increase in rate) during 1995, partially reduced by
principal payments on debt during the past year. Another factor is that, in late
May, 1995, the Company borrowed $2,000,000 under its bank lines of credit in
connection with the Merger and the related acquisition of equivalent shares for
cash, which borrowings were repaid in early August, 1995.
19
<PAGE>
Depreciation and amortization increased $483,000 for 1995, as compared
with 1994, substantially all related to the depreciable assets of Galaxy, both
the number of months Galaxy was included in each year and depreciation related
to Galaxy's 1994 and 1995 capital expenditures (which have a short depreciable
life) needed to handle Galaxy's growth in 1994 and 1995.
Provision for income taxes as a percent of income before income taxes
is lower than the statutory federal income tax rate mainly because of the
reduction in the valuation reserve related to net operating loss carryforward
and higher tax basis in the trade journals sold reduced by goodwill amortization
related to acquisitions not being deductible for income tax purposes and state
income taxes.
Year Ended December 31, 1994, Versus Year Ended December 31, 1993
Operations for the year ended December 31, 1994, have four major
variations from the same period ended December 31, 1993. First, the 1994 period
did not include any shopper-newspaper operations because these operations were
sold during the past year. Second, Galaxy, which is a provider of registration
and information services to the exposition industry, was acquired effective
March 1, 1994, and its operations are included for the ten months ended December
31, 1994, in exposition services along with the operations of Atwood. Third,
indebtedness was reduced by over $16,000,000 during the past eighteen months.
Fourth, during the third quarter of 1993, a $9,224,000 loss on assets held for
sale was recognized related to the intended disposition of the shopper-
newspapers. In addition, the real estate segment is a discontinued operation as
of December 31, 1994, and the financials have been restated to recognize this
discontinued operation.
Revenues of $56,919,000 for 1994 were $2,061,000 lower than for 1993.
The revenue decrease consisted of $26,212,000 which related to the shopper-
newspapers. Partially offsetting this decrease is the revenue increase in 1994
of $2,571,000 in the convention publishing component of the exposition services
(which is Atwood's activities) plus Galaxy's revenues of $8,003,000 from March
1, 1994. Convention publishing revenue increased as a result of additional
conventions, including specialty publications, and higher revenues from a trade
journal which published more issues in 1994. Convention publishing revenues for
1993 were reclassified from publishing to exposition services. Publishing
revenues for 1994, disregarding the shopper-newspapers, were $2,148,000 higher
than the prior year. An increase in advertising pages in International Gaming
and Wagering Business and Convenience Store News in 1994 and an increase in
revenue from the World Gaming Congress trade show sponsored by IGWB, which is
attributable to an increase in both the number of exhibitors and attendees,
represent the major increases. The information services revenue increase of
$592,000 for 1994 consists mainly of an increase in employment histories
revenue, resulting from both higher volume and an increase in the price of
employment histories, a new product introduced in 1993 (criminal records), and
an increase in motor vehicle report revenues, offset by a $2,613,000 decrease in
1994 in long distance telephone resale revenue, resulting from the Company's
termination of this business during the first quarter of 1994 due to competitive
and regulatory considerations. In terminating
20
<PAGE>
this business, the Company maintained an override interest and the ability to
continue marketing services of the purchaser. Gain (loss) on sale of assets in
1994 was mainly gains from the sale of the remaining venture investments whereas
the 1993 loss on sale of assets represented the reduction from book value to
estimated net value of the shopper-newspaper assets which were being held for
sale and were subsequently sold in November, 1993, and May, 1994, with no
additional loss. No loss was recognized on the assets of the three trade
journals held for sale at December 31, 1994, as the Company believed that the
net value of the trade journals was greater than the net book value.
Other income for 1994 and 1993 is substantially all interest income
related to the contract receivable from World and covenant-not-to-compete income
related to the New York Shopper sale in November 1993.
Operating costs were $14,589,000 lower in 1994, as compared with 1993.
Publishing costs and expenses were $19,579,000 lower for 1994, as compared with
1993, which included the decrease in costs related to the shopper-newspapers of
$21,600,000. The increase in 1994 related to the growth of the World Gaming
Congress conference and trade show partially offsets the shopper-newspapers
decrease. Trade journal costs increased in 1994 related to the increase in pages
as compared with 1993. Exposition services costs and expenses consist of Atwood
for 1994 and 1993 and Galaxy for ten months in 1994. The increase of $5,506,000
for 1994, includes increases of $1,557,000 related to the convention publishing
business as noted above and Galaxy's 1994 operating costs for the ten months of
$3,949,000. Information services costs and expenses were $516,000 lower for
1994, as compared with 1993. The increase in costs related to the criminal
records product introduced in 1993 and higher volumes, including additional
personnel and related costs, was more than offset by the decrease of $2,394,000
in 1994, related to long distance telephone resale costs because of the
termination of this business in early 1994.
General and administrative expenses were $3,499,000 lower for 1994, as
compared with 1993. The decrease in 1994 related to the shopper-newspapers was
$5,422,000. Galaxy's general and administrative expenses of $2,700,000 in 1994
and increases in each of the other divisions related to continued growth, mainly
personnel costs, partially offset the decrease from the shopper-newspapers. In
addition, retirement and deferred compensation expense of approximately
$1,800,000 was included in 1993, attributable to the retirement of the then
chief executive officer of the Company.
Interest expense decreased $1,185,000 for 1994, as compared with 1993,
which is related to the payoff of the 10.32% Senior Notes in November 1993, and
other principal payments on debt and reductions in deferred contract liabilities
during the past year. The interest rate increase on current outstanding debt
reduced the amount interest expense declined in 1994 from debt reductions.
Depreciation and amortization decreased $661,000 in 1994, as compared
with 1993, substantially all related to the disposition of the depreciable and
amortizable assets of the shopper-newspapers. Galaxy's depreciation and
amortization of $823,000 is included for ten months in 1994 and partially offset
the decrease from the shopper-newspapers.
21
<PAGE>
Provision for income taxes as a percent of income before income taxes
is higher than the statutory federal income tax rate because goodwill
amortization related to acquisitions is not deductible for income tax purposes.
Year Ended December 31, 1993, Compared to Year Ended December 31, 1992.
Revenues for 1993 decreased $27,058,000 from 1992. $19,900,000 of the
decrease was newspaper publishing revenues for 1992 through September 30, 1992,
when The Tulsa Tribune ceased publication after the agreement with World which
terminated their joint operating arrangement. Revenues from the shopper-
newspapers were $11,500,000 lower in 1993 as compared with 1992. Revenues for
the fourth quarter of 1992 from shopper-newspapers were $9,500,000, whereas no
fourth quarter revenue was recognized from shopper-newspapers in 1993 due to the
operations being held for sale. The New Jersey Shopper revenues were $2,000,000
lower during 1993 as compared with 1992 mainly because of the effect on
operations of moving to a new location in early 1993 which resulted in the
commercial printing operations being shut-down for approximately one month. The
other major reason for lower revenue from the New Jersey Shopper in 1993 was
lower volume and prices in the preprint insert business caused by the
competitive environment. An $800,000 increase in revenue from conferences
sponsored by IGWB, was a result of an increase in existing conference exhibitors
and attendees and a new conference. Revenues from exposition services
convention/trade show publishing increased approximately $1,500,000, most of
which was attributable to continued growth of this operation, including a
$300,000 increase from a small trade publication acquired in mid-1992.
Information services revenues increased $1,800,000 in 1993 as compared with
1992, consisting mainly of revenue from a new product, criminal records reports,
of $640,000; higher revenue from employment history information of $700,000, a
result of both higher volume and an increase in price; and an increase in
revenue from motor vehicle reports of approximately $300,000, as a result of
higher volume, and a new service, "MVR Express," which provides a motor vehicle
report faster for a premium price.
Interest and other income decreased in 1993 primarily because the
$730,000 increase in interest income attributable to the contract receivable
from World that was a part of the termination of a Joint Operating Agreement did
not offset the decrease from 1992 since other income in 1992 included a $950,000
lawsuit settlement from MCI. As a result of the decision to sell the shopper-
newspapers, the Company recognized a loss of $9,224,000 to reduce the assets of
these operations to net realizable value which is substantially all of the gain
(loss) on sale of assets in 1993.
Operating costs and general and administrative expenses were
$20,935,000 lower in 1993 as compared with 1992. Newspaper publishing costs were
$15,000,000 lower in 1993 (the costs incurred in the nine months of the
operation of The Tulsa Tribune in 1992), and shopper-newspaper costs were
$10,500,000 lower in 1993, a result of only nine months' costs being included in
1993. Exposition services convention/trade show publishing costs and expenses
increased $1,300,000 in 1993 as a result of continued growth of this operation.
Information services costs and expenses increased $1,250,000 consisting of the
direct cost of criminal record
22
<PAGE>
reports, which is a new product, and an increase in personnel costs due to an
increase in the number of employees for new products and growth in existing
products. General and administrative expenses in 1993 include approximately
$1,800,000 for retirement expenses related to the resignation of the former
chairman and chief executive officer of the Company.
Interest expense decreased $771,000 in 1993, essentially all
attributable to a reduction in debt of $11,750,000 as a result of scheduled debt
payments and the early payoff of the 10.32% Senior Notes in November 1993. This
payoff was required by the holder of the 10.32% Senior Notes in connection with
the sale of the assets of the New York Shopper. The early termination penalty
required by the 10.32% Senior Notes was reduced through negotiations with the
holder of the 10.32% Senior Notes and is reported as an extraordinary loss in
the financial statements. Interest on other debt increased slightly related to
renegotiation of certain debt.
Depreciation and amortization decreased $3,599,000 in 1993 primarily
because of the sale of the newspaper publishing assets at September 30, 1992,
the reduction in shopper-newspaper assets to net realizable value at September
30, 1993, and higher depreciation and amortization of approximately $2,400,000
in 1992 related to a change in estimated lives used to depreciate and amortize
certain assets.
Adoption of the accounting for income taxes as required by Financial
Accounting Standards Statement No. 109 did not have a material effect on the
Company's financial position or results of operations.
Liquidity and Capital Resources
The Company's available cash reserves, lines of credit and cash flow
have been sufficient to service debt, provide working capital and finance
necessary capital expenditures in the ordinary course of operations. As a result
of the sale of the three trade journals, the Company's current assets exceed its
current liabilities by approximately $15,000,000 as of December 31, 1995. At
December 31, 1995, the Company had $14,380,000 in cash or cash equivalents and
long-term debt (excluding current portion) of approximately $4,500,000. The
Company also has bank lines of credit of $3,750,000 as of March 15, 1996. No
amounts were outstanding under such lines of credit at December 31, 1995, or at
March 15, 1996.
The Company anticipates that capital expenditures in 1996 will be
approximately $2,500,000, excluding any acquisitions. Other than the Company's
information division, the primary capital expenditures will be for computers,
software, furniture and office equipment and to acquire additional "reader
boxes" at Galaxy. The Company's information division continues to offer its
customers in the trucking industry credits for providing employment information
to be utilized in its data base, which credits can be used against charges for
future services from such division. All of the credits earned are considered
capital expenditures for the acquisition of such data. The Company anticipates
positive cash flow from operations in 1996, even after the anticipated capital
expenditures for 1996. Thus, with the Company's available cash reserves, cash
flow and the lines of credit (which are anticipated to be renegotiated in 1996
at a level yet to be determined and requiring negotiations with the lender), the
Company does not anticipate a need
23
<PAGE>
for capital during 1996 except for possible, and as yet unidentified,
acquisitions. The Company has announced its intention to vigorously pursue an
acquisition strategy and, if large enough acquisitions are made, additional
capital may be required. The Company would anticipate obtaining such additional
capital on a transaction basis predicated on any particular acquisition
requiring such additional capital. Sources of financing for such acquisitions
may include private or public placements of debt or common stock or other equity
securities of the Company. The utilization of equity securities of the Company
may have the effect of diluting or reducing the market price for Company common
stock. Failure to acquire such additional capital would mean that the affected
acquisition would not be made.
Inflation
Except for the costs of newsprint, the Company anticipates the effect of
inflation on its operations during 1996 will be primarily limited to the effects
which general inflation will have on costs in most areas in which the Company
operates. The price of paper used in the Company's publishing segment is
expected to increase in price more than inflation during 1996, but less than the
55% increase in 1995.
Item 8. Financial Statements and Supplementary Data
See Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company has not changed accountants since its inception nor had any
reported disagreement on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure since the
Company's inception.
24
<PAGE>
PART III
Items 10, 11, 12 and 13 are incorporated by reference to the Company's
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, which
will be filed no later than April 29, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
The Consolidated Financial Statements listed in the
accompanying Index to Financial Statements are filed as a part
of this Form 10-K.
2. Financial Statement Schedules
The Financial Statement Schedules are not submitted as the
required information is immaterial, inapplicable or is
included in the financial statements or notes thereto filed as
a part of this Form 10-K.
3. Exhibits and Reports on Form 8-K
The following exhibits are included as a part of or incorporated by
reference into this Form 10-K:
Exhibit Number
2.1 Agreement and Plan of Merger, dated January 25, 1995, between
the Company and Tribune/Swab-Fox and Amendment No. 1 to
Agreement and Plan of Merger, dated March 3, 1995, between the
Company and Tribune/Swab-Fox (incorporated by reference to
Appendix A to the Joint Proxy Statement and Prospectus forming
a part of the Company's Registration Statement on Form S-4,
No. 33-57587).
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, No. 33-27811, effective June 8, 1989
(the "S-1 Registration Statement")).
3.2 Bylaws of the Company (incorporated by reference to Exhibit
3.2 to the S-1 Registration Statement).
25
<PAGE>
10.1 Agreement for Purchase and Sale of Stock, dated March 17,
1994, between the Company, T/SF Investment Co., John R.
Laughlin and the Galaxy Registration, Inc., Employee Stock
Ownership Plan and Trust (incorporated by reference to Exhibit
2 to the Company's report on Form 8-K dated March 17, 1994).
10.2 Asset Purchase Agreement, dated November 1, 1993, by and among
the Company, Marks-Roiland Communications, Inc., and Dickson
Media, Inc., together with the material closing documents
executed and delivered therewith (incorporated by reference to
Exhibit 10.1 to the Company's report on Form 8-K dated
November 1, 1993).
10.3 Asset Purchase Agreement, dated May 2, 1994, by and among the
Company, Shopper's Guide, Inc., and Dickson Media, Inc.
(incorporated by reference to Exhibit 10.1 to the Company's
report on Form 8-K dated May 2, 1994).
10.4 Management Agreement, effective January 1, 1989, between the
Company and Tribune/Swab-Fox (incorporated by reference to
Exhibit 10.11 to the S-1 Registration Statement).
10.5 Retirement Agreement, effective August 1, 1993, by and among
G. Douglas Fox, the Company and Tribune/Swab-Fox (incorporated
by reference to the Company's report on Form 10-Q for the
quarter ended June 30, 1993).
10.6 Retirement Agreement, dated December 14, 1994, by and among
Robert J. Swab, the Company and Tribune/Swab-Fox (incorporated
by reference to Exhibit 10.19 of Tribune/Swab-Fox's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.7 Amendment and Termination Agreement, dated July 31, 1992, and
exhibits, by and among Tulsa Tribune Company, World Publishing
Company and NPC (incorporated by reference to Exhibit 1 to the
Company's report on Form 8-K dated September 30, 1992).
10.8 Covenant for Continued Payments, dated September 30, 1992, by
World Publishing Company in favor of Tulsa Tribune Company
(incorporated by reference to Exhibit 2(vi) to the Company's
report on Form 8-K dated September 30, 1992).
10.9 Revolving Credit Loan Agreement, dated as of July 14, 1993,
between Transportation Information Services, Inc., and
BancFirst, together with exhibits, including forms of various
closing documents executed in connection therewith
(incorporated by reference to Exhibit 10.25 to the Company's
report on Form 10-Q for the quarter ended September 30, 1993).
26
<PAGE>
10.10 Second Amendment to Revolving Credit Loan Agreement, effective
as of June 30, 1994, between Transportation Information
Services, Inc., and BancFirst (incorporated by reference to
Exhibit 10.2 to the Company's report on Form 10-Q for the
quarter ended September 30, 1994).
10.11* T/SF Communications Corporation 1994 Incentive Stock Plan
(incorporated by reference to Exhibit A to the Company's Proxy
Statement for Annual Meeting of Stockholders dated May 23,
1994).
10.12* T/SF Communications Corporation Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.1 to the S-1
Registration Statement).
10.13* T/SF Communications Corporation Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.2 to the S-1
Registration Statement).
10.14 Restated Revolving Credit Loan Agreement, dated as of June 30,
1995, between the Company and BancFirst (incorporated by
reference to Exhibit 10.2 to the Company report on Form 10-Q
for the quarter ended June 30, 1995).
10.15 Third Amendment to Revolving Credit Loan Agreement, dated as
of June 30, 1995, between Transportation Information Services,
Inc. and BancFirst (incorporated by reference to Exhibit 10.3
to the Company's report on Form 10-Q for the quarter ended
June 30, 1995).
10.16 Revolving Credit Loan Agreement, dated as of May 25, 1995,
between Tulsa Tribune Company and BancFirst (incorporated by
reference to Exhibit 10.1 to the Company's report on Form 10-Q
for the quarter ended June 30, 1995).
10.17 Modification of Employment Agreement, dated July 24, 1995,
between the Company, Galaxy and John Laughlin, together with
supplemental letter agreement, dated December 20, 1995 (filed
herewith).
10.18 Settlement Agreement, dated and effective December 12, 1995,
closed January 2, 1996, between the Company and Robert J. Swab
(filed herewith).
10.19 Operating Agreement for 1995 Land Company, L.L.C., dated
December 20, 1994, by and among John C. Bumgarner, Jr., and
Tribune/Swab-Fox (incorporated by reference to Exhibit 10.20
of Tribune/Swab-Fox's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.20 Asset Purchase Agreement, dated June 16, 1995, between BMT
Communications, Inc., and Trade Publishing L.L.C.,
(incorporated by reference to Exhibit 10.4 to the Company's
report on Form 10-Q for the quarter ended June 30, 1995).
27
<PAGE>
10.21 Memorandum of Closing and Amendment to Agreement, dated August
2, 1995, between BMT Communications, Inc. and Trade Publishing
L.L.C.(incorporated by reference to Exhibit 10.5 to the
Company's report on Form 10-Q for the quarter ended June 30,
1995).
10.22 Letter Agreement, dated August 14, 1995, by and between the
Company and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 2.3 to the Company's
report on Form 8-K dated August 2, 1995).
11. Computations of earnings per share for the years ended
December 31, 1995, 1994 and 1993 (filed herewith).
21. Subsidiaries of the Company (filed herewith).
27. Financial Data Schedule (filed herewith).
--------------
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1995, the Company did
not file any Current Reports on Form 8-K.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
T/SF COMMUNICATIONS CORPORATION
Date: March 18, 1996
By: /s/ Howard G. Barnett, Jr.
-------------------------------------
Howard G. Barnett, Jr., Chairman,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By: /s/ Howard G. Barnett, Jr. Chairman, Chief Executive Officer, President March 18, 1996
--------------------------- and Director
Howard G. Barnett, Jr.
By: /s/ J. Gary Mourton Senior Vice President, Chief Financial Officer March 18, 1996
-------------------- and Chief Accounting Officer
J. Gary Mourton
By: /s/ Mark A. Leavitt Director March 18, 1996
--------------------
Mark A. Leavitt
By: /s/ Martin F. Beck Director March 18, 1996
------------------
Martin F. Beck
By: /s/ William N. Griggs Director March 18, 1996
----------------------
William N. Griggs
By: /s/ David Lloyd Jones Director March 18, 1996
----------------------
David Lloyd Jones
By: /s/ Robert E. Craine, Jr. Executive Vice President and Director March 18, 1996
--------------------------
Robert E. Craine, Jr.
By: /s/ Jenk Jones Jr. Director March 18, 1996
------------------
Jenk Jones Jr.
By: /s/ Martin A. Vaughan Director March 18, 1996
---------------------
Martin A. Vaughan
By: /s/ Robert J. Swab Director March 18, 1996
------------------
Robert J. Swab
</TABLE>
<PAGE>
T/SF COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
----
Report of Independent Public Accountants ............................ F-2
Consolidated Balance Sheets as of
December 31, 1995 and 1994 .................................... F-3
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993 .................. F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993 .......... F-6
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 .................. F-8
Notes to Consolidated Financial Statements .......................... F-10
The required schedules are not submitted as they are immaterial or
inapplicable or because the required information is included in the Consolidated
Financial Statements of notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
T/SF Communications Corporation:
We have audited the accompanying consolidated balance sheets of T/SF
Communications (a Delaware corporation) and subsidiaries as of December 31, 1995
and 1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of T/SF Communications
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
March 1, 1996
F-2
<PAGE>
T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,383 $ 4,585
Short-term investments 1,000 2,000
Accounts receivable, less reserve for doubtful
accounts of $516 in 1995 and $506 in 1994 8,209 8,847
Inventories (Note 1) 181 596
Deferred tax assets (Notes 1 and 6) 494 -
Current contract receivable and other current assets 3.050 7,481
Refundable income taxes 3,239 167
Assets held for sale (Note 3) - 8,529
-------- --------
Total current assets 29,556 32,205
-------- --------
CONTRACT AND NOTES RECEIVABLE AND INVESTMENTS 2,721 3,019
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
(Notes 1, 4 and 5):
Exposition equipment 2,987 2,712
Data processing and office furniture and equipment 6,653 4,707
-------- --------
9,640 7,419
Less--accumulated depreciation 4,739 2,834
-------- --------
4,901 4,585
-------- --------
DEFERRED TAX ASSETS (Note 6) 1,456 732
-------- --------
INTANGIBLES AND OTHER ASSETS, NET (Notes 1 and 2) 14,810 13,040
-------- --------
$ 53,444 $ 53,581
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,200 $ 5.905
Accrued liabilities (Note 11) 8,764 7,163
Deferred tax liabilities (Notes 1 and 6) - 823
Current portion of long-term debt (Note 5) 1,266 1,251
-------- --------
Total current liabilities 14,230 15,152
-------- --------
LONG-TERM DEBT (NOTE 5) 4,529 4,905
-------- --------
DEFERRED CONTRACT LIABILITIES AND CREDITS 2,199 2,456
-------- --------
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES (NOTE 1) - 6,698
-------- --------
COMMON STOCK SUBJECT TO PUT (NOTE 9) - 525
-------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY, PER ACCOMPANYING STATEMENT
(Notes 1, 7, and 9):
Preferred stock, $10 par value,
1,000 shares authorized - -
Common stock $.10 par value,
10,000 shares authorized 332 342
Common stock, Class B, $.10 par value - 46
Additional paid in capital 13,475 20,128
Retained earnings 18,679 3,904
-------- --------
32,486 24,420
Less stock of parent company held by subsidiary - ( 565)
-------- --------
Total stockholders' equity 32,486 23,855
-------- --------
$ 53,444 $ 53,581
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES (Notes 1, 2 and 3):
Operating revenues $ 59,805 $ 54,054 $ 66,593
Interest and other income 1,039 2,163 1,570
Gain(loss) on sale of assets 11,234 702 ( 9,183)
-------- -------- --------
72,078 56,919 58,980
-------- -------- --------
COSTS AND EXPENSES (Notes 1, 2, 3 and 4):
Operating costs 39,665 35,069 49,658
General and administrative 11,841 11,862 15,361
Interest 859 736 1,921
Depreciation and amortization 3,601 3,118 3,779
-------- -------- --------
55,966 50,785 70,719
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 16,112 6,134 (11,739)
INCOME TAX (PROVISION) BENEFIT
(Notes 1 and 6) ( 58) ( 2,589) 4,097
MINORITY INTEREST IN CONSOLIDATED
SUBSIDIARIES (Note 1) ( 266) ( 981) 1,929
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS 15,788 2,564 ( 5,713)
DISCONTINUED OPERATIONS, NET (Note 4) 37 ( 2,816) ( 4,800)
EXTRAORDINARY LOSS, NET OF TAX OF $340
(Note 5) - - ( 560)
-------- -------- --------
NET INCOME (LOSS) 15,825 ( 252) (11,073)
DIVIDENDS ON PREFERRED SHARES - ( 139) ( 139)
-------- -------- --------
INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 15,825 $( 391) $(11,212)
======== ======== ========
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (Note 1):
Continuing operations $ 4.19 $ 0.65 $( 1.54)
Discontinued operations 0.01 ( 0.75) ( 1.26)
Extraordinary loss - - ( 0.15)
-------- -------- --------
$ 4.20 $( 0.10) $( 2.95)
======== ======== ========
Cash dividends per common share $ 0.27 $ - $ -
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Preferred Stock:
Beginning balance $ - $ 459 $ 459
Conversion and redemption
of preferred stock - ( 459) -
-------- -------- --------
Balance at end of year - - 459
-------- -------- --------
Common Stock:
Beginning balance 342 336 337
Conversion of preferred stock 17
Conversion of Class B, common stock 46 - -
Retirement of common stock ( 165) ( 2) ( 1)
Retirement of stock held by subsidiary ( 9) - -
Acquisition of outside minority
interest through merger 109 - -
Reclassification of common stock
subject to put 9 ( 9) -
-------- -------- --------
Balance at end of year 332 342 336
-------- -------- --------
Common Stock, Class B
Balance at end of year - 46 46
-------- -------- --------
Additional Paid-in Capital:
Beginning balance 20,128 21,879 21,939
Conversion and redemption of
preferred stock - ( 1,077) -
Issuance of common stock 43 - -
Retirement of common stock (13,342) ( 158) ( 60)
Retirement of stock held by subsidiary ( 556) - -
Acquisition of outside minority
interest through merger 6,686 - -
Reclassification of common stock
subject to put 516 516 -
-------- -------- --------
Balance at end of year 13,475 20,128 21,879
-------- -------- --------
Retained Earnings:
Beginning balance 3,904 4,295 15,507
Net income (loss) 15,825 ( 252) (11,073)
Cash dividends ( 1,050) ( 139) ( 139)
-------- -------- --------
Balance at end of year 18,679 3,904 4,295
-------- -------- --------
Less stock of parent company
held by subsidiary - ( 565) ( 565)
-------- -------- --------
$ 32,486 $ 23,855 $ 26,450
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Preferred Stock:
Beginning balance - 46 46
Conversion and redemption
of preferred stock - ( 46) -
-------- -------- --------
Balance at end of year - - 46
======== ======== ========
Common Shares:
Beginning balance 3,424 3,363 3,376
Conversion of preferred stock - 174 -
Conversion of Class B, common stock 464 - -
Retirement of common stock ( 1,654) ( 25) ( 13)
Retirement of stock held by subsidiary ( 95)
Issuance of common stock 4 - -
Acquisition of outside minority
interest through merger 1,087 - -
Reclassification of common stock
subject to put 88 ( 88) -
-------- -------- --------
Balance at end of year 3,318 3,424 3,363
======== ======== ========
Common Shares, Class B:
Balance at end of year - 464 464
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 15,825 $( 252) $(11,073)
-------- -------- --------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 3,601 3,163 3,928
Accretion of interest expense 133 47 228
(Gain) loss on sale of assets (11,234) ( 702) 9,183
Reserves provided on venture capital
and real estate investments 8 2,812 4,815
Deferred compensation 5 7 1,856
Changes in assets and liabilities:
Accounts receivable and refundable
income taxes ( 3,686) ( 1,907) 744
Inventories 187 ( 213) 184
Current contract receivable and
other current assets ( 816) ( 399) ( 314)
Intangibles and other assets ( 282) 77 ( 103)
Accounts payable and accrued
liabilities ( 628) 2,136 ( 257)
Deferred income taxes ( 641) ( 343) ( 4,837)
Minority interests 266 981 ( 1,929)
-------- -------- --------
Total adjustments (13,087) 5,659 12,010
-------- -------- --------
Net cash provided by operating
activities 2,738 5,407 937
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
T/SF COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from investing activities:
Net sales (purchases) of short-term
investments 1,000 ( 2,000) --
Collections on contract and notes
receivable 6,538 5,033 3,899
Investments, net of distributions ( 315) ( 165) ( 167)
Capital expenditures ( 2,589) ( 3,254) ( 1,618)
Proceeds from the sale of assets 18,816 8,983 4,616
Payments for acquisitions, net of cash
acquired -- ( 1,114) --
Payments on deferred contract liabilities ( 616) ( 502) ( 1,013)
-------- -------- --------
Net cash provided by investing
activities 22,834 6,981 5,717
-------- -------- --------
Cash flows from financing activities:
Payments of notes payable, net -- ( 151) ( 51)
Principal payments of long-term debt ( 2,477) ( 6,378) (13,319)
Borrowings under bank lines-of-credit 2,900 3,300 --
Payments under bank lines-of-credit ( 2,900) ( 3,300) --
Issuance of common stock 43 347 --
Repurchase of common stock (13,290) ( 2,770) ( 100)
Redemption of preferred stock -- ( 1,520) --
Dividends paid ( 1,050) ( 139) ( 139)
-------- -------- --------
Net cash used in financing activities (16,774) (10,611) (13,609)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 8,798 1,777 ( 6,955)
Cash and cash equivalents at beginning of
year 4,585 2,808 9,763
-------- -------- --------
Cash and cash equivalents at end of year $ 13,383 $ 4,585 $ 2,808
======== ======== ========
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest $ 931 $ 1,039 $ 1,993
Income taxes 3,168 2,783 1,485
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
T/SF Communications Corporation and subsidiaries (collectively, the
"Company", unless the context indicates otherwise) are engaged in publishing two
trade journals and newspapers and other publications for conventions and trade
shows, owning an industry trade show, providing trade show registration services
and exhibitor information and marketing services, providing pre-employment
information services to the insurance and trucking industries, and (through
October 31, 1993 - see Note 3) publishing shopper-newspapers.
On January 25, 1995, the Company entered into an Agreement and Plan of
Merger, as amended, with Tribune/Swab-Fox Companies, Inc. ("Tribune/Swab-Fox")
whereby, subject to approval of the Company and Tribune/Swab-Fox stockholders
(the Company was a 78 percent owned subsidiary of Tribune/Swab-Fox),
Tribune/Swab-Fox would be merged with and into the Company. On May 25, 1995,
Tribune/Swab-Fox was merged (the "Merger") with and into the Company. In the
Merger, each share of Tribune/Swab-Fox stock was converted into 0.1255 of a
share of the Company or, at the election of the holder, $0.88 in cash. While
the Merger was structured for legal purposes as a merger of Tribune/Swab-Fox
with and into the Company, for accounting purposes the Merger has been treated
as a recapitalization of Tribune/Swab-Fox, with Tribune/Swab-Fox as the survivor
(downstream merger). Thus, for financial reporting purposes, Tribune/Swab-Fox
is the acquiring and surviving entity. Accordingly, the historical financial
statements of the Company, as the surviving entity, are the historical financial
statements of Tribune/Swab-Fox. Earnings per share for the periods prior to the
Merger are restated to reflect the number of equivalent shares giving effect to
the recapitalization. The Company acquired 1,110,675 equivalent shares
(8,850,000 Tribune/Swab-Fox shares) for cash in the Merger, the effect of which
is taken into account as of the date of the Merger. In connection with the
Merger, the Board of Directors of Tribune/Swab-Fox declared a one-time dividend
of $0.0344 per share ($0.27 per equivalent share) which was paid on May 24,
1995.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Minority interest
represents the minority stockholders' interest in the Company prior to the
Merger.
F-10
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
INVENTORIES
Inventories are recorded at the lower of cost or market determined on
first-in, first-out and average cost methods. Inventories of newsprint and
related printing supplies were $7,000 and $404,000, computers and computer-
related equipment were $46,000 and $81,000, and exposition registration supplies
were $128,000 and $111,000, at December 31, 1995 and 1994, respectively.
DEPRECIATION
Depreciation of property, plant and equipment is provided using the
straight-line method based on estimated useful lives ranging from three to 25
years.
INTANGIBLES AND OTHER ASSETS
Intangibles and other assets include mainly goodwill related to
acquisitions and credits granted for truck driver employment information files.
These assets are being amortized over periods of three to 30 years and consist
of the following:
<TABLE>
<CAPTION>
Amortization December 31,
Period 1995 1994
------ ---- ----
(In thousands)
<S> <C> <C> <C>
Goodwill 30 years $13,663 $ 11,833
Employment information
costs and other 3 1/2- 11 years 4,046 3,827
Covenants-not-to-compete
and consulting agreements 3-10 years 1,273 1,731
------- --------
18,982 17,391
Accumulated amortization (4,172) ( 4,351)
------- --------
$14,810 $ 13,040
======= ========
</TABLE>
Goodwill impairment is assessed at each balance sheet date based upon a
review of the acquired entity's operations as to income, growth of income in
relation to the expected growth of income when acquired and, if the entity is
considered for sale, estimated realizable value. Valuation reserves are
provided if the carrying value of acquired goodwill is determined to be
permanently impaired.
F-11
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
REVENUE RECOGNITION
Revenues from information services are net of the cost of charges from
state motor vehicle record departments which are incurred by the Company as an
agent for its customers. As provided in the agreements with customers, the
Company charges a fee for its service and is also reimbursed for state charges.
Exposition services revenues are recognized when the services are provided.
Advertising revenues from publishing are recognized when each publication
is published and distributed. Subscription revenue is recognized ratably over
the subscription period.
Commercial printing revenues are recognized when the material is printed
since the customer is generally obligated to accept printed matter when the
printing is complete. Commercial printing customers must exercise their right
of inspection, when such inspection right exists, while the printing is in
process.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109 which requires an
asset and liability approach to financial accounting and reporting. The
difference between the financial statement and tax bases of assets and
liabilities is determined annually. Deferred income tax assets and liabilities
are computed for those differences that have future tax consequences using
currently enacted tax laws and rates that apply to the periods in which they are
expected to affect taxable income.
POSTRETIREMENT BENEFITS
No postretirement medical or insurance benefits are offered to any
employees.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common and common equivalent share are computed by
dividing net income (loss), adjusted for dividends on preferred stock and before
deduction of interest expense (net of tax) on certain previously outstanding
Tribune/Swab-Fox subordinated convertible
F-12
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
debentures, by the weighted average
number of common and common equivalent shares, when dilutive, outstanding during
the year. Outstanding incentive stock options, warrants and common shares that
would be issued assuming the previously outstanding Tribune/Swab-Fox 6 1/2
percent convertible preferred shares and the 11 percent subordinated convertible
debentures due in 1997 were converted into common stock are considered common
stock equivalents and, when dilutive, are included in the calculation of
earnings (loss) per common share.
The weighted average number of common and common equivalent shares
outstanding was 3,766,000 in 1995, 3,733,000 in 1994, and 3,801,000 in 1993.
Common shares that would be issued assuming conversion of the previously
outstanding Tribune/Swab-Fox new senior preferred shares and the 11 percent
subordinated convertible debentures due in 1998 were not included in the
calculations since the effect would have been antidilutive. The above shares
are as if converted into the Company's shares at 0.1255 of a share for each
previous outstanding share of Tribune/Swab-Fox.
USE OF ESTIMATES
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the presentation in the 1995 statements. These
reclassifications have no effect on net income for 1994 or 1993.
2. ACQUISITIONS:
GALAXY REGISTRATION, INC. ("GALAXY")
Effective March 1, 1994, the Company completed the acquisition of Galaxy, a
provider, on a national basis, of registration, information and marketing
services to the convention/trade show industry. The Company acquired Galaxy
with the payment of $1,200,000 in cash plus a note payable for $900,000. If
certain earnings targets were achieved, the principal owner of Galaxy, who was
employed as President and Chief Operating Officer of Galaxy, would receive
additional payments not to exceed $2,900,000 by 1997. In connection with this
transaction, on March 17, 1994, the former principal owner of Galaxy purchased
75,000 shares of the Company's Common Stock at $4.625 per share for a total
purchase price of $346,875. A covenant-not-to-compete and an
F-13
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
employment agreement were also entered into with the former principal owner. The
earnings target for 1994 was achieved and the Company accrued $300,000 of
purchase price adjustments payable to the former owner. In 1995, the agreement
with the former principal owner was amended to provide that substantially all of
the additional purchase price would be paid over the period set forth in the
acquisition agreement. The additional purchase price was discounted and recorded
as additional goodwill in 1995. In addition, the former owner earned $100,000 of
incentive compensation in both of the periods ended December 31, 1995 and 1994,
which was expensed each year.
Unaudited pro forma results of operations, had the Galaxy acquisition
occurred on January 1, 1994, with respect to the 1994 information, and January
1, 1993, with respect to the 1993 information, are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
---- ----
<S> <C> <C>
(In thousands)
Revenues $58,469 $76,419
Income (loss) from continuing operations 2,726 (5,477)
Earnings (loss) per common share from
continuing operations 0.73 (1.44)
</TABLE>
This unaudited pro forma information is presented in response to applicable
accounting rules. It is not necessarily indicative of the actual results that
would have been achieved had the Galaxy acquisition occurred on January 1, 1994,
with respect to the 1994 information, and January 1, 1993, with respect to the
1993 information.
3. ASSETS HELD FOR SALE:
In 1994, the Company's Board of Directors authorized the sale of three of
the Company's trade journals. An Asset Purchase Agreement was signed June 16,
1995, and the sale of these trade journals was closed on August 2, 1995, for
$21,000,000 cash. The "Gain on sale of assets" in 1995 in the statement of
operations includes the $11,739,000 pre-tax gain from this transaction. The net
assets related to these trade journals had previously been reflected as "assets
held for sale," along with certain discontinued real estate assets.
On April 30, 1994, the Company sold the assets of Shopper's Guide, Inc. The
Company received $1,750,000 in cash, a $1,100,000 cash payment for post-closing
adjustments, and the buyer assumed certain liabilities totaling $930,000. The
Company also received the right to receive a maximum of $3,450,000 out of future
cash flow from the business conducted with the assets sold, as defined, over the
next five years and after the buyer receives a certain sum. In addition, the
Company entered into a five year covenant-not-to-compete in exchange for
$750,000 in cash. No gain or loss was recorded on the sale or in connection
with the
F-14
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
covenant-not-to-compete. At December 31, 1995, the accompanying balance sheet
includes $717,000 of net assets related to the right to receive future cash flow
payments. The Company will recognize income for future cash flow payments in
excess of such amount when received.
During the third quarter of 1993, the Company's Board of Directors
authorized the sale of all of the Company's shopper-newspaper operations.
Accordingly, the book value of the shopper-newspapers was reduced to estimated
net realizable value and a pre-tax loss of $9,224,000 was recognized. On
November 1, 1993, the Company sold all of the operating assets, except cash, of
Marks-Roiland Communications, Inc. ("Marks-Roiland") one of the shopper-
newspapers. The Company received $4,675,000 in cash, and the buyer assumed
certain liabilities totaling approximately $1,560,000. In addition, the Company
entered into a three-year covenant-not-to-compete whereby the Company may not
compete with the buyer in the geographic area of the operations that were sold.
The Company received $1,425,000 in cash for the covenant which is being
recognized in income ratably over the term of the covenant.
4. REAL ESTATE:
Effective November 30, 1994, Tribune/Swab-Fox's Board of Directors approved
a plan to dispose of the remaining real estate operations. As a result, the
real estate business was reclassified as discontinued operations and the sale of
these discontinued assets in 1995 resulted in a nominal net gain. Prior to the
Merger, Tribune/Swab-Fox and the Company filed separate income tax returns. Due
to Tribune/Swab-Fox's history of losses, no deferred tax asset was recognized
related to net operating loss carryforwards. Therefore, no income tax benefit
was recognized on the real estate business losses. The following summarizes the
components of the loss from discontinued operations:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Revenues $ 100 $ 589 $ 365
Costs and expenses (63) (3,405) (5,165)
----- ------- -------
Income (loss) from
discontinued operations $ 37 $(2,816) $(4,800)
===== ======= =======
</TABLE>
On December 30, 1994, three significant parcels of raw land were sold to
1995 Land Company L.L.C., an Oklahoma limited liability company ("1995 Land
Company"), for $1,386,650, including cash of $600,000 and a note receivable of
$786,350 which was paid in early 1995. 1995 Land Company is owned 49.99 percent
by the Company, but the funding for the purchase was provided through a loan
from the owner of the remaining 50.01 percent, who will oversee, manage and fund
the development and sale of these properties.
F-15
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
In March, 1995, the Company entered into an Acquisition Agreement with
Midwest Energy Companies, Inc. ("MECI"), which is indirectly controlled by a
director of the Company. Under the agreement approximately 900 acres of raw
land, with a book value of $1,650,000 at December 31, 1994, was exchanged for
7,422,773 shares of MECI common stock.
During the third quarter of 1993, the Tribune/Swab-Fox Board of Directors
made the decision to accelerate the liquidation of real estate which was
underway at that time. The plan for liquidation was implemented by offering the
real estate assets for sale at discounts from retail values that might otherwise
be achieved if the assets were held for sale in the normal course of business.
As part of this plan, the interests of several partners in certain real estate
partnerships were acquired in exchange for notes receivable from such partners
of approximately $3,400,000, assuming partnership bank debt of approximately
$1,700,000 and cash payments of $335,000. After these interests were acquired,
Tribune/Swab-Fox generally owned 100 percent of these partnerships and
properties. As a part of the liquidation plan, a review of the market value for
each property was made and a write-down of the real estate assets of
approximately $2,800,000 and $4,400,000 was recognized in 1994 and 1993,
respectively. These write-downs are reflected in "costs and expenses" in the
table above and included in discontinued operations.
5. LONG-TERM DEBT:
Long-term debt outstanding consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Promissory Notes secured by stock of a
subsidiary, payable $152,000
quarterly, plus interest, through
December, 2000, interest rate adjusts
semi-annually to the base rate of
Chase Manhattan Bank (8.5% at December
31, 1995). $ 3,034 $ 3,640
Note payable under Galaxy Purchase
Agreement, discounted at 8.5%,
payments to commence in April, 1996. 1,898 --
7.5% Promissory Notes, unsecured,
annual payments of $155,000, plus
interest, with final payments in
August, 1998, and March, 1999. 484 365
6% Promissory Note, unsecured,
quarterly payments of $75,000, plus
interest, through March, 1997. 375 675
Subordinated debentures paid in August
and September, 1995, and other. 4 1,476
------- -------
5,795 6,156
Less portion due within one year (1,266) (1,251)
------- -------
$ 4,529 $ 4,905
======= =======
</TABLE>
F-16
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
Installments due on long-term debt during each of the five years subsequent
to December 31, 1995, are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1996 $ 1,266
1997 1,357
1998 1,187
1999 1,121
2000 864
--------
$ 5,795
========
</TABLE>
At December 31, 1995, assets with a net book value of approximately
$6,000,000 are pledged as collateral on long-term debt.
At December 31, 1995, the Company has two separate revolving credit
arrangements with a bank which together allow the Company to borrow up to
$3,750,000. In addition, the Company has a declining balance revolving credit
arrangement ($900,000 at December 31, 1995) with the same bank. At December 31,
1995, no balance was outstanding under these arrangements. Interest on amounts
borrowed is payable monthly at a rate of one percent above the Chase Manhattan
base rate (9.5 percent at December 31, 1995). Certain of the facilities are
secured by accounts receivable. A 1/4 percent per annum fee is payable to the
bank on the unused portion of the credit facilities.
In connection with the sale of the Marks-Roiland assets (see Note 3), the
Company agreed to a prepayment of the $8,889,000 remaining principal of Senior
Notes held by The Prudential Insurance Company of America ("Prudential"). As
provided by the Senior Notes agreement, a yield maintenance premium was required
to be paid as part of the prepayment. Through negotiations with Prudential, the
Company obtained a reduction in the yield maintenance premium to $802,000 which,
along with the remaining unamortized loan fees related to the Senior Notes, is
reflected as an extraordinary loss in the accompanying statements of operations.
F-17
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
6. INCOME TAXES:
The provision for (benefit from) income taxes is comprised of the
following:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ (679) $2,600 $ 352
State 1,378 332 48
------ ------ -------
699 2,932 400
------ ------ -------
Deferred:
Federal (521) (339) (4,137)
State (120) (4) (700)
------ ------ -------
(641) (343) (4,837)
------ ------ -------
$ 58 $2,589 $(4,437)
====== ====== =======
</TABLE>
The reconciliation of income tax computed at the federal statutory
rate (34%) to income tax expense (benefit) is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income tax provision (benefit) at
statutory rates $ 5,478 $1,128 $ (5,956)
Amortization of acquired assets not
deductible for income tax purposes 193 224 302
Losses without tax benefit -- 1,061 2,042
Utilization of losses previously subject
to valuation allowance (3,570) -- --
Excess of tax basis of assets sold over
book basis which was not previously tax
effected (1,591) (36) (369)
State income taxes (428) 217 (444)
Other (24) (5) (12)
------- ------ -------------
$ 58 $2,589 $( 4,437)
======= ====== =============
</TABLE>
F-18
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
Significant components of deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Fixed asset basis differences $ (144) $ (330)
Unusual gain recognized in different
accounting period for income tax
reporting purposes (336) (2,293)
------ ------
Deferred tax liabilities (480) (2,623)
------ ------
Deferred tax assets:
Income recognized in different
accounting period for income tax
purposes 1,028 1,045
Deferred severance benefits payable 805 938
Reserves on assets 293 260
Accrued expenses deductible when paid 304 319
Tax loss carryforwards -- 3,887
------ ------
Total deferred tax assets 2,430 6,449
Valuation allowance for deferred
tax assets -- (3,917)
------ ------
Deferred tax assets 2,430 2,532
------ ------
Net deferred tax assets (liabilities) $1,950 $ (91)
====== ======
</TABLE>
Net deferred tax liabilities are reflected on the accompanying balance
sheets as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Current assets - Deferred tax assets $ 494 $ --
Long-term - Deferred tax assets 1,456 732
Current liabilities - Deferred tax liabilities -- (823)
------ -----
$1,950 $ (91)
====== =====
</TABLE>
F-19
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
7. CAPITAL STOCK:
The Company has authorized 10,000,000 shares of $0.10 par value Common
Stock and 1,000,000 shares of $10.00 par value preferred stock. No shares of
preferred stock have been issued. (Reference is made to Note 1 for the capital
stock transactions in connection with the Merger.)
Capital stock transactions prior to the Merger included conversion, in
December, 1994, of the 6 1/2 percent Cumulative Convertible Preferred Stock of
Tribune/Swab-Fox into 1,386,675 common shares (174,027 equivalent shares) and
redemption of the remaining outstanding preferred stocks for approximately
$1,520,000 which were the 1,400 shares of Class A Preferred Stock redeemed at a
price of $110 per share and the 13,657 shares of New Senior Preferred Stock
redeemed at $100 per share.
In 1995, 1994 and 1993, the Company purchased and retired 78,819 shares
($10.50 and $5.48 per share), 25,000 shares ($6.37 per share), and 107,267
shares ($5.98 and $4.78 per share), respectively, of its Common Stock owned by
certain officers and directors. As part of these transactions, the Company
received payments on loans of $300,000 in 1995, $24,000 in 1994 and $224,000 in
1993.
The Tribune/Swab-Fox incentive stock option plan was terminated as part of
the Merger. No options were outstanding under this plan.
The Company's incentive stock option plan authorizes an aggregate of 150,000
shares of the Company's Common Stock which may be granted to key employees.
Options for 20,000 shares were outstanding at December 31, 1995, at an option
price of $5.50 per share. During 1995, no options for shares were granted or
exercised and options for 67,064 shares lapsed or were canceled. Options are
granted at the discretion of the Board of Directors' Compensation Committee at a
minimum exercise price of 100 percent of the market value of the Company's
Common Stock at the date of grant.
An Employee Stock Purchase Plan has been approved and 100,000 shares of
Common Stock have been allocated for this plan. No shares have been issued
under this plan. In 1995, the Company's Board of Directors approved the
matching of 20 percent of each employee's contributions (limited to 5 percent
maximum employee contribution) to the qualified 401(k) defined contribution plan
with the Company's Common Stock and 50,000 shares of Common Stock have been
allocated for this plan. During 1995, 3,852 shares were issued to the 401(k)
plan as matching contributions.
In January, 1994, the Company's Board of Directors approved the 1994
Incentive Stock Plan which permits the grant of stock options and awards of
restricted stock to executives and
F-20
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
key employees. Pursuant to various bonus and incentive plans, the Company
awarded 29,186 shares of restricted stock at $6.25 and $4.94 per share in April,
1995 and May, 1995, as part of incentives which were accrued in 1994. These
restricted shares vest three years from the effective date of the grant. Options
for 15,000 shares were granted in 1995 at an option price of $6.00 per share and
options for 202,500 shares were granted in 1994 at an option price of $4.25 per
share. The options were granted at the market price of the Company's Common
Stock at the effective date of the grant and expire in 2004 and 2005 and vest
100 percent in 1997 and 1998, respectively.
8. COMMITMENTS AND CONTINGENCIES:
Operating lease agreements of the Company are principally for office
facilities and equipment and expire at various dates through 2000. Rent expense
in 1995, 1994 and 1993 under operating leases was approximately $1,080,000,
$924,000, and $1,317,000, respectively.
As of December 31, 1995, future minimum lease payments are as follows:
<TABLE>
<CAPTION>
Year Ending Minimum Lease
December 31, Payments
------------ -------------
<S> <C>
(In thousands)
1996 $1,037
1997 996
1998 905
1999 596
2000 237
------
$3,771
======
</TABLE>
The Company has employment agreements with four key employees of the
Company and its subsidiaries which provide for individual compensation ranging
from $75,000 to $111,000 annually ($370,000 annually in the aggregate) and
expire at various dates through 2000.
The Company is a defendant in certain litigation arising out of operations
in the normal course of business. However, it is the opinion of management that
the ultimate liabilities relating thereto, if any, will not have a material
adverse effect on the financial position or results of operations of the
Company.
In February, 1993, notice was received of assessments of Federal income tax
for the years 1989 through 1991 of approximately $955,000, due principally to
the disallowance of certain deductions related to amortization of intangible
assets, specifically advertising lists and
F-21
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
covenants-not-to-compete. The Company settled the tax liability during 1994 with
the Internal Revenue Service, which did not materially affect the Company's
financial position or results of operations. Examination of the Company's
Federal income tax returns for the years 1993 and 1992 were completed in 1995
with no material change. Appeals of assessments of Federal income and employment
tax for the years 1991 and 1992, related to a former subsidiary, have been made.
The opinion of management is that any tax liability which ultimately may result
will not have a material adverse effect on the financial position or results of
operations of the Company.
9. RELATED PARTY TRANSACTIONS:
Effective December 31, 1994, the Chairman of the Executive Committee of
Tribune/Swab-Fox retired. Deferred compensation expense of approximately
$277,000 was recorded in 1994 related to this retirement. In addition, the
Company acquired 25,100 shares of Common Stock for $160,000 from the former
employee. An amendment to the Retirement Agreement in December, 1995, provided
that the Company would purchase an additional 30,000 shares of Common Stock at
$10.50 per share, the former Chairman of the Executive Committee would pay in
full his note payable to the Company of approximately $300,000 and the puts and
calls for shares of Common Stock owned by the former Chairman of the Executive
Committee would be canceled. At December 31, 1994, the 87,800 shares related to
the puts canceled by the amendment are reflected as "Common Stock Subject to
Put" in the accompanying balance sheet.
Effective August 1, 1993, the Chairman and Chief Executive Officer of the
Company resigned. Included in general and administrative expenses for 1993 in
the accompanying consolidated statements of operations are retirement and
deferred compensation expense of approximately $1,800,000 related to this
resignation. In addition, the Company acquired 94,593 equivalent shares for
$565,000, with a cash payment of $100,000 and the issuance of a promissory note
for the balance providing for payments over the period 1994 through 1998. The
Company also acquired an 11 percent Convertible Subordinated Debenture in the
principal amount of $141,000 which was called for early retirement in 1994. In
March, 1995, upon exercise of an option, the Company acquired 48,819 equivalent
shares of the Company's Common Stock from the Profit Sharing Plan and Trust of
Tribune/Swab-Fox Companies, Inc., of which the former Chairman and Chief
Executive Officer is the trustee, for $291,750, with a cash payment of $72,937
and a note payable for $218,813.
Under the terms of a loan agreement, amended in June, 1992, a former Tulsa
Tribune Company stockholder and current officer and director of the Company has
borrowed approximately $235,000 from the Company at an interest rate of 8.5
percent, secured by 87,333 shares of Common Stock of the Company and payable in
semi-annual payments commencing October, 1995, equal to one-fifteenth of the
outstanding loan principal, with all of the remaining balance due in October,
1999.
F-22
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
10. BUSINESS SEGMENT INFORMATION:
Operations of the Company are conducted primarily through three business
segments entirely within the continental United States. These segments and the
primary operations of each are as follows:
Business Segment Operations
- ---------------- ----------
Publishing Publication of four trade journals (one after
July, 1995) by G.E.M. Communications, Inc.
("G.E.M."), formerly BMT Communications, Inc., and
owner of a trade show. Publication of weekly
free-distribution shopper-newspapers by Shopper's
Guide and Marks-Roiland (through October 31, 1993).
Exposition Publisher of various convention/trade show
Services publications and a trade journal, and provider of
registration services, exhibitor marketing and
information services, all to the exposition
industry.
Information Provider of pre-employment screening information
Services including motor vehicle reports, truck driver
employment information, worker's compensation
information, credit reports, criminal record
reports and other pre-employment screening
information and services, to the trucking and
other industries and motor vehicle reports to the
insurance industry and, until March, 1994,
reseller of long-distance telephone service.
F-23
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS:
Publishing $ 26,498 $18,608 $ 32,428
Exposition services 26,591 21,057 10,483
Information services 17,950 15,091 14,499
Corporate and other 1,039 2,163 1,570
-------- ------- --------
$ 72,078 $56,919 $ 58,980
======== ======= ========
OPERATING PROFIT (LOSS):
Publishing $ 13,758 $ 2,891 $ (9,509)
Exposition services 1,031 1,453 297
Information services 3,435 2,992 2,505
-------- ------- --------
Operating profit (loss) from segments 18,224 7,336 (6,707)
Corporate expenses, net (1,253) (466) (3,111)
Interest expense (859) (736) (1,921)
-------- ------- --------
Income (loss) from continuing operations before
income taxes and minority interest $ 16,112 $ 6,134 $(11,739)
======== ======= ========
IDENTIFIABLE ASSETS:
Publishing $ 2,491 $14,871 $ 24,422
Exposition services 13,034 11,534 4,714
Information services 7,359 12,101 12,387
Corporate 30,560 12,808 6,105
Discontinued operations -- 2,267 12,431
-------- ------- --------
$ 53,444 $53,581 $ 60,059
======== ======= ========
</TABLE>
F-24
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION:
Publishing $ 492 $ 866 $2,563
Exposition services 1,873 1,167 291
Information services 1,175 1,035 898
Corporate 61 50 27
Discontinued operations -- 45 149
------ ------ ------
$3,601 $3,163 $3,928
====== ====== ======
CAPITAL EXPENDITURES:
Publishing $ 52 $ 109 $ 578
Exposition services 1,244 3,175 180
Information services 1,285 935 800
Corporate 8 163 12
Discontinued operations -- -- 3,994
------ ------ ------
$2,589 $4,382 $5,564
====== ====== ======
</TABLE>
Corporate revenues consist principally of revenues from interest,
covenants-not-to-compete and miscellaneous non-operating income. Operating
profit (loss) is net revenues less applicable operating expenses and segment
general and administrative expenses. Corporate general and administrative
expenses are generally not allocated to each segment. Included in 1993
corporate general and administrative expenses is the retirement expense related
to the former Chairman of the Board.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets consist principally of cash and
cash equivalents, notes receivable, prepaid expenses and corporate furniture,
fixtures and equipment. Capital expenditures include additions to property,
plant and equipment, goodwill and truck driver employment information files.
During 1995, 1994 and 1993, no customer represented ten percent or more of
the Company's revenue or operating profit.
F-25
<PAGE>
T/SF COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 1995, 1994 and 1993
11. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Current portion of deferred contract liabilities $ 482 $ 533
Accrued interest 47 117
Accrued vacation 224 249
Accrued payroll 678 1,528
Accrued income taxes 2,073 --
Deferred revenue 3,255 2,750
Accrued other liabilities 2,005 1,986
------ ------
$8,764 $7,163
====== ======
</TABLE>
F-26
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
10.17 Modification of Employment Agreement, dated July
24, 1995, between the Company, Galaxy and John
Laughlin, together with supplemental letter
agreement, dated December 20, 1995
10.18 Settlement Agreement, dated and effective December
12, 1995, closed January 2, 1996, between the
Company and Robert J. Swab
11 Computations of earnings per share for the years
ended December 31, 1995, 1994 and 1993
21 Subsidiaries of the Company
27 Financial Data Schedule
<PAGE>
EXHIBIT 10.17
MODIFICATION OF EMPLOYMENT AGREEMENT
John R. Laughlin ("Laughlin"), Galaxy Registration, Inc. ("Galaxy"), and
T/SF Communications Corporation ("T/SF") have agreed to modify Laughlin's
Employment Agreement, dated March 17, 1994, with Galaxy, as of August 1, 1995,
in order to enable Laughlin to work under T/SF's direction at other T/SF-
controlled ventures and to withdraw from his operational duties at Galaxy. This
Agreement sets forth the terms of this new relationship.
1. LAUGHLIN'S CONTINUED EMPLOYMENT BY GALAXY
Laughlin will spend approximately 8-10 hours per week on Galaxy business
and will report to a Galaxy facility as needed. While Laughlin is to serve in
an advisory (and not operational) capacity at Galaxy, he will also be available
for specific tasks assigned to him by Robert E. Craine, Jr. ("Craine"),
Executive Vice President of T/SF, and, with Craine's concurrence, other Galaxy
division level managers. His specific assignments will vary from month to
month, but they might, for example, include:
* Sales and marketing (presentations, visits and writing contracts and
articles)
* Gospel-spreader of the value of Expocard (at, for example, AWMA and Store
Fixtures)
* Training and orientation of Galaxy's new CFO and COO
* IAEM involvement (from Board and Committees to staffing our booth at Expo)
* Visible exhibition industry technology guru (replacing Ivan at RCS and
others)
* Corporate high level liaison for major, multiple show accounts (Epic,
Miller Freeman, ITS)
* Helping grow Galaxy Europe and related overseas development work
* New venture and new product exploration and analysis
* Participating in the housing/registration integration project (Anasazi-ITS-
CVBs-Epic)
Laughlin will consult with Craine at the end of each month (beginning on or
about August 2, 1995) regarding the Galaxy activities in the upcoming month that
Craine wants Laughlin to pursue. Laughlin will provide monthly reports to
Craine on the status of these projects, including recommendations about how his
time might best be used.
The terms of Laughlin's employment by Galaxy (and his herein agreed-to
activities for National Employment Screening Services, Inc. ("NESS"), a
subsidiary of T/SF) will remain the same as those in his current Employment
Agreement with Galaxy, other than as herein provided (including a shift in his
working hours, a pay reduction (as provided below), and his pulling away
completely from Galaxy operational matters), and the provisions hereof shall be
deemed to amend and supersede any conflicting provisions in Laughlin's
Employment Agreement and any other
<PAGE>
agreements among the parties. The following are some of the key non-financial
issues among Galaxy, Laughlin, NESS, and T/SF and how they will be treated:
* Laughlin will have voice mail and e-mail access to Galaxy's networks
* Laughlin will retain his Galaxy fringe benefits at the level of other
employees of Galaxy (insurance, vacation, sick leave, 401(k), etc.)
* Galaxy or T/SF will pay for expenses associated with Laughlin's business
activities on behalf of Galaxy, NESS or other T/SF related projects
* Laughlin will continue to have exclusive use of his laptop computer and
docking station
* Laughlin will have an office at a Galaxy location (though not necessarily
his current office)
* Laughlin will have reasonable access to Galaxy supplies and equipment
To the extent that, pursuant to the above, Galaxy incurs any material expenses
which are properly attributable to T/SF or NESS, Laughlin will keep a reasonable
accounting thereof.
2. ANCILLARY AGREEMENTS AND GALAXY INCENTIVE PROGRAMS RELATED TO LAUGHLIN'S
EMPLOYMENT
The following items (executed in connection with the original sale of
Galaxy to T/SF pursuant to that certain Agreement for Purchase and Sale of
Stock, dated March 17, 1994 (the "Purchase Agreement")) will, except as herein
specifically provided, be unchanged as the result of the restructuring of
Laughlin's relationship with Galaxy and T/SF:
* Laughlin's Noncompetition Agreement, dated March 17, 1994; provided, that
the activities conducted by T/SF through its NESS subsidiary are
specifically included as activities of T/SF with which Laughlin may not
compete per the terms of the Noncompetition Agreement.
* Terms of T/SF restricted stock and stock options held by Laughlin
* T/SF's Promissory Note, dated March 17, 1994, to Laughlin in the original
principal amount of $900,000
* Lease Agreement between Galaxy, as lessee, and Laughlin, as lessor
* Guaranty and Indemnification Agreement, dated March 17, 1994, by T/SF in
favor of Laughlin
Upon this Agreement becoming effective, T/SF has agreed that the "Primary
Amount" (as defined in the Purchase Agreement) portion of the "Contingent
Consideration" (as defined in the Purchase Agreement) payable to Laughlin (being
$2,300,000) is, unless T/SF makes the election provided in the next succeeding
paragraph, deemed fully earned upon this Agreement becoming effective. Thus,
the $2,100,000 balance of this amount due Laughlin (after applying the $200,000
prepayment described below) will be paid in accord with the schedule in
Subsection 2.02(b)(ii)(A) of the Purchase Agreement; provided, that the
prepayment which could have been due April 1, 1996, in the amount of $400,000,
shall be reduced to $200,000. In addition, the $200,000
2
<PAGE>
advance paid by T/SF on or about April 1, 1995, against the total $2,300,000
Primary Amount is henceforth not recoverable by T/SF and is deemed a prepayment.
Despite the preceding paragraph, should Galaxy's performance deteriorate
over the next several months, T/SF, in its sole discretion, may cancel this
Agreement in its entirety and return full operating authority at Galaxy (subject
to the terms of the Purchase Agreement and Laughlin's Employment Agreement) to
Laughlin so that he can attempt to restore profits at Galaxy and thereby reach
his full incentive payout potential. Were such an election to occur, Laughlin's
original Employment Agreement at Galaxy would be reinstated in lieu of any
conflicting terms in this Agreement. T/SF must elect to cancel this Agreement
in accord with this paragraph no later than December 31,1995, or its option to
do so is void.
3. EMPLOYMENT OF LAUGHLIN BY T/SF AND NESS
Laughlin will become an active participant in T/SF's NESS project, and,
other than time which he is requested by Craine to spend on Galaxy, will devote
all of his working time to helping turn this venture around by substantially
increasing its sales. His general duties will include:
* Generating revenues to achieve agreed-to targets through the sale of NESS
products and services
* Creating and implementing new sales and marketing initiatives
* Making high level sales calls at major accounts and sales prospects
* Helping to refine the NESS product line to respond to the marketplace
* Participating as an active Advisory Board member
In his activities for NESS, Laughlin will be subject to the direction of
Howard G. Barnett, Jr. ("Barnett"), Chairman and CEO of T/SF, and will work side
by side with Jerry Corbier ("Corbier"), General Manager of NESS. It is the
intention of the parties that Laughlin work under the direction of Barnett
pursuant to plans proposed by Laughlin and agreed to by Barnett from time to
time. In that regard, Laughlin and Barnett shall discuss, from time to time,
appropriate spending authority for Laughlin and any expenditures either within
such agreed-to limitations or otherwise approved by Barnett shall be reimbursed
to Laughlin by T/SF or Galaxy, as appropriate. For preliminary purposes, it is
understood that Laughlin shall have the authority to make individual or related
groups of expenditures of up to $750, including travel, marketing, etc. type
expenditures. In addition, it is intended that Laughlin's initial sales thrust
will be primarily related to acquiring the endorsement of trade associations for
the offering of the NESS products and services (hereafter referred to together
as "NESS products") to their members (with the specific terms of any
arrangements with the associations to be subject to Barnett's approval). In
connection with Laughlin's marketing to trade associations, he is authorized to
offer to the association and/or "test" members, up to $1,000 (in costs to NESS)
of NESS products for purposes of introducing the NESS products and proving their
efficacy to the association and its members. Subject to the preceding sentence,
Laughlin shall be authorized to offer NESS products for sale only at prices
which are approved, from time to time, by either Barnett or
3
<PAGE>
Corbier. Laughlin understands that the intent of T/SF and NESS is to set prices
at a level and NESS product offerings of a mix which are intended to maximize
long-term profitability rather than simply short-term sales. However, T/SF and
NESS will act reasonably with Laughlin in providing him with appropriate tools,
in the reasonable judgment of Barnett, to make such sales, including sales
materials, product packages, and, in special circumstances, additional price
relief or other incentives. The point of this provision regarding price and
products offered is to recognize that the purpose of T/SF and NESS is to
maximize long-term profitability and not, necessarily, to ensure that Laughlin
meets his "milestones" under paragraph 4 below. Laughlin understands and accepts
that pricing and product issues could be perceived as preventing his maximizing
revenues for sales initiated by him in the 17 months of this Agreement, but
accepts the unequivocable right of T/SF and NESS to set prices and product mix
and to require him to abide by such prices in making sales.
4. LAUGHLIN'S COMPENSATION AND PERFORMANCE INCENTIVES
Laughlin hereby accepts a 25% salary cut (to $75,000 per annum) as the
result of agreeing to this relationship. However, the parties hope that this
lost income will be more than made up by the incentives listed below. Laughlin
will be paid all of his $75,000 salary by Galaxy, which will then be
appropriately reimbursed by T/SF or NESS. Thus, Laughlin will be able to
continue to participate in Galaxy's 401(k) and other plan.
T/SF will no longer be responsible to Laughlin for the "Annual Amount" or
the "Atwood-Galaxy Joint Amount" (as each is defined in the Purchase Agreement)
triggered by Galaxy's and Atwood's earnings in 1995 and 1996, pursuant to
Subsection (B) and (C), respectively, of Subsection 2.02 (b)(ii) of the Purchase
Agreement and Laughlin hereby waives any right to the same (which total
$400,000), except if his original Employment Agreement is reactivated as
provided in paragraph 2 above. In lieu of these payments, Laughlin can earn one
or more bonuses totalling $400,000 based on Laughlin's achieving specific
objectives ("milestones") for NESS.
Laughlin will begin immediately immersing himself in the marketing issues
associated with NESS and its products with the intent that he will be
sufficiently knowledgeable in the next 30 days to begin negotiations on
appropriate milestones for such bonus(es) to be achieved. It is the intent of
the parties that the bonus(es) will be paid based on revenues achieved by
Laughlin's sales efforts through 12/31/96, with the agreed milestones being
achieved by Laughlin's activities through specific date or dates triggering (or
not triggering, if not met) the payment of the applicable bonus on such date.
In establishing the milestones, it is intended that each succeeding bonus
require an ever-increasing result from Laughlin's activities. It would be
intended that the final milestone for the payment of at least a portion of the
total bonus be set at a level where all parties would agree that Laughlin's
activities "hit a home run" for NESS. In developing these milestones, it is
intended that the parties act in good faith in setting milestones such that
Laughlin's achievement of the agreed-to bonus amounts is based on perceived
risks comparable to that existing today with Laughlin's herein waived
possibility of earning equivalent bonuses if
4
<PAGE>
the provisions under the Purchase Agreement for the Annual Amount and the
Galaxy-Atwood Joint Amount for 1995 and 1996 had remained in effect.
In addition to this bonus program, T/SF hereby agrees to provide Laughlin
with an equity incentive for outstanding performance. This incentive will be in
the form of "non-qualified" options to purchase up to 20,000 shares of T/SF
common stock. The options will vest as provided below and will remain
convertible after vesting for five years. The option exercise price will be the
closing price of the Stock on the American Stock Exchange on August 1, 1995. It
is the intent of the parties to reach agreement to allow 10,000 of such options
to become vested in Laughlin if certain milestones to be agreed upon are
achieved by April 30, 1996, and for the remaining 10,000 in options to vest if
certain other milestones are achieved by December 31, 1996. If the agreed-to
milestones are not reached as of the dates provided in the preceding sentence,
the applicable options shall lapse. It is the intent of the parties to agree on
milestones which, comparing to the milestones to be agreed upon for the $400,000
bonus program above, would provide that, for the first 10,000 options to be
earned, the milestone would be of a degree of difficulty of achievement of
between 50% and 75% of the final milestone described above and that the
milestone for the remaining 10,000 share option be set at a level of degree of
difficulty somewhat in excess of that for the final milestone described above.
5. GENERAL TERMINATION AND MODIFICATION PROVISIONS
If T/SF and Laughlin have not reached agreement on the milestones for
purposes of paragraph 4 above by September 1, 1995, either party may terminate
this Agreement, in which case it shall be null and void ab initio and shall be
deemed to have never become effective.
T/SF reserves the right to radically alter or close NESS if the business
continues to fall well sort of T/SF's expectations. If T/SF either (i) closes
NESS or (ii) determines in good faith that Laughlin's activities on behalf of
NESS have not been conducted in a manner satisfactory to T/SF, then T/SF will so
notify Laughlin and, as a result, Laughlin will forfeit any remaining
incentives, including the balance of the $400,000 cash incentives and the
unearned portion of 20,000 option shares.
If the NESS project is closed by T/SF or Laughlin's activities for NESS are
terminated as provided in the preceding paragraph, Laughlin will continue to be
available for 8-10 hours per week at Galaxy until 12/31/96 unless both parties
agree to a modification of this provision, which could include Laughlin working
in another T/SF venture. His Galaxy pay for this work will be $25,000 per
annum.
Laughlin's employment agreement with T/SF, Galaxy and NESS automatically
terminates on 12/31/96. All parties will attempt to agree, on or before
November 1, 1996, upon the terms of any extension of Laughlin's employment,
whether with Galaxy, NESS, or some other T/SF company.
5
<PAGE>
6. DIRECTOR APPROVAL
This Agreement shall be null and void and shall not become effective if not
approved by the Board of Directors of T/SF at its Annual Meeting on August 1,
1995.
Executed on this 24th day of July, 1995, in Frederick, Maryland, and Tulsa,
Oklahoma.
For: T/SF COMMUNICATIONS CORPORATION
By: /s/ Howard G. Barnett, Jr.
------------------------------------
Howard G. Barnett, Jr.
For: GALAXY REGISTRATION, INC.
By: /s/ Robert E. Craine, Jr.
------------------------------------
Robert E. Craine, Jr.
/s/ John R. Laughlin
------------------------------------
JOHN R. LAUGHLIN
6
<PAGE>
[T/SF COMMUNICATIONS LOGO APPEARS HERE]
Exhibit 10.17 con't
December 20, 1995
Mr. John Laughlin
Galaxy Registration, Inc.
1888 North Market Street
P.O. Box 868
Frederick, MD 21705
Re: Determination of "milestones" for Employment Agreement
Dear John:
This letter will set forth our understanding regarding the setting of
so-called "milestones" pursuant to that certain Modification of Employment
Agreement, dated July 24, 1995, effective as of August 1, 1995, which amended
and superseded that certain Employment Agreement, dated March 17, 1994 (the
"Modified Employment Agreement").
By execution of this letter agreement, you, Galaxy Registration, Inc.
("Galaxy"), and T/SF Communications Corporation ("T/SF"), agree to amend the
Modified Employment Agreement as follows, effective August 1, 1995:
1. Superseding of Prior Agreement. The third and fourth paragraphs of
------------------------------
section 4 of the Modified Employment Agreement are hereby eliminated and
the provisions of paragraphs 2 and 3 below are substituted therefor.
2. Cash Bonuses. Laughlin shall earn cash bonuses as of the times and
-------------
subject to the conditions set forth in the following table:
<TABLE>
<CAPTION>
Date for
determining Maximum Date for
payment due payment due Milestones for partial payments payment
- ----------- ----------- ------------------------------- --------
<S> <C> <C> <C>
December 31, 1995 $100,000 . 5 association endorsements /1/ earns February 15,
$55,000 1996
. 7 association endorsements /1/ earns
$75,000
</TABLE>
<PAGE>
Mr. John Laughlin
December 20, 1995
Page 2
<TABLE>
<S> <C> <C> <C>
June 30, 1996 $100,000 . 5 participating industries /2/ earns July 31, 1996
$55,000
. 7 participating industries /2/ earns
$75,000
. 9 participating industries /2/ earns
$100,000
December 31, 1996 $200,000 . $500,000 in revenue /3/ in 1996 earns March 31,
$120,000 1997
. $600,000 in revenues /3/ in 1996 earns
$150,000
. $700,000 in revenues /3/ in 1996 earns
$200,000
</TABLE>
/1/ As association endorsement shall mean a recognized significant trade
association which has given its permission to utilize its name in surveying
its members on behalf of NESS by December 31, 1995, and for which initial
surveys have actually been transmitted to members by January 31, 1996.
/2/ A "participating industry" shall mean an industry served by an endorsing
association in which at least 25 association members have (i) executed
agreements with NESS to participate with and utilize NESS services in the
hiring, and (ii) utilized NESS services beyond any start-up or discounted
initiation programs which are provided as beginning inducements, i.e., each
such member has ordered at least one review of an employee application at
normal NESS prices applicable to that industry.
/3/ Revenues shall be based on customers of NESS who (i) begin utilizing the
NESS services in 1996 and (ii) are members of associations which have
endorsed the NESS product as herein contemplated.
3. Options. Laughlin shall be awarded options, which, when awarded, shall
--------
be immediately vested and exercisable for a period of five years after
vesting, at $10.50 per share (the closing price of the stock on the
American Stock Exchange on August 1, 1995), with such options to be
"non-qualified," in the following amounts and at the following times,
subject to reaching the milestones described below:
<PAGE>
Mr. John Laughlin
December 20, 1995
Page 3
<TABLE>
<CAPTION>
Maximum
Date which milestone is number
to have been achieved of option
to receive options shares Milestones for earning partial grants
- ----------------------- --------- -------------------------------------
<S> <C> <C>
June 30, 1996 10,000 . 200 new member - clients /1/ earns 3,000 shares
. 400 new member - clients earns 6,000 shares
. 600 new member - clients earns 10,000 shares
December 31, 1996 10,000 . $300,000 in pre-tax income /2/ earns 3,000 shares
. $400,000 in pre-tax income earns 6,000 shares
. $500,000 in pre-tax income earns 10,000 shares
</TABLE>
/1/ A "new member-client" is a customer which qualifies under the definitions
set forth in paragraph 2 above in footnote 3 to count toward the number of
members signed up in an industry.
/2/ Pre-tax income shall be determined in accordance with general accepted
accounting principles applied on a basis which counts as revenues all
revenues described in footnote 4 of paragraph 2 above and as expenses the
salary of Laughlin, salary of any employees dedicated to Laughlin, all
related fringe benefits of such employees and Laughlin, out-of-pocket costs
incurred by Laughlin on behalf of NESS, and the cost to NESS of providing
the products sold by Laughlin. In determining the cost of products sold by
NESS, NESS and Laughlin shall agree, from time to time, as to the
appropriate allocation of general overhead and other costs of NESS to
particular products which are sold through Laughlin's association
activities. It is the intent of the parties that the general accounting
shall be conducted in a manner consistent with 1996 Plan for "Association
Activities" approved by the Board of Directors of NESS at its meeting on
December 12, 1995.
4. Other changes. Except as specifically provided herein, the Modified
--------------
Employment Agreement shall remain in full force and effect and shall be
applicable to the activities of the parties described therein.
<PAGE>
Mr. John Laughlin
December 20, 1995
Page 4
If the above correctly sets forth your understanding of our agreement,
please execute in the space provided below.
T/SF COMMUNICATIONS CORPORATION
By: /s/ Howard G. Barnett, Jr.
----------------------------------------
Howard G. Barnett, Jr., Chairman,
President and Chief Executive Officer
The above is agreed to and accepted this 22nd day of December, 1995, effective
August 1, 1995.
/s/ John R. Laughlin
------------------------------------------
John R. Laughlin
The above is agreed to and accepted this 20th day of December, 1995, effective
August 1, 1995.
GALAXY REGISTRATION, INC.
By: /s/ Robert E. Craine, Jr.
--------------------------------------
Robert E. Craine, Jr., President
The undersigned acknowledges and agrees to the obligations imposed on it by the
foregoing.
NATIONAL EMPLOYMENT SCREENING
SERVICES, INC.
By: /s/ Howard G. Barnett, Jr.
---------------------------------------
Howard G. Barnett, Jr., Chairman,
and Chief Executive Officer
<PAGE>
Exhibit 10.18
SETTLEMENT AGREEMENT
--------------------
This Agreement is made and entered into this 21st day of December, 1995,
effective as of December 12, 1995, by and between T/SF Communications
Corporation, a Delaware corporation ("T/SF"), and Robert J. Swab ("Swab").
Preliminary Statements
----------------------
A. Pursuant to that certain Retirement Agreement, dated December 14, 1994
(the "Retirement Agreement"), by and between Swab and Tribune/Swab-Fox
Companies, Inc. (T/SF being the successor to Tribune/Swab-Fox Companies, Inc.,
by reason of a merger on May 25, 1995), Swab retired from his employ at
Tribune/Swab-Fox Companies, Inc. ("Tribune/Swab-Fox"), and the parties agreed on
certain matters related to certain indebtedness of Swab to Tribune/Swab-Fox and
certain stock owned by Swab in Tribune/Swab-Fox (which, by reason of such
merger, has been converted into shares of common stock of T/SF (the "T/SF Common
Stock")).
B. Swab is now duly indebted to T/SF in the sum of $300,000 as represented
by his Promissory Note, dated June 1, 1995 (the "Note"), with accrued interest
thereon since September 30, 1995, the last interest payment date.
C. The Note is secured by a security interest in favor of T/SF in 50,200
shares of T/SF Common Stock. Pursuant to the Retirement Agreement, Swab can
cause the Note, or any part thereof, to be repaid by causing the shares of T/SF
Common Stock so pledged against the Note to be transferred to T/SF and credited
against such indebtedness at a rate of $5.98 per share. Similarly, subject to
the dispute described below, T/SF was given the right under the Retirement
Agreement to require the transfer of the shares of T/SF Common Stock pledged as
security for the Note to it in repayment of the debt, if it so elected, with
such stock to be credited, in such circumstances, against the indebtedness at a
rate of $8.77 per share.
D. In addition, the Retirement Agreement, subject to the dispute described
below, provides that, with respect to an additional 37,650 shares of T/SF Common
Stock owned by Swab, Swab could "put" the shares to T/SF at $5.98 per share and,
similarly, T/SF could "call" such shares at $8.77 per share, subject to certain
timing and vesting issues.
E. A dispute has arisen regarding the interpretation of the Retirement
Agreement, the timing of the exercise of such "puts" and "calls," and whether or
not Swab can immediately repay the Note and thereby release the 50,200 shares of
T/SF Common Stock pledged as security therefor from the "call" of T/SF.
1
<PAGE>
F. The parties desire to resolve the dispute, eliminate the "puts" and
"calls" and cause the indebtedness of Swab to T/SF to be repaid in full.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
the parties, the parties agree as follows:
1. Purchase of Shares. At the Closing Date (as defined below), T/SF shall
-------------------
purchase from Swab 30,000 shares of T/SF Common Stock at a price of $10.50 per
share (it being recognized that the closing price on the American Stock Exchange
on December 20, 1995, was $12.625 per share), for a total purchase price of
$315,000, payable as follows: There shall first be debited for Swab's account,
against the amount due him from such sale, the amount of interest accrued on the
Note; second, there shall be debited, for Swab's account, against the amount due
him from such sale, the then outstanding principal amount of the Note in full
repayment of the Note; and finally, any remaining amount due shall be paid in
cash to Swab on the Closing Date.
2. Release of "Puts" and "Calls." Upon completion of the Closing and
------------------------------
effective on the Closing Date, all rights to "puts" and "calls" or other
purchase or sale rights by Swab and/or T/SF with respect to any shares of T/SF
Common Stock then owned by Swab are hereby released and are void in all
respects.
3. Amendment to Retirement Agreement. The Retirement Agreement is deemed
----------------------------------
amended to be compatible with the provisions of this Agreement and, in the case
of any incompatible provisions, the terms of this Agreement shall control.
Otherwise, the other terms of the Retirement Agreement shall remain in full
force and effect and be binding on the parties as therein contemplated.
4. Closing; Closing Date. A closing (the "Closing") of the transactions
----------------------
contemplated herein shall occur on January 2, 1996, at the offices of T/SF, or
such other date or place as may be mutually agreed to by the parties (the actual
date and time of Closing is referred to herein as the "Closing Date").
5. Miscellaneous.
--------------
A. This Agreement is made in and shall be governed in accordance with
the laws of the State of Oklahoma.
B. This Agreement may only be amended by an instrument in writing
executed by both parties.
C. Each party agrees with the other party that, for no additional
consideration, he or it will take such additional actions or
execute and deliver any such additional documents or instruments as
the other party may reasonably request to evidence or fully put
into effect the terms of this Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement this 21st day
of December, 1995, effective December 12, 1995 (the date the same was approved
by the Board of Directors of T/SF).
T/SF COMMUNICATIONS CORPORATION
By: /s/ Howard G. Barnett, Jr.
-----------------------------------------
Howard G. Barnett, Jr., Chairman,
President and Chief Executive Officer
/s/ Robert J. Swab
----------------------------------------
ROBERT J. SWAB
3
<PAGE>
EXHIBIT 11
T/SF COMMUNICATIONS CORPORATION
Computation of Earnings per Share
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE:
Income (loss) before discontinued and
extraordinary item $ 15,788 $ 2,564 $ (5,713)
Deduct:
Dividends on new Senior Preferred Stock - (103) (103)
Dividends on Class A Preferred Stock - (15) (15)
Dividends on 6 1/2% Preferred Stock - (21) (21)
-------- -------- --------
Income (loss before discontinued and
extraordinary losses applicable to common
and common equivalent shares 15,788 2,425 (5,852)
Discontinued operations, net of income tax 37 (2,816) (4,800)
Extraordinary loss, net of income tax - - (560)
-------- -------- --------
Net income (loss) applicable to common
and common equivalent shares $ 15,825 $ (391) $(11,212)
======== ======== ========
Weighted average number of common
and common equivalent shares outstanding-
Common shares 3,766 3,733 3,801
======== ======== ========
Income (loss) per common
and common equivalent share:
Continuing Operations $ 4.19 $ 0.65 $ (1.54)
Discontinued operations 0.01 (0.75) (1.26)
Extraordinary loss - - (0.15)
-------- -------- --------
Net income (loss) per common share $ 4.20 $ (0.10) $ $2.95)
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE:
Income (loss) before discontinued and
extraordinary item $ 15,788 $ 2,564 $ (5,713)
Add:
After tax interest expense applicable to
11% Convertible Debentures due in 1998 32 57 57
Deduct:
Dividends on Class A Preferred Stock - (15) (15)
Dividends on 6 1/2% Preferred Stock - (21) (21)
-------- -------- --------
Income (loss) before discontinued and
extraordinary losses applicable to
common and common equivalent shares 15,820 2,585 (5,692)
Discontinued operations, net of income tax 37 (2,816) (4,800)
Extraordinary loss, net of income tax - - (560)
-------- -------- --------
Net income (loss) applicable to common
and common equivalent shares $ 15,857 $ (231) $(11,052)
======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 11
T/SF COMMUNICATIONS CORPORATION
Computation of Earnings per Share (continued)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE -
CONTINUED:
Weighted average number of common
and common equivalent shares
outstanding
Common shares and common equivalent
shares 3,766 3,733 3,801
Assumed conversion of 11% Debentures due
in 1998 - 44 44
Assumed conversion of New Senior
Preferred Stock - 122 122
-------- -------- --------
3,766 3,899 3,967
======== ======== ========
Income (loss) per common
and common equivalent share:
Continuing operations $ 4.20 $ 0.66 $ (1.43)
Discontinued oeprations 0.01 (0.72) (1.21)
Extraordinary loss - - (0.14)
-------- -------- --------
Net income (loss) per common share $ 4.21 $ (0.06) $ (2.78)
======== ======== ========
</TABLE>
2
<PAGE>
EXHIBIT 21
T/SF COMMUNICATIONS CORPORATION
-------------------------------
SUBSIDIARIES
<TABLE>
<CAPTION>
ENTITY PERCENT OWNED JURISDICTION OF INCORPORATION
------- ------------- -----------------------------
<S> <C> <C>
Atwood Convention Publishing, Inc. 100% /1/ Missouri - convention publications
Convention News Source, Inc. 100% /2/ Missouri - inactive
DacNet, Inc. 100% /3/ Oklahoma - inactive
Expo Magazine, Inc. 100% /4/ Kansas - trade publications
Galaxy Design & Printing, Inc. 100% /5/ Maryland - commercial printing
Galaxy Registration, Inc. 100% /1/ Maryland - convention registration
G.E.M. Communications, Inc. (formerly BMT 100% /1/ Oklahoma - trade publications
Communications, Inc.)
M-R Creative, Inc. 100% /6/* New York - inactive
Mexico Gaming Summit L.L.C. 40% /7/ Nevada - gaming conference
National Employment Screening Services, Inc. 100% /3/ Oklahoma - employment screening
New York Community Newspapers, Inc. 100% /4/ New York - inactive
South Jersey Shopper, Inc. 100% /8/ New Jersey - inactive
Transportation Communications Services, Inc. 100% /3/ Oklahoma - information service
T/SF Investment Co. 100% /4/ Delaware - investment holding
company
T/SF New Jersey, Inc. (formerly Shopper's 100% /4/** New Jersey - inactive
Guide, Inc.)
T/SF New York, Inc., (formerly 100% /4/* New York - inactive
Marks-Roiland Communications, Inc.)
T/SF of Nevada, Inc. 100% /1/ Nevada - gaming conference and
trade show
Transportation Information Services, Inc 100% /1/ Oklahoma-motor vehicle reports and
truck driver employment
information
Tulsa Tribune Company 100% /1/ Delaware - newspaper publication
until October 1, 1992
</TABLE>
- --------------
/1/ Owned by T/SF Investment Co.
/2/ Owned by Atwood Convention Publishing, Inc.
/3/ Owned by Transportation Information Services, Inc.
/4/ Owned by T/SF Communications Corporation.
/5/ Owned by Galaxy Registration, Inc.
/6/ Owned by T/SF New York, Inc.
/7/ Owned by T/SF of Nevada, Inc.
/8/ Owned by T/SF New Jersey, Inc.
* Sold assets effective November 1, 1993.
** Sold assets effective April 30, 1994.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains financial information extracted from Annual Report Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 13,383
<SECURITIES> 1,000
<RECEIVABLES> 8,725
<ALLOWANCES> (516)
<INVENTORY> 181
<CURRENT-ASSETS> 29,556
<PP&E> 9,640
<DEPRECIATION> 4,739
<TOTAL-ASSETS> 53,444
<CURRENT-LIABILITIES> 14,230
<BONDS> 4,529
0
0
<COMMON> 332
<OTHER-SE> 32,154
<TOTAL-LIABILITY-AND-EQUITY> 53,444
<SALES> 59,805
<TOTAL-REVENUES> 72,078
<CGS> 39,665
<TOTAL-COSTS> 55,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 859
<INCOME-PRETAX> 16,112
<INCOME-TAX> 58
<INCOME-CONTINUING> 15,788
<DISCONTINUED> 37
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,825
<EPS-PRIMARY> 4.20
<EPS-DILUTED> 4.20
</TABLE>
