-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WWgjQc138BsC1XEkcJf1qL31ie70/Y+99f0CyFuxy4VVMCh6QaadPbYxhOrOLTgS X+IdMB1KI8+G7Rav8AuJmA== 0000950135-96-002078.txt : 19960515 0000950135-96-002078.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950135-96-002078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROVIDENCE JOURNAL CO CENTRAL INDEX KEY: 0000080816 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 050481966 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26928 FILM NUMBER: 96563398 BUSINESS ADDRESS: STREET 1: PROVIDENCE STREET 2: 75 FOUNTAIN ST CITY: PROVIDENCE STATE: RI ZIP: 02902 BUSINESS PHONE: 4012777031 MAIL ADDRESS: STREET 1: 75 FOUNTAIN STREET CITY: PROVIDENCE STATE: RI ZIP: 02902 10-Q 1 PROVIDENCE JOURNAL COMPANY 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ( X ) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended: MARCH 31, 1996 ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period from ____________ to _____________. Commission File Number 0-26928 ------- THE PROVIDENCE JOURNAL COMPANY (Exact name of registrant as specified in its charter) DELAWARE 05-0481966 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 75 Fountain Street, Providence, RI 02902-9985 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (401) 277-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No ----- ----- As of April 30, 1996 there were 38,526 shares of Class A Common Stock and 46,817 shares of Class B Common Stock outstanding. 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands, except per share data)
(unaudited) March 31, December 31, 1996 1995 ----------- ------------ ASSETS Current assets: Cash $ 59 $ 87 Accounts receivable, net of allowance for doubtful accounts of $4,198 in 1996 and $4,328 in 1995 48,484 56,321 Television program rights, net 9,767 16,536 Inventories, prepaid expenses, deferrals and other current assets 13,544 12,332 Notes receivable, current 17,726 - Federal and state income taxes receivable 30,905 24,146 -------- -------- Total current assets 120,485 109,422 Investments in affiliated companies 17,164 22,171 Notes receivable 1,162 18,973 Television program rights, net 3,387 3,817 Property, plant and equipment, net of accumulated depreciation of $210,549 in 1996 and $204,880 in 1995 177,916 171,649 License costs, goodwill, intangibles and other assets, net 383,599 381,198 -------- -------- $703,713 $707,230 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,926 $ 16,837 Accrued expenses and other current liabilities 49,952 49,504 Current installments of long-term debt 100 100 Current portion of television program rights payable 10,138 16,463 -------- -------- Total current liabilities 71,116 82,904 Long-term debt 272,700 243,998 Television program rights payable 4,519 5,509 Other liabilities and deferrals 111,367 111,580 -------- -------- Total liabilities 459,702 443,991 -------- -------- Commitments and contingencies Minority interest 49 - -------- -------- Stockholders' Equity: Class A common stock, par value $1.00 per share, authorized 180,000,000 shares: issued 38,519 and 38,514 shares in 1996 and 1995, respectively 39 39 Class B common stock, par value $1.00 per share, authorized 46,825,000 shares; issued 47,817 in both 1996 and 1995 47 47 Additional paid-in capital 96 71 Retained earnings 244,617 264,335 Unrealized loss on securities held for sale, net (837) (1,253) -------- -------- Total stockholders' equity 243,962 263,239 -------- -------- $703,713 $707,230 ======== ========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2 3 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data)
(unaudited) Quarters Ended March 31, ----------------------- 1996 1995 -------- ------- Revenues: Broadcasting $ 43,381 $38,904 Publishing 30,125 30,300 Programming and New Media 1,608 525 -------- ------- 75,114 69,729 -------- ------- Expenses: Operating 43,528 40,426 Selling, general, and administative 23,051 19,911 Newspaper Consolidation Costs and Newspaper Restructuring Costs 1,150 102 Depreciation and amortization 9,845 7,935 Stock-based compensation 11,730 1,498 Pension expense 214 44 -------- ------- Total expenses 89,518 69,916 -------- ------- Operating loss (14,404) (187) Interest expense (5,084) (2,747) Equity in loss of affiliates (1,595) (1,272) Other income, net 1,364 616 -------- ------- Loss from continuing operations before income tax benefits (19,719) (3,590) Income tax benefits (4,834) (784) -------- ------- Loss from continuing operations (14,885) (2,806) Discontinued operations, net of tax of $1,843 (3,578) - -------- ------- Loss before minority interests (18,463) (2,806) Minority interests 1,186 (299) -------- ------- Net loss $(17,277) $(3,105) ======== ======= Net loss per common share: From continuing operations $(174.43) $(33.13) From discontinued operations (41.93) - Minority interests 13.90 (3.53) -------- ------- Net loss per common share $(202.46) $(36.66) ======== ======= Weighted average shares outstanding 85,334 84,689 ======== =======
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 4 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flow (Dollars in thousands)
(Unaudited) Quarters Ended March 31, March 31, 1996 1995 --------- --------- Operating activities: Cash flows provided by (used in) continuing operations $ (6,283) $ 9,281 -------- -------- Investing activities: Investments in and advances to affiliated companies (12,503) (2,150) Additions to property, plant and equipment, net (3,008) (3,578) Decrease in investment in discontinued operations through disposal date -- 7,806 -------- -------- Cash flows provided by (used in) investing activities (15,511) 2,078 -------- -------- Financing activities: Proceeds from (payments on) long-term debt, net 28,702 (7,505) Payments on television program rights payable (4,495) (4,163) Dividends paid (2,441) (2,422) -------- -------- Cash flows provided by (used in) financing activities 21,766 (14,090) -------- -------- Decrease in cash (28) (2,731) Cash at the beginning of the period 87 4,897 -------- -------- Cash at the end of the period $ 59 $ 2,166 ======== ========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4 5 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) NOTE 1--BASIS OF PRESENTATION The condensed consolidated financial statements present the financial position and results of operations of The Providence Journal Company ("Registrant") and its subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated and minority interests have been recorded in consolidation. The results of operations for King Holding Corp. ("KHC") have been consolidated in the accompanying condensed consolidated statement of operations since January 1, 1995. The Company is a diversified communications company with operations and investments in several media and electronic communications businesses. The principal areas of the Company's activities are television broadcasting ("Broadcasting"), newspaper publishing ("Publishing") and programming and new media ventures ("Programming and New Media"). The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the fiscal year. For further information, refer to the consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Certain amounts in 1995 have been reclassified to conform to the first quarter 1996 presentation. Financial information in the Notes to Condensed Consolidated Financial Statements excludes discontinued operations, except where noted. NOTE 2 -- CONSOLIDATION OF AHN During the quarter ended March 31, 1996, the Company invested approximately $7,500 in America's Health Network ("AHN"), a 24-hour basic cable television programming service devoted exclusively to health related issues and products. The Company's total investment through March 31, 1996 is $17,750 and its interest in AHN is approximately 59%. Effective January 1, 1996, the results of AHN's operations have been consolidated with the Company. Prior to January 1, 1996, the Company accounted for this investment under the equity method of accounting. 5 6 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) NOTE 3 -- NOTES RECEIVABLE In September 1990, the Company advanced the Lowell Sun Publishing Company and Lowell Sun Realty Company (collectively, the "Lowell Sun Companies") $25,650 and agreed to provide a $6,500 revolving credit facility. The loan and revolving credit facility which were originally due in March 1996 are subject to a forbearance agreement until January 2, 1997. Amounts bear interest at a floating rate of prime plus 1.25%. The advance is collateralized by all assets of the Lowell Sun Companies and a pledge of a majority of Lowell Sun Companies' stock. The principal balance due from the Lowell Sun Companies totaled $23,575 at both March 31, 1996 and December 31, 1995. NOTE 4 -- LONG-TERM DEBT At March 31, 1996 and December 31, 1995, long-term debt consists of the following:
March 31, December 31, 1996 1995 --------- ------------ Revolving credit and term loan facility at rates of interest averaging 7.68% in 1996 and 7.52% in 1995, respectively $263,000 $234,298 Industrial revenue bonds ("IRB") payable at various rates of interest averaging 3.5% payable through December 2022 9,800 9,800 -------- -------- Total long-term debt $272,800 $244,098 Less current installments 100 100 -------- -------- Long-term debt, excluding current installments $272,700 $243,998 ======== ========
On October 5, 1995, the Company incurred indebtedness pursuant to a credit agreement with a syndicate of banks (the "Credit Agreement"). The Credit Agreement consists of a $75,000 term loan and a $300,000 revolving credit facility. The $75,000 term loan provided for under the Credit Agreement is due 2004. The revolving credit facility decreases quarterly commencing December 31, 1996 by a pro-rata portion of the following annual amounts in the years indicated: 1996--$4,000; 1997--$10,500; 1998--$14,500; 1999--$21,500; 2000--$53,250; 2001- $65,750; 2002- $67,750; 2003- $62,750. The indebtedness evidenced by the Credit Agreement is secured by guarantees from all of the material subsidiaries of the Company and a first priority pledge of all such material subsidiaries' capital stock. The Credit Agreement provides for borrowings indexed, as the Company may from time to time elect, to the Eurodollar rate, the certificate of deposit rate, or the "base" rate of the agent, plus the "spread" over such rates. The "spread" will be determined by the ratio of the total debt of the Company to the operating cash flow of the Company (as defined by the Credit Agreement). The Credit Agreement contains customary events of default, financial covenants, covenants restricting the incurrence of debt (other than under the Credit Agreement), investments and encumbrances on assets and covenants limiting mergers and acquisitions. The Credit Agreement provides for the mandatory prepayment of amounts outstanding and a reduction in the commitment under certain circumstances. 6 7 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) In connection with the Credit Agreement, the Company maintains an interest rate swap arrangement in the notional amounts of $200,000 in 1996, $175,000 in 1997 and $150,000 in 1998 and 1999. The fair value of interest rate swaps is the amount at which they could be settled, based upon estimates obtained from dealers. At March 31, 1996, the amount required to settle outstanding interest rate swaps approximated $3,640. NOTE 5 -- NET LOSS PER SHARE AND DIVIDENDS PER COMMON SHARE Net loss per share is based on the weighted average number of shares of Class A and Class B common stock outstanding during the period. Restricted stock units and stock options are both considered common stock equivalents. Common stock equivalents were anti-dilutive for all periods in which the common stock equivalents were outstanding. Cash dividends of $28.60 per share were declared and paid in each of the quarters ended March 31, 1996 and March 31, 1995. NOTE 6-- STOCK-BASED COMPENSATION PLANS In the first quarter of 1996, the Company recorded a charge to continuing operations of $11,397 and a pre-tax charge to discontinued operations of $5,421 to reflect the vested portion of an estimated $20,530 adjustment to stock-based compensation plans. The difference of $3,712 will be charged to operations over the remaining vesting period of the plans, primarily in the second and third quarters of 1996. The adjustment to the stock-based compensation plans was pursuant to which participants in the Company's incentive stock units plan ("IUP"), restricted stock unit plan ("RSU") and certain stock option plans ("Option Plans") would receive additional consideration to the extent the value ascribed to the Company's former cable operations had increased upon a final determination. The Company's cable operations were merged with Continental Cablevision, Inc. ("Continental") in October, 1995 (the "Merger"). Continental and US West Media Group jointly announced a merger of their operations in February, 1996 (the "US West Merger"). The final amount of additional consideration is subject to the closing of the US West Merger, expected by the end of 1996, and will be paid in the case of the Option Plans and RSU in Class A Common Stock, and in the case of the IUP, in cash or Class A common stock, at the election of the participant. It is currently anticipated that approximately two-thirds of the IUP payment will be paid in cash. Following the payout of the additional consideration, the IUP will be fully liquidated and terminated. As described in Note 13 to the Consolidated Financial Statements in the Company's 1995 Annual Report, the Company has various stock-based compensation plans. The following table sets forth information relative to these stock-based compensation plans:
Option Plans Restricted ------------ ---------- 1994 Options 1995 Options Stock Units* ------------ ------------ ----------- Options outstanding at December 31, 1995 623 836 1,261 Options exercised during the quarter ended March 31,1996 (5) - - ---- ------ ----- Options outstanding at March 31, 1996 618 836 1,261 ==== ====== ===== Options exercisable at March 31, 1996 177 - - ==== ====== ===== Option exercise price $662 $5,072 - ==== ====== ===== * Represents gross units. The actual amount of shares to be paid out at the end of the vesting period will be net of payroll tax withholdings.
Total amount of shares reserved for the stock-based compensation plans total 5,774 consisting of 1,624 for the RSU plan and 4,150 for the Option Plans. 7 8 THE PROVIDENCE JOURNAL COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands, except per share data) NOTE 7 -- NEWSPAPER RESTRUCTURING In the first quarter of 1996, the Company recorded an additional charge to operations of approximately $1,150 relating to early retirement costs and voluntary separation benefits in connection with an on-going plan of reorganization and restructuring of the Company's Publishing business adopted by the Company in the fourth quarter of 1995 (the "Newspaper Restructuring") at which time a $6,800 charge was recorded. The Newspaper Restructuring is expected to be completed by the second quarter of 1996 and, when fully implemented, result in annual savings of $6,000 and a net full-time equivalent ("FTE") reduction of 110, or approximately 8% of the Publishing work force. Substantially all costs will be paid from the Company's pension plans (in which plan assets exceed plan obligations). NOTE 8 -- INCOME TAXES The Company's effective tax rate for continuing operations exceeds the federal statutory income tax rate due principally to state taxes and permanent state and federal tax differences related to the non-deductible amortization of goodwill. NOTE 9 -- CONTINGENT LIABILITIES On January 17, 1995, Cable LP I, Inc. ("Cable LP") brought a declaratory judgment action against Old PJC, Colony Communications, Inc. ("Colony") and Dynamic Cablevision of Florida, Inc. ("Dynamic") in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida. Colony and Dynamic were cable television subsidiaries of Old PJC, which became units of Continental in connection with the Merger. This case relates to a partnership (the "Dynamic Partnership"), in which Dynamic is the general partner with an 89.8% interest and Cable LP is the limited partner with a 10.2% interest. In this action, Cable LP claims that Dynamic was obligated to offer to sell to Cable LP Dynamic's general partnership interest before Old PJC entered into the Merger Agreement with Continental. Cable LP further claims that Dynamic's offer to purchase Cable LP's limited partnership interest for $13.1 million triggered a right of first refusal entitling Cable LP to purchase the general partnership interest for $115 million. Cable LP seeks a declaration by the court that the right of first refusal it is asserting applies. A motion to strike allegations of bad faith and breach of fiduciary duty against Old PJC, Colony and Dynamic was granted by the court, and an answer to the Complaint and a Counterclaim was filed by them on March 16, 1995, seeking a declaratory judgment that Cable LP unreasonably refused consent to the transfer of the general partner's interest to Continental and that a purported transfer of Cable LP's interest in the Dynamic Partnership to a partnership to be managed by Adelphia Communications, Inc. violates Dynamic's right of first refusal under the Dynamic Partnership Agreement. The case was tried in December 1995 and the decision of the court is expected shortly. The Company believes that the claims asserted by Cable LP are without merit and intends to defend this matter vigorously in the circuit court and through the appeal process in the event of an unfavorable ruling. Although the Company expects to succeed on the merits, and adverse decision could be material to the operating results of the Company. In the event that, as a result of such litigation, Dynamic is required to sell its interest in the Dynamic partnership to Cable LP, the Merger Agreement provides that the Company will pay to Continental simultaneously with the closing of such sale an amount equal to the sum of (i) the amount (if any) by which the consideration received by Dynamic for the sale of such interest is less than $115 million plus (ii) the taxes which would have been payable assuming the purchase price for such interest equaled $115 million. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following unaudited tables present a summary of financial results and other data for the quarters ended March 31, 1996 and 1995 on a consolidated basis and for each of the Company's three segments: Broadcasting, Publishing and Programming and New Media. The information should be read in conjunction with the condensed consolidated financial statements of the Company and respective notes thereto, included elsewhere in this document. SUMMARY OF FINANCIAL RESULTS - CONSOLIDATED
Quarters Ended March 31, ------------------------ 1996 1995 -------- ------- (in thousands) OPERATING DATA: Revenues: Broadcasting $ 43,381 $38,904 Publishing 30,125 30,300 Programming and New Media 1,608 525 -------- ------- 75,114 69,729 -------- ------- Expenses: Operating and administrative expenses: Broadcasting 31,073 28,000 Publishing, excluding newspaper consolidation 27,381 27,889 and newspaper restructuring costs Programming and New Media 4,989 898 Corporate 3,136 3,550 -------- ------- Total 66,579 60,337 Depreciation and amortization 9,845 7,935 Stock-based compensation 11,730 1,498 Pension expense 214 44 -------- ------- Total 88,368 69,814 Newspaper Consolidation Costs and Newspaper Restructuring Costs 1,150 102 -------- ------- Total expenses 89,518 69,916 -------- ------- Operating loss (14,404) (187) Interest expense (5,084) (2,747) Equity in loss of affiliates (1) (1,595) (1,272) Other income, net 1,364 616 -------- ------- Loss from continuing operations before income tax benefits (19,719) (3,590) Income tax benefits (4,834) (784) -------- ------- Loss from continuing operations $(14,885) $(2,806) ======== ======= OTHER DATA: EBITDA (2): Broadcasting $ 12,308 $10,904 Publishing 2,744 2,411 -------- ------- EBITDA excluding programming and new media and corporate 15,052 13,315 Programming and New Media (3,381) (373) Corporate (3,136) (3,550) -------- ------- Total EBITDA $ 8,535 $ 9,392 ======== ======= Broadcast Cash Flow (3) $ 12,364 $11,219 ======== ======= Notes to Table - --------------------- (1) Includes equity in loss of Linkatel Pacific, L.P. of $330 and $200 in 1996 and 1995, respectively. (2) EBITDA is defined by the Company as operating income (loss) plus Newspaper Consolidation Costs and Newspaper Restructuring Costs plus depreciation, amortization, stock-based compensation, and pension expense. (3) Broadcast Cash Flow is defined by the Company as Broadcasting EBITDA plus corporate expense allocations, plus program rights amortization less program rights payments.
9 10 Summary of Financial Results - Broadcasting
Quarters Ended March 31, ------------------------ 1996 1995 ------- ------- (in thousands) OPERATING DATA: Revenues: National $19,792 $18,208 Local and regional 26,922 23,646 Other 3,279 2,982 Agency commissions (6,612) (5,932) ------- ------- Net revenues 43,381 38,904 ------- ------- Expenses: Operating and administrative expenses 31,073 28,000 Depreciation and amortization 6,735 4,916 ------- ------- Total expenses 37,808 32,916 ------- ------- Operating income $ 5,573 $ 5,988 ======= ======= OTHER DATA: EBITDA (1) $12,308 $10,904 EBITDA as percentage of net revenues 28.4% 28.0% Corporate expense allocations 172 209 Program rights amortization 4,379 4,269 Program rights payments (4,495) (4,163) ------- ------- Broadcast Cash Flow (2) $12,364 $11,219 ======= ======= Notes to table - ----------------------- (1) EBITDA is defined by the Company as operating income (loss) plus Newspaper Consolidation Costs and Newspaper Restructuring Costs plus depreciation, amortization, stock-based compensation, and pension expense. (2) Broadcast Cash Flow is defined by the Company as Broadcasting EBITDA plus corporate expense allocations, plus program rights amortization less program rights payments.
10 11 SUMMARY OF FINANCIAL RESULTS - PUBLISHING
Quarters Ended March 31, ------------------------ 1996 1995 -------- -------- (in thousands, except circulation data) OPERATING DATA: Revenues: Advertising $ 21,547 $ 21,740 Circulation 8,139 7,889 Other 439 671 -------- -------- Total revenues 30,125 30,300 Expenses: Operating and administrative expenses before Newspaper Consolidation and Newspaper Restructuring Costs 27,381 27,889 Depreciation 2,664 2,717 -------- -------- Total expenses 30,045 30,606 -------- -------- Operating income (loss) before Newspaper Consolidation and Newspaper Restructuring Costs 80 (306) Newspaper Consolidation Costs(1) and Newspaper Restructuring Costs(2) (1,150) (102) -------- -------- Operating loss $ (1,070) $ (408) ======== ======== OTHER DATA: EBITDA (3) $ 2,744 $ 2,411 ======== ======== Average Net Paid Circulation: Daily 169,500 180,700 Sunday 251,300 262,200 Notes to table - ----------------------- (1) Newspaper Consolidation Costs are those costs incurred in 1995 to consolidate the Company's morning and afternoon daily newspapers into one daily newspaper. (2) Newspaper Restructuring Costs are estimated severance costs associated with management's plan to reorganize and restructure operating and administrative departments of the Publishing business. In the fourth quarter of 1995, a charge to operations of $6,800 was recorded pursuant to this plan. In the first quarter of 1996, such costs increased approximately $1,150. (3) EBITDA is defined by the Company as operating income (loss) plus Newspaper Consolidation Costs and Newspaper Restructuring Costs plus depreciation, amortization, stock- based compensation and pension expense.
11 12 SUMMARY OF FINANCIAL RESULTS - PROGRAMMING AND NEW MEDIA
Quarters Ended March 31, ------------------------ 1996 1995 ------- ------- (in thousands) OPERATING DATA: Revenues $ 1,608 $ 525 ------- ------- Expenses: Operating and administrative expenses 4,989 898 Depreciation 226 30 ------- ------- Total expense 5,215 928 ------- ------- Operating loss $(3,607) $ (403) ======= ======= Equity in loss of affiliates $(1,265) $(1,072) ======= ======= OTHER DATA: EBITDA (1) $(3,381) $ (373) ======= ======= Note to table - -------------------- (1) EBITDA is defined by the Company as operating income (loss) plus Newspaper Consolidation Costs and Newspaper Restructuring Costs plus depreciation, amortization, stock-based compensation and pension expense.
12 13 RESULTS OF OPERATIONS-QUARTERS ENDED MARCH 31, 1996 TO MARCH 31, 1995 Consolidated Consolidated revenues for the first quarter of 1996 were $75.1 million, an increase of 7.7%, compared to $69.7 million for the first quarter of 1995. Broadcasting revenues contributed significantly to the increase in consolidated revenues with an increase of 11.6% in the 1996 period to $43.4 million from $38.9 million in the 1995 period due to increased advertising rates as a result of improved ratings, local market growth, and, for the Portland station, increased political advertising revenue. Publishing contributed substantially the same revenue in the first quarter of 1996 as in the prior year with $30.1 million for the 1996 period and $30.3 million in the 1995 period. The operations in the Programming and New Media segment are in the early development phase and contributed $1.6 million in revenue in the 1996 period compared to $0.5 million in the 1995 period. Consolidated operating and administrative expenses increased 10.4% to $66.6 million in the first quarter of 1996 from $60.3 million in the first quarter of 1995, primarily as a result of the consolidation of AHN in 1996, which contributed $2.6 million of the $4.1 million increase in Programming and New Media operating expenses to $5.0 million in the 1996 period from $0.9 million in the 1995 period. Broadcasting operating and administrative expenses increased 11.1% to $31.1 million in the 1996 period from $28.0 million in the 1995 period due primarily to the incremental costs of a start-up news operation in Honolulu. Publishing operating and administrative expenses decreased 1.8% in the 1996 period to $27.4 million from $27.9 million in the 1995 period, as savings totaling $1.5 million generated by net payroll decreases from the Newspaper Consolidation, the discontinuance of a local shopper, and the elimination of a Sunday magazine more than offset an increase of $1.0 million in newsprint costs. Corporate operating and administrative expenses declined 13.9% to $3.1 million from $3.6 million due to savings from corporate restructurings associated with the cable operations disposed of in the fourth quarter of 1995. EBITDA, a common performance indicator used in the industry, is defined by the Company as operating income (loss) plus Newspaper Consolidation Costs, Newspaper Restructuring Costs, depreciation, amortization, stock-based compensation, and pension expense. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to operating or net income computed in accordance with GAAP as an indicator of the Company's operating performance or as an alternative to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. Consolidated EBITDA, excluding Programming and New Media and corporate expenses, increased 13.5% to $15.1 million in the first quarter of 1996 from $13.3 million in the first quarter of 1995. Broadcasting experienced 12.8% EBITDA growth in the first quarter of 1996 to $12.3 million from $10.9 million in the 1995 period. Publishing EBITDA increased $0.3 million, or 12.5%, in the 1996 period to $2.7 million from $2.4 million in the 1995 period. Primarily because of the consolidation of the start-up venture AHN in 1996, the Programming and New Media segment EBITDA was a loss of $3.4 million in the first quarter of 1996 compared to a loss of $0.4 million in the first quarter of 1995. In the first quarter of 1996, the Company recorded an $11.4 million charge (of which $10.1 million related to the IUP plan) to continuing operations and a $5.4 million (pre-tax) charge to discontinued operations to reflect the vested portion of an estimated $20.5 million adjustment to stock-based compensation plans. The difference of $3.7 million will be charged to operations over the remaining vesting period of the plans, primarily in the second and third quarters of 1996. The adjustment to the stock-based compensation plans was pursuant to which participants in the Company's IUP, restricted stock unit plan and certain stock option plans would receive additional consideration to the extent the value ascribed to the Company's former cable operations had increased upon a final determination. The Company's cable operations were merged with Continental in October, 1995. Continental and US West Media Group jointly announced a merger of their operations in February, 1996 (the "US West Merger"). The final amount of additional consideration is subject to the closing of the US West Merger, expected by the end of 1996 and will be paid, in the case of the Option Plans and RSU in Class A Common Stock, and in the case of the IUP, in cash or Class A common stock, at the election of the participant. It is currently anticipated that approximately two-thirds of the IUP payment will be paid in cash. Following the payout of the additional consideration, the IUP will be fully liquidated and terminated. In the first quarter of 1996, the Company recorded an additional charge to operations of approximately $1.1 million relating to early retirement costs and voluntary separation benefits in connection with an on-going plan of reorganization and restructuring of the Company's Publishing business adopted by the Company in the fourth quarter of 1995 (the "Newspaper Restructuring") at which time a $6.8 million charge was recorded. The Newspaper Restructuring is expected 13 14 to be completed by the second quarter of 1996 and when fully implemented result in annual savings of $6.0 million and a net full-time equivalent ("FTE") reduction of 110, or approximately 8% of the Publishing work force. Substantially all costs are expected to be paid from the Company's pension plans (in which plan assets exceed plan obligations). The following table illustrates the current status of the restructuring accrual by component (in millions):
Employee Outplacement Severance Costs & Other costs Total --------------- ------------- ----- Balance at December 31, 1995 $ 6.5 $ 0.3 $ 6.8 Charge to first quarter operations 1.1 1.1 Utilization of accrual (0.1) (0.1) (0.2) ----- ----- ----- Balance at March 31, 1996 $ 7.5 $ 0.2 $ 7.7 ===== ===== =====
Other expense, net increased $1.9 million to $5.3 million for the first quarter of 1996 from $3.4 million in the same period last year primarily due to an increase in interest expense of $2.4 million charged to continuing operations in the 1996 period. In 1995, approximately 75% of the debt was attributable to cable operations and accordingly the related interest expense was allocated to discontinued cable operations. As a result of the additional stock-based compensation expense, additional Newspaper Restructuring charges, and consolidation of AHN, loss from continuing operations for the first quarter of 1996 was $14.9 million compared to $2.8 million for the same period in 1995. The minority interest credit of $1.2 million in 1996 represents the minority partners' share of AHN losses for the first quarter of 1996. The minority interest charge of $0.3 million in 1995 represented the minority partner's share of King Holding Corp. ("KHC") income for the first quarter of 1995. Net loss for the first quarter of 1996, including the discontinued operations charge discussed above, was $17.3 million compared to $3.1 million for the same period in 1995. Broadcasting Broadcasting consists of nine owned and operated stations and two stations operated under local marketing agreements ("LMA") in which the Company provides marketing and programming services. These eleven stations serve markets in Seattle, WA; Portland, OR; Charlotte, NC; Albuquerque, NM; Louisville, KY; Honolulu, HI; Spokane, WA; Tucson, AZ; Boise, ID. Broadcasting revenues grew 11.6% in the first quarter of 1996 to $43.4 million compared to the first quarter of 1995 revenues of $38.9 million. Revenue growth was particularly strong in Seattle (9.1%); Portland (12.3%); Charlotte (20.6%); Albuquerque (17.9%); Honolulu (28.3%); and Boise (11.2%). National advertising revenues increased 8.8% to $19.8 million in the 1996 period from $18.2 million in the 1995 period as a result of market growth and increased advertising rates from improved ratings in Seattle, Portland and Charlotte. Local and regional advertising revenues exhibited strong growth in the 1996 period of 14.0% to $26.9 million from $23.6 million for the same period in 1995. In addition to the improved ratings in Seattle and Portland, the increase in local and regional revenues was also attributable to political advertising revenue of $0.6 million in the first quarter of 1996 from a special U.S. Senate race in Portland and the affiliation switch in Honolulu to NBC leading to an increased share of local business in that market. Operating and administrative expenses increased 11.1% to $31.1 million in the first quarter of 1996 from $28.0 million in the first quarter of 1995, a change of $3.1 million. This increase primarily reflects the incremental costs of a start-up news operation and promotion expenses in Honolulu (required by KHNL's affiliation switch from Fox to NBC on January 1, 1996). Depreciation and amortization expense increased $1.8 million to $6.7 million in the 1996 period from $4.9 million in the 1995 period, reflecting the increased amortization associated with the step-up in carrying value of intangible assets resulting from the acquisition in October, 1995 of the Company's joint venture partner's interest in 14 15 KHC (the "Kelso Buyout"). As a result of revenue growth outpacing cost increases, EBITDA for Broadcasting increased 12.8% to $12.3 million in the 1996 period from $10.9 million in the 1995 period. KING-TV in Seattle, KGW (TV) in Portland, and WHAS-TV in Louisville contributed approximately 42%, 19% and 11%, respectively, of the first quarter 1996 EBITDA of the Company's stations. No other station represents more than 10% of the segment's 1996 EBITDA. EBITDA margin for the 1996 period and the 1995 period was 28% of Broadcasting net revenues. Broadcast Cash Flow, which represents Broadcasting EBITDA adjusted to add back corporate expense allocations plus program rights amortization less program rights payments, grew 10.7% to $12.4 million in the 1996 period from $11.2 million in the 1995 period. Publishing Prior to June 5, 1995, the Company published a Sunday newspaper, The Providence Sunday Journal, and both a morning daily newspaper, Providence Journal (Monday through Saturday), and an afternoon daily newspaper, The Evening Bulletin (Monday through Friday). As discussed previously, in response to changing readership preferences and declining circulation, primarily in The Evening Bulletin, and to reduce the Company's cost basis, the Company consolidated the afternoon newspaper with the morning newspaper (the "Newspaper Consolidation"), and now publishes a morning only daily Providence Journal-Bulletin (Monday through Saturday) in addition to The Providence Sunday Journal. Publishing revenues for the first quarter of 1996 remained relatively even at $30.1 million compared with $30.3 million for the first quarter of 1995. Advertising revenues remained substantially the same at $21.5 million in the 1996 period and $21.7 million in the 1995 period. As a result of the Newspaper Consolidation, average daily circulation for the three months ended March 31, 1996 approximated 169,500 a decrease of 6.2% from an average of 180,700 for the three months ended March 31, 1995. Average Sunday circulation for the quarter was 251,300, down by 4.2% from 262,200 for the same quarter last year, largely because of increased price. Despite the decline in circulation levels, circulation revenues of $8.1 million in the first quarter of 1996 were 2.5% ahead of circulation revenues of $7.9 million for the first quarter of 1995 as a result of price increases. Operating and administrative expenses decreased 1.8% in the 1996 period to $27.4 million from $27.9 million in the 1995 period, a decrease of $0.5 million. Payroll savings from the Newspaper Consolidation, the elimination of a Sunday magazine, and reduced costs from the discontinuance of a local shopper each saved $0.5 million in the first quarter of 1996 which more than offset the increase in newsprint costs of $1.0 million in the first quarter of 1996 compared to the first quarter of 1995. As previously discussed, management approved a plan of reorganization and restructuring of substantially all departments of Publishing at the end of 1995 in an effort to improve efficiencies. Under the plan, the Company targeted a reduction in work force of approximately 100 full-time equivalents through a combination of early retirement and voluntary and involuntary separation assistance plans. A charge of $6.8 million was recorded in the fourth quarter of 1995 relating to employee severance costs, outplacement, and other costs associated with the restructuring. As a result of a greater than anticipated response to the voluntary programs, management recorded an additional $1.1 million charge to operations in the first quarter of 1996. The Company expects annual savings from the restructuring to be approximately $6.0 million. Substantially all costs are expected to be paid by the Company's pension plans (in which plan assets exceed plan obligations) in 1996. As a result of cost savings, EBITDA increased 12.5% to $2.7 million in the first quarter of 1996 from $2.4 million in the first quarter of 1995. Programming and New Media In December, 1995 the Company launched the NorthWest Cable News ("NWCN") channel, which provides 24-hour news service to cable television viewers in Washington, Oregon, and Idaho, and in the second quarter of 1995 launched Rhode Island Horizons, its electronic on-line information service. Beginning in May, 1995, the Company made new investments in America's Health Network, a 24-hour health cable programming channel that launched on March 25, 15 16 1996. In July, 1995, the Company invested in Peapod, an existing interactive grocery delivery service. Through the first quarter of 1996, the Company continues to fund its share of the operations of its investment in Television Food Network and Partner Stations Network. In 1995, the Company grouped these investments together in a new segment called "Programming and New Media." Effective January 1, 1996, the Company consolidated its investment in AHN, which it previously had accounted for under the equity method of accounting, reflecting management's decision to expand its holdings in this entity. In addition to AHN, the Company currently wholly owns and operates NWCN and Rhode Island Horizons and has significant equity investment positions in the other entities. The Company has recently entered into agreements to purchase equity partnership interests held by two partners of TVFN and intends to pursue the purchase of some or all of the equity partnership interest held by a third partner. As a result, TVFN will become a controlled subsidiary upon the closing of at least two of these agreements (expected in the second quarter), at which point the Company will consolidate the results of TVFN's operations with the results of the Company. Investments in Programming and New Media operating businesses include (dollars in thousands):
Cumulative Amounts Invested Through Ownership % as of March 31, 1996 (1) March 31, 1996 ------------------ ----------------- Consolidated Subsidiaries ------------------------- AHN (2) $17,750 59% NWCN 6,300 100% Rhode Island Horizons 900 100% ------- subtotal 24,950 Equity in loss of affiliates (3) ------- Quarters Ended March 31, -------------------------------- 1996 1995 Investments in Affiliates ---- ---- ------------------------- TVFN 17,650 20% $ (783) $(1,022) Peapod 5,338 17% (302) - Partner Stations Network, L.P. 1,810 16% (180) (50) ------- ------- ------- subtotal 24,798 $(1,265) $(1,072) ------- ======= ======= Total Investments $49,748 ======= (1) In addition to the amounts included in the table, the Company has invested $5.9 million in Starsight Telecast, Inc., a company whose stock is publicly traded and in which the Company has an approximate 4% equity interest. (2) AHN was consolidated into the Company's results of operations as of January 1, 1996. (3) Excludes the Company's equity in loss of Linkatel Pacific, L.P. of $330 and $200 in 1996 and 1995, respectively which is an investment held for sale.
The operations in the Programming and New Media segment are in the early development phase and contributed $1.6 million in revenue in the first quarter of 1996 and $0.5 million in revenue in the first quarter of 1995. Operating and administrative expenses, as a result of the consolidation of AHN and start-up operations of NWCN, increased to $5.0 million for the first quarter of 1996 compared to $0.9 million in the same period last year. Consequently, operating losses were $3.6 million in the first quarter of 1996 compared with $0.4 million in the first quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its working capital, debt service, capital expenditure and dividend requirements primarily through cash provided by its operating activities. Significant acquisitions or investments have historically been funded primarily through long-term debt borrowings under credit facilities. 16 17 Cash Flows from Operations The following table identifies significant cash inflows and outflows from operations. It is intended to enhance the reader's understanding of, and reconciles EBITDA to, the cash flows used in operations of $6.3 million as presented in the Company's condensed consolidated statement of cash flows for the first quarter of 1996 included elsewhere in this Form 10-Q. Cash inflows (outflows) from operations can be analyzed as follows (in millions):
Quarter Ended, March 31, 1996 --------- EBITDA: Broadcasting $12.3 Publishing (excluding Newspaper Consolidation and Newspaper Restructuring costs) 2.7 Programming and New Media (3.4) Corporate (3.1) ----- Total 8.5 Program rights amortization 4.4 Interest paid (4.7) Income tax refunds received, net of payments made 1.1 Other working capital items, primarily accounts payable (6.8) ----- Cash flow from operations before one-time cash payouts 2.5 One-time cash payouts Payment of working capital and other cable-related disposal adjustments (1) (8.8) ===== Cash flow from operations $(6.3) ===== Note to table - ------------- (1) Includes working capital and other basis adjustments in disposal of cable operations of $4.3 million and approximately $4.5 million in cash paid for severance costs associated with the cable operations disposed of.
Investments During the first quarter of 1996, the Company made significant investments in Programming and New Media, including investments in the cable networks AHN and TVFN of $7.5 million and $5.0 million, respectively, during the first quarter of 1996. The Company intends to spend a total of approximately $17.5 million for the remainder of 1996 to increase its investment and fund its share of losses in AHN. The Company has recently entered into agreements to purchase the equity partnership interests held by two partners of TVFN for a total purchase price of $24 million and intends to pursue a proposed transaction to purchase some or all of the equity partnership interest held by a third partner. The total purchase price for these three transactions plus funding of the Company's share of operating losses of TVFN for the remainder of 1996 is currently estimated at $50.0 million. The closing on the executed agreements is expected to occur in May 1996, at which time the Company's equity interest in TVFN will increase to approximately 45%. Dividends The cash dividend per share of $28.60 per share declared in the first quarter of 1996 is consistent with that of the first quarter of 1995. It is anticipated that total dividends for 1996 will be equivalent to those paid in 1995. 17 18 Financing As discussed in Note 4 of the condensed consolidated financial statements included elsewhere in this Form 10-Q, the Company's total debt outstanding at March 31, 1996 was $273.0 million. The increases in debt during the quarter ended March 31, 1996 were to fund the above described investing activities and the one-time cash payments in connection with the discontinued operations adjustments discussed above. The amount of credit available under its revolving credit facility at March 31, 1996 was $112.0 million. The Company's debt to equity ratio at March 31, 1996 was 1.12 to 1.00. Future Funding and Capital Resources The Company anticipates that amounts available under its revolving credit facility and cash flow from operations will be sufficient to meet the liquidity requirements described above under "Liquidity and Capital Resources". To the extent that the Company makes significant acquisitions or investments or is required to meet significant liquidity requirements other than described above, the Company may need to obtain additional financing. There can be no assurance that such additional financing will be available on terms acceptable to the Company. INFLATION Certain of the Company's expenses, such as those for wages and benefits increase with general inflation. However, the Company does not believe that its results of operations have been, or will be, adversely affected by inflation, provided that it is able to increase its advertising rates periodically. 18 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On January 17, 1995, Cable LP brought a declaratory judgment action against Old PJC, Colony and Dynamic in the Circuit Court of the Eleventh Judicial Circuit in and for Dade County, Florida. Colony and Dynamic were cable television subsidiaries of Old PJC, which became units of Continental in connection with the Merger. This case relates to the Dynamic Partnership, in which Dynamic is the general partner with an 89.8% interest and Cable LP is the limited partner with a 10.2% interest. In this action, Cable LP claims that Dynamic was obligated to offer to sell to Cable LP Dynamic's general partnership interest before Old PJC entered into the Merger Agreement with Continental. Cable LP further claims that Dynamic's offer to purchase Cable LP's limited partnership interest for $13.1 million triggered a right of first refusal entitling Cable LP to purchase the general partnership interest for $115 million. Cable LP seeks a declaration by the court that the right of first refusal it is asserting applies. A motion to strike allegations of bad faith and breach of fiduciary duty against Old PJC, Colony and Dynamic was granted by the court, and an answer to the Complaint and a Counterclaim was filed by them on March 16, 1995, seeking a declaratory judgment that Cable LP unreasonably refused consent to the transfer of the general partner's interest to Continental and that a purported transfer of Cable LP's interest in the Dynamic Partnership to a partnership to be managed by Adelphia Communications, Inc. violates Dynamic's right of first refusal under the Dynamic Partnership Agreement. The case was tried in December 1995 and the decision of the court is expected shortly. The Company believes that the claims asserted by Cable LP are without merit and intends to defend this matter vigorously in the circuit court and through the appeal process in the event of an unfavorable ruling. Although the Company expects to succeed on the merits, and adverse decision could be material to the operating results of the Company. In the event that, as a result of such litigation, Dynamic is required to sell its interest in the Dynamic partnership to Cable LP, the Merger Agreement provides that the Company will pay to Continental simultaneously with the closing of such sale an amount equal to the sum of (i) the amount (if any) by which the consideration received by Dynamic for the sale of such interest is less than $115 million plus (ii) the taxes which would have been payable assuming the purchase price for such interest equaled $115 million. The Company is party to various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance or, if not so covered, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material effect on the consolidated financial position or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES On May 8, 1996, the Company declared a dividend of one Class A right for each outstanding share of Class A Common Stock, and one Class B right for each outstanding share of Class B Common Stock (collectively, the "Rights"). For additional information regarding the Rights, see the Company's Current Report on Form 8-K dated May 8, 1996. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 19 20 ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required to be filed by Item 601 of Regulation S-K: 4.1 Form of rights Agreement filed between The Providence Journal Company and The First National Bank of Boston, as Rights Agent (incorporated by reference to Exhibit 4 of the Registrant's Current Report on Form 8-K dated May 8, 1996.) 27.0 Financial Data Schedule. (b) Reports on Form 8-K Not applicable. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 14, 1996 THE PROVIDENCE JOURNAL COMPANY By: /s/ Thomas N. Matlack --------------------- Thomas N. Matlack Vice President-Finance and Chief Financial Officer (principal financial officer and chief accounting officer) By: /s/ John L. Hammond --------------------- John L. Hammond Vice President-General Counsel and Chief Administrative Officer 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PROVIDENCE JOURNAL COMPANY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 US DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 59 0 48,484 0 13,544 120,485 177,916 0 703,713 71,116 272,700 86 0 0 243,876 703,713 0 75,114 0 89,518 0 0 (5,084) (19,719) (4,834) (14,885) (3,578) 0 0 (17,277) (202.46) (202.46)
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