UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the Quarterly period ended September 30, 1994
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-12743
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PARK COMMUNICATIONS, INC.
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(Exact name of the registrant as specified in its charter)
Delaware 16-0986694
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(State or other jurisdiction of (IRS Employer Identi-
incorporation of organization) fication No.)
Terrace Hill, Ithaca, NY 14850
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(Address of principal executive Offices) (Zip Code)
Registrant's telephone number, including area code (607) 272-9020
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Indicate by checkmark 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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As of October 31, 1994, 20,745,608 shares of common stock, $.16 2/3 par
value, were outstanding.
FORM 10-Q QUARTERLY REPORT - SEPTEMBER 30, 1994
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.................................. 2-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 6-7
PART II. OTHER INFORMATION
Item 5. Other Information..................................... 8
Item 6. Exhibits and Reports on Form 8-K...................... 9
Signatures.......................................................... 10
-1-
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in Thousands Except Share and Per Share Amounts)
September 30, December 31,
1994 1993
Assets (unaudited)
Current Assets:
Cash, cash equivalents and short-term investments $138,054 $116,552
Accounts receivable, less allowance for doubtful
accounts of $ 1,481 in 1994 and $1,399 in 1993 19,608 21,006
Inventory........................................ 1,041 1,201
Film contracts................................... 2,760 2,485
Consulting/non-compete contracts................. 888 915
Other............................................ 3,465 3,807
Total current assets........................... 165,816 145,966
Property, Plant & Equipment.......................... 138,936 136,209
Less accumulated depreciation and amortization... (67,178) (64,346)
71,758 71,863
Intangible assets, less amortization of $75,259 in
1994 and $70,599 in 1993......................... 111,438 116,096
Film contracts....................................... 2,568 2,431
Consulting/non-compete contracts..................... 3,825 4,503
Other assets......................................... 1,408 1,762
$ 356,813 $342,621
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt.............$ 2,709 $ 2,762
Current maturities of film contracts............. 2,850 2,410
Accounts payable................................. 2,552 3,052
Consulting/non-compete contracts................. 900 936
Interest......................................... 302 1,066
Income taxes..................................... 1,792 4,347
Accrued liabilities.............................. 4,026 3,964
Deferred income.................................. 2,740 2,781
Total current liabilities...................... 17,871 21,318
Long-term debt....................................... 53,951 54,368
Consulting/non-compete contracts..................... 3,922 4,591
Deferred income taxes................................ 9,263 8,738
Total liabilities.............................. 85,007 89,015
Shareholders' Equity:
Common stock-par value $.16 2/3 per share:
Authorized 32,000,000 shares
Issued and outstanding 20,720,745 shares
in 1994 and 20,708,977 in 1993.............. 3,454 3,452
Paid in capital.................................. 14,158 13,924
Retained earnings................................ 254,194 236,230
Total shareholders' equity........................... 271,806 253,606
$ 356,813 $342,621
See notes to consolidated financial statements.
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PARK COMMUNICATIONS, INC. & SUBSIDIARIES
Consolidated Statements of Income and Retained Earnings
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(unaudited) (unaudited)
Revenue:
Broadcasting........................ $ 26,076 $ 20,354 $ 77,148 $ 61,402
Newspapers.......................... 19,001 21,129 56,169 62,205
Gross revenue..................... 45,077 41,483 133,317 123,607
Less agency and national
representative commissions........ 3,839 2,994 11,362 8,957
Net revenue......................... 41,238 38,489 121,955 114,650
Operating expenses:
Cost of sales....................... 15,817 15,679 44,391 46,620
Selling, general and administrative 11,613 12,268 35,931 36,679
27,430 27,947 80,322 83,299
Operating income before depreciation
and amortization................ 13,808 10,542 41,633 31,351
Depreciation and amortization:
Depreciation........................ 2,077 1,943 6,152 5,828
Amortization........................ 883 1,302 2,741 3,347
Amortization of excess of cost over
net assets acquired................. 643 670 1,919 2,010
3,603 3,915 10,812 11,185
Operating income.................. 10,205 6,627 30,821 20,166
Interest expense........................ (957) (921) (2,839) (2,782)
Interest income......................... 1,543 1,250 3,820 3,816
Other income (expense).................. 214 (36) (850) (364)
Income before income taxes........ 11,005 6,920 30,952 20,836
Provision for income taxes.............. 4,657 3,065 12,988 8,978
NET INCOME........................ 6,348 3,855 17,964 11,858
Retained earnings, beginning of period 247,846 225,453 236,230 217,450
RETAINED EARNINGS, end of period.. $254,194 $229,308 $254,194 $229,308
Earnings per share:
Primary........................... $ .31 $ .19 $ .87 $ .57
Fully diluted..................... $ .30 $ .19 $ .84 $ .57
See notes to consolidated financial statements
-3-
PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Nine Months Ended September 30
1994 1993
(Unaudited)
Operating Activities:
Net Income...............................................$ 17,964 $ 11,858
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......................... 10,812 11,185
Amortization of film contract rights and consulting/
non-compete contracts included in operating expenses 2,895 2,840
Payments on film contract liabilities................. (2,145) (1,912)
Payments on consulting/non-compete contracts.......... (705) (923)
Provision for losses on accounts receivable........... 563 364
Provision for deferred income taxes................... 525 4
Loss on sale of property, plant and equipment......... 183 92
Changes in operating assets and liabilities net of
effects from purchase of acquired companies:
Accounts receivable............................... 835 539
Inventory and other assets........................ 854 (1,101)
Accounts payable and accrued liabilities.......... (3,757) (2,691)
Deferred income................................... (41) (78)
Net cash provided by operating activities...... 27,983 20,177
Investing Activities:
Purchases of short-term investments......................(202,167) (40,584)
Proceeds from short-term investments..................... 177,618 31,867
Purchases of property, plant and equipment............... (6,350) (4,386)
Proceeds from sale of property, plant and equipment...... 120 15
Net cash (used) in investing activities........ (30,779) (13,088)
Financing Activities:
Principal payments on long-term debt..................... (416) (1,246)
Proceeds from issuance of Common Stock................... 165 88
Net cash (used) in investing activities........ (251) (1,158)
(Decrease) increase in cash and cash equivalents...... (3,047) 5,931
Cash and cash equivalents, beginning of period............. 21,232 5,684
Cash and cash equivalents, end of period..............$ 18,185 $ 11,615
Summary:
Cash and cash equivalents as above.......................$ 18,185 $ 11,615
Short-term investments................................... 119,869 108,380
$138,054 $119,995
See notes to consolidated financial statements
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PARK COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Earnings Per Share
Earnings per share of Common Stock is computed on the weighted average
number of common shares outstanding during each period
(dollars in thousands except per share amounts):
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
Primary:
Average Shares 20,718 20,703 20,715 20,701
Net income $ 6,348 $ 3,855 $ 17,964 $11,858
Per Share amount $ .31 $ .19 $ .87 $ .57
Fully diluted:
Average shares
outstanding 20,718 20,703 20,715 20,701
Assumed conversion
of 6.875% convertible
subordinated
debentures 2,605 --- 2,605 ---
Totals 23,323 20,703 23,320 20,701
Net income $ 6,348 $ 3,855 $ 17,964 $11,858
Add 6.875% convertible
subordinated debenture
interest, net of
taxes 566 --- 1,699 ---
Totals $ 6,914 $ 3,855 $ 19,663 $11,858
Per share amount $ .30 $ .19 $ .84 $ .57
2. Shareholders' Equity
On January 11, 1994, and July 14, 1994 the Company issued 3,182 shares
and 521 shares of its Common Stock respectively, in connection with
the conversion of $61,000 and $10,000 of its convertible debentures.
On March 31, 1994, June 30, 1994 and September 30, 1994, the Company
issued 2,655 shares, 2,895 shares and 2,515 shares of its Common Stock
respectively, under terms of its Employee Stock Purchase Plan. The
issuance increased the value of Common Stock, by $1,961 and increased
paid-in-capital by $233,449.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
1994 Compared to 1993
Three Months Ended September 30
For the third quarter of 1994, the Company's gross revenue increased
$3,600,000 (9%) compared to the third quarter of 1993. The television
division's gross revenue increased $4,200,000 (29%) due first, to improvement
in local/regional, national and political advertising, and second, to the
acquisition in November, 1993 of KALB-TV in Alexandria, Louisiana. The radio
division's gross revenue increased $1,500,000 (25%) due primarily to strong
improvement in local/regional and national advertising. The newspaper
division's gross revenue decreased $2,100,000 (10%) because the operating
revenues of the Company's smaller newspapers that were sold in December, 1993
are not included in 1994.
Operating income before depreciation and amortization increased
$3,300,000 (31%) compared to the third quarter of 1993. The television
division's operating income increased $2,200,000 (46%), due to the reasons
discussed above. The newspaper division's operating income increased $900,000
(18%) primarily due to increases in advertising revenues at the Company's
newspapers and control of operating expenses. The radio division's operating
income increased $500,000 (56%) due to the reasons discussed above.
The net income for the third quarter of 1994 increased $2,500,000 (65%)
compared to the third quarter of 1993.
Operating cash flow (net income plus deprecation and amortization)
increased $2,200,000 (28%) in the third quarter of 1994 from the third quarter
of 1993.
As discussed more fully below, on October 25, 1994, the Company entered
into an agreement to sell the Company through an all-cash merger to a private
investment concern. Although the Company's majority stockholder, the Estate of
the company's founder, Roy H. Park, has agreed to vote in favor of the
transaction, the acquisition is contingent upon, among other things, approval
by the Federal Communications Commission of the transfer of Park's broadcast
licenses to the acquiror. There can be no guarantee that such approval will be
obtained. If such approval is not obtained, or if the acquisition is not
consummated for any other reason, the Company might seek to sell to another
purchaser. Alternatively, the Company might seek to sell the Company's assets
to one or more purchasers (e.g., selling one or more divisions or particular
properties). Depending upon how such a transaction were structured, the
Company's revenues, income and cash flows could be significantly affected.
Nine Months Ended September 30
For the first nine months of 1994, the Company's gross revenue increased
$9,700,000 (8%) compared to the first nine months of 1993. The television
division's gross revenue increased $12,200,000 (28%) due first, to strong gains
in local/regional, national and political advertising, and second, to the
acquisition in November, 1993 of KALB-TV in Alexandria, Louisiana. The radio
division's gross revenue increased $3,600,000 (20%) due to strong improvement
in local/regional and national advertising. The newspaper division's gross
revenue decreased $6,000,000 (10%) because the operating revenues of the
Company's smaller newspapers that were sold in December, 1993 are not included
in 1994.
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Operating income before depreciation and amortization increased
$10,300,000 (33%) compared to the first nine months of 1993. The television
division's operating income increased $6,700,000 (47%) due primarily to both a
one time reduction in music license fees (due to the industry-wide settlement
of litigation between the television industry and BMI) and the reasons
discussed above. The newspaper division's operating income increased
$2,500,000 (19%) primarily due to increases in advertising revenues at the
Company's newspapers and control of operating expenses. The radio division's
operating income increased $1,100,000 (37%) due to the reasons discussed above.
The net income for the nine months increased $6,100,000 (51%) compared to
the same period in 1993.
Operating cash flow (net income plus depreciation and amortization)
increased $5,700,000 (25%) in the first nine months in 1994 compared to the
first nine months of 1993.
Liquidity
For the first nine months of 1994, the net cash provided by operating
activities was $28,000,000. The net cash flow used for investing and financing
activities was $31,030,000 during the first nine months of 1994. As of
September 30, 1994, the Company had $138,000,000 in cash, cash equivalents, and
short-term investments. The Company's current ratio (comparison of current
assets to current liabilities), a key indicator of liquidity, was a strong 9.3
to 1 as of September 30, 1994.
The Company expects that in calendar 1994, net cash provided by operating
activities will enable it to fund known investing and financing activity
requirements.
Previously, the Company's dividend policy has been to retain its earnings
for use in its business and not to pay cash dividends. On October 25, 1994,
the Company entered into an agreement to sell the Company through an all-cash
merger to a private investment concern for a total purchase price of
$711,427,000. A portion of the purchase price will be paid from the proceeds
of a $573,427,000 loan to be made to the acquiror; the remainder of the
purchase price ($138,000,000) will be derived from cash on the Company's books
at closing of the acquisition. Under the terms of the merger agreement
relating to the proposed acquisition, the Company is obligated to ensure that
such amount will be on the Company's books at closing; if such amount is not on
the Company's books at closing, the purchase price will be reduced by the
amount of any shortfall. The Company is also obligated to refrain from making
dividends, distributions and certain significant expenditures prior to the
closing date. While the Company believes that its cash flows will be
sufficient to meet its liquidity needs, if such cash flows are insufficient,
the Company may be required to meet its liquidity needs through its available
cash, thereby resulting in a reduction of the purchase price for the Company.
If the acquisition is not consummated, the Company might seek to sell to
another purchaser or might seek to sell the Company's assets to one or more
purchasers (e.g., selling one or more divisions or particular properties).
Depending upon how such a transaction were structured, the Company's liquidity
could be significantly affected.
Over the last three calendar years inflation affected the Company's
performance in terms of higher costs for wages, salaries and equipment. The
Company, however, was able to offset these rising costs in part by increasing
advertising and circulation rates at most newspapers and by raising the
effective advertising rates in most television and radio broadcasting stations.
Management does not anticipate that inflation will have a material effect on
the Company's operations during the calendar year 1994.
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PART II. OTHER INFORMATION
Item 5. Other Information
As noted above under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," on October 25, 1994, the Company entered
into an agreement to sell the Company to a private investment concern headed by
investors Donald R. Tomlin and Dr. Gary B. Knapp for a total purchase price of
$711,427,000. The purchase price represents a per share price of approximately
$30.50 per share, based upon 23,325,475 shares outstanding, which number
represents the sum of the number of outstanding shares as of September 30,
1994, and the shares to be issued upon the conversion of the Company's
outstanding convertible debentures at or prior to closing. The per share price
may vary slightly depending upon the issuance of stock under the Company's
stock purchase plan. A portion of the purchase price will be paid from the
proceeds of a $573.4 million loan to be made to the acquiror by The Retirement
Systems of Alabama; the remainder of the purchase price ($138,000,000) will be
derived from cash on the Company's books at closing of the acquisition.
A copy of the Agreement and Plan of Merger dated October 25, 1994, among
Park Acquisitions, Inc. ("PAI"), Park Acquisitions Subsidiary, Inc. ("PAS") and
the Company (the "Merger Agreement") is attached hereto as Exhibit 2. Under
the terms of the Merger Agreement, the Company is obligated to ensure that it
will have a minimum of $138 million cash on its books at closing of the
acquisition; if such amount is not on the Company's books at closing, the
purchase price for the Company will be reduced by the amount of any shortfall.
In the event the Company has more than $150 million cash on its books at
closing (after payment of all fees related to the transaction), such excess
amount will be paid to the Company's stockholders; however, the Company views
this possibility as unlikely. In addition, the Company is obligated to refrain
from making dividends, distributions and certain significant expenditures prior
to that date. The acquiror has indicated its intention to retain the Company's
current management and employees.
The acquisition is contingent upon, among other things, approval of the
transaction by Park's stockholders and approval by the Federal Communications
Commission of the transfer of Park's broadcast licenses to the acquiror. The
estate of the company's founder, Roy H. Park (the "Estate"), which currently
owns or controls approximately 89.6% of the Company's issued and outstanding
common stock (assuming conversion into common stock of the Company's
convertible debentures held or controlled by the Estate), has agreed to vote in
favor of the transaction (and has otherwise given a proxy to PAI to vote all of
the Estate's shares in favor of the merger) pursuant to the terms of a
"Stockholder's Agreement" dated October 25, 1994, among PAI, PAS and the
Estate. The Stockholder's Agreement and proxy terminate upon termination of
the Merger Agreement.
Under the Merger Agreement, the Company's Board of Directors has retained
the right to vote in favor of a "superior acquisition proposal" (as defined in
Section 7.01(a)(ii) of the Merger Agreement). However, in such an event, the
Company would be required to pay a termination fee as set forth in the Merger
Agreement.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.0 - Agreement and Plan of Merger dated as of October 25, 1994, among
Park Acquisitions, Inc., Park Acquisitions Subsidiary, Inc., and Park
Communications, Inc.
10.0 - Stockholder's Agreement, dated as of October 25, 1994, among
Dorothy D. Park, as the Personal Representative of the Estate of Roy H.
Park, Park Acquisitions, Inc., and Park Acquisitions Subsidiary, Inc.
27.0 - Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K
filed during the third quarter ended September 30, 1994.
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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.
PARK COMMUNICATIONS, INC.
Date November 8, 1994 /s/ Dorothy D. Park
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Dorothy D. Park
Chairman of the Board of Directors
and Secretary
Date November 8, 1994 /s/ Wright M. Thomas
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Wright M. Thomas
President, Chief Operating Officer,
Assistant Secretary and Director
Date November 8, 1994 /s/ Randel N. Stair
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Randel N. Stair
Vice President - Chief Financial
Officer, Controller, Treasurer and
Assistant Secretary (Principal
Financial Officer)
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EXHIBIT INDEX
2.0 - Agreement and Plan of Merger dated as of October 25, 1994, among Park
Acquisitions, Inc., Park Acquisitions Subsidiary, Inc., and Park
Communications, Inc.
10.0 - Stockholder's Agreement, dated as of October 25, 1994, among Dorothy D.
Park, as the Personal Representative of the Estate of Roy H. Park, Park
Acquisitions, Inc., and Park Acquisitions Subsidiary, Inc.
27.0 - Financial Data Schedule