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)
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the fiscal year ended December 31, 1994 Commission File number: 33-9443
OUTLET BROADCASTING, INC.
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(Exact name of registrant as specified in its charter)
Rhode Island 05-0194550
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 Kenney Drive
Cranston, Rhode Island 02920
(Address of principal executive offices)
Registrant's telephone number, including area code: (401) 455-9200
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: None
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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. (X)
The aggregate market value of the voting stock held by non-affiliates of the
registrant was none.
Documents Incorporated by Reference: None
The number of shares of the registrant's Class A Common Stock, par value $.01
per share, outstanding as of March 24, 1995, was 1,000,000.
The Exhibit Index for this document appears on page 74 hereof.
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Page 1 of 191 Pages
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PART I
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Item 1. Business.
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Introduction
Outlet Broadcasting, Inc., a Rhode Island corporation ("Outlet
Broadcasting"), is a wholly-owned subsidiary of Outlet Communications, Inc.,
a Delaware corporation ("Outlet Communications"). The operations of Outlet
Broadcasting, a television broadcasting company, consist of three owned
television stations along with one television station operated under a local
marketing agreement. The owned stations include two NBC network-affiliated
VHF television stations and one independent UHF television station.
The two VHF television stations are WJAR(TV), based in Cranston, Rhode
Island, which serves the Providence-New Bedford market area and WCMH(TV),
which is located in Columbus, Ohio and serves that market. The UHF
television station is WNCN(TV) (formerly WYED-TV) which is located in
Clayton, North Carolina and broadcasts in the Raleigh-Durham (Fayetteville,
Goldsboro and Rocky Mount), North Carolina market area. Outlet Broadcasting
acquired WNCN(TV) on August 10, 1994. As of January 11, 1995 WNCN(TV) began
broadcasting programming provided by The WB Television Network.
Since April 18, 1994, Outlet Broadcasting has also operated independent
UHF television station WWHO(TV), Chillicothe, Ohio, under a local marketing
agreement with that station's licensee. Outlet Broadcasting serves as a
broker for the sale of that station's advertising time and provides it with
certain programming and operating capabilities. In return, Outlet
Broadcasting retains a substantial percentage of WWHO(TV)'s net operating
income to the extent that it exceeds cumulative net operating losses. This
station, as of January 11, 1995, became an affiliate of The WB Television
Network.
Outlet Broadcasting also offers production services to advertisers and
others on an occasional basis. This activity does not generate significant
revenues.
Television
Outlet Broadcasting's television broadcasting revenues are derived from
regional and national spot advertising, from local advertising, and from
network compensation.
Advertising rates charged by a television station are based primarily upon
the population and number of television sets in the area served by the
station, as well as the station's ability to attract audiences as reflected
in surveys made by the A.C. Nielsen Company ("Nielsen") of the number of
sets tuned to the station at various times. Nielsen measures ratings within
specific geographic markets by dividing the nation into Designated Market
Areas ("DMA").
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Advertising rates are highest during the most desirable viewing hours,
with corresponding reductions during other hours. The rates for national
spot and local advertising are determined by each station. Katz
Communications, Inc. is Outlet Broadcasting's national sales representative
firm. Local advertising time is sold by each station's own sales force.
Effective September 1, 1994, Outlet Broadcasting and NBC reached an
understanding whereby Outlet Broadcasting's VHF television stations will
retain their NBC network affiliations for a period of six years. The
affiliations give Outlet Broadcasting's VHF television stations the right to
rebroadcast all programs transmitted by the NBC network. For each hour of
programming that is rebroadcast by the affiliate, the network pays the
affiliate a fee, which varies in amount depending on the time of day during
which the program is broadcast. Although the hourly rates of network
compensation are fixed, the total amount of network compensation received by
each affiliated station is subject to the number of network program hours
rebroadcast by that station.
Network programs are produced either by the networks themselves or by
independent production companies and are primarily transmitted via satellite
by the network to its affiliated stations for rebroadcast. Each of Outlet
Broadcasting's television stations also acquires programs from non-network
sources and produces its own programs for broadcast.
Approximately 62% of the television programming aired on Outlet
Broadcasting's Cranston station is provided by NBC and approximately 25% is
provided or licensed by independent third parties. Outlet Broadcasting's
Columbus station receives 52% of its programming from NBC and 34% is
provided or licensed by independent third parties. The remaining portion of
Outlet Broadcasting's VHF television station programming consists
principally of local programs, such as news, public affairs and children's
programs, produced by the individual television stations.
Another factor affecting television revenues is the increase in straight
barter and cash-plus-barter arrangements. Under such arrangements national
program distributors retain up to 50% of advertising time available, which
would otherwise be available for sale by the stations to national
advertisers. While these arrangements reduce the cost of new programming
because the value of the advertising time withheld is credited against its
cost, they also result in decreased revenues to stations and introduce new
competitors to the advertising market.
- 3 -
The principal portion of Outlet Broadcasting's UHF television station
programming consists of syndicated shows, children's programs, movies and,
at WWHO(TV), news. Outlet Broadcasting has also entered into an agreement
with The WB Television Network ("WB") for WB to provide network programming
to WWHO(TV). Commencing in January 1995, WB will provide one night of prime
time programming for two hours. A second night of prime-time programming is
scheduled to commence during the third quarter of 1995 along with selected
children's programming. Additional programming will thereafter be provided
in accordance with a schedule of roll-out dates to the extent that WB makes
available such programming for rebroadcast. The initial period of the WB
agreement is for three years and may be extended for additional successive
periods of two years each if agreed upon by the parties.
WNCN(TV) is currently broadcasting WB programming on a temporary basis.
As of October 1, 1995, WNCN(TV) is scheduled to become an NBC network
affiliate.
In order to compensate WB for its programming, Outlet Broadcasting will
pay WB an annual payment based on Outlet Broadcasting's WB affiliated
station television market ratings for prime time broadcast periods of WB
programming. The payments are based on the value and/or profitability added
to each station as a result of its affiliation with WB and to pay to WB 25%
of such added value and/or profitability.
The following is a description of each of the television stations operated
by Outlet Broadcasting.
WJAR(TV)
WJAR(TV) is a VHF station affiliated with the NBC network. It is located
in Cranston, Rhode Island but serves the capital city of Providence, Rhode
Island and broadcasts over Channel 10 in the Providence-New Bedford
television market. This market is ranked 46th in the nation in terms of
number of television households in its DMA.
WCMH(TV)
WCMH(TV) broadcasts over Channel 4 in Columbus, the capital city of Ohio,
and is a VHF station affiliated with NBC. The Columbus television market is
ranked 34th in the country in its DMA.
WNCN(TV)
WNCN(TV) is an independent UHF television station, located in Clayton,
North Carolina, that serves the capital city of Raleigh, North Carolina. It
broadcasts over Channel 17 in the Raleigh-Durham (Fayetteville, Goldsboro
and Rocky Mount) North Carolina television market, which is ranked 32nd in
the nation in terms of number of television households in its DMA. Since
January 11, 1995, the station has broadcast programming provided by WB.
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WWHO(TV)
WWHO(TV) is an independent UHF television station that became affiliated
with The WB Television Network as of January 11, 1995. It is located in
Chillicothe, Ohio but serves the capital city of Columbus, Ohio and
broadcasts over Channel 53 in the Columbus-Chillicothe television market
area.
Competition
Outlet Broadcasting's television stations compete for revenues with other
broadcasting stations in their respective markets, as well as with other
advertising media, such as newspapers, magazines, outdoor advertising,
transit advertising, and direct mail.
Competition in the broadcasting industry occurs primarily in individual
markets. Generally, except as set forth below, a television broadcasting
station in one market does not compete with stations in other market areas.
Outlet Broadcasting television stations are located in highly competitive
markets.
Factors that are material to competitive positions include authorized
power, assigned frequency, management experience, network affiliation,
audience characteristics and local program acceptance, as well as strength
of local competition. The broadcasting industry is continuously faced with
technological change and innovation, the possible rise of popularity of
competing entertainment and communications media, changes in labor
conditions, and governmental restrictions or actions of federal regulatory
bodies, including the FCC and the Federal Trade Commission ("FTC"). Any of
such developments could possibly have a material effect on Outlet
Broadcasting's operations and profits.
Under present FCC regulations, no additional conventional, full power, VHF
or UHF commercial television stations may be constructed or operated in any
of the markets where Outlet Broadcasting's television stations are located
except there is a construction permit for WFDG-TV, Channel 28, New Bedford,
Massachusetts in the Providence market.
There are sources of video programming other than conventional television
stations, the most common being cable television ("CATV"). These other
sources have increased the competition for broadcasting stations by bringing
into their markets distant broadcasting signals not otherwise available to
the stations' audience and also serving as a distribution system for
programs originating on the cable system. Programming is now being
distributed to CATVs by both terrestrial microwave systems and by satellite.
The FCC has also authorized intermediate carriers to pick up the signals of
so-called "superstations" and to deliver them to CATV systems via satellite,
including CATV systems in each of Outlet Broadcasting's television markets.
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The Signal Carriage Provisions of the Cable Television Consumer Protection
and Competition Act of 1992 require CATV system operators, under most
conditions, to transmit the broadcast signal of local commercial television
stations. In certain circumstances, the CATV operator is prohibited from
carrying broadcast stations without obtaining the stations' consent. Once
every three years a television broadcaster must choose whether to proceed
under its must carry, but uncompensated, alternative or instead negotiate a
grant of retransmission consent permitting the CATV operator to carry the
station's signal in exchange for consideration from the CATV operator.
Because Outlet Broadcasting's television stations enjoy significant
viewership, the stations are carried by most of the cable television systems
serving their market area. In this regard, the VHF stations have,
primarily, granted retransmission consent to their cable operators and in
return have obtained, in certain instances, the right to produce news
programs which will be carried by available channels on such cable systems.
The UHF stations have generally proceeded with cable system operators under
the must carry alternative.
Other sources of competition include subscription television ("STV"), pay
cable, multi-point distribution systems and multichannel multi-point
distribution systems, satellite-fed master antenna systems and home
entertainment systems (including television game devices, video cassette
recorder and playback systems, and video discs). Outlet Broadcasting's
television stations also face competition from Direct Broadcast Satellites
("DBS"), which transmit programming directly to homes equipped with special
receiving antennas or to CATV systems for transmission to their subscribers.
See "Business--Federal Regulation of Broadcasting" for possible additional
competitive impact from proposed technological changes.
Strategy
Despite the changing dynamics of the television industry, management
believes that there will continue to be opportunities to generate
significant revenues from mass marketed programming and associated
advertising. Management believes that an increasing number of national
"niche" cable channels will continue to fractionalize video viewing,
including the cable networks themselves, and that these channels may find it
difficult to attract enough viewers to generate significant advertiser
support or obtain satisfactory programming on a cost-effective basis.
However, management believes that Outlet Broadcasting's blend of strong
local news programming, combined with national network programming and
selective use of syndicated programming at its VHF television stations, will
continue to attract large viewing audiences and advertiser support.
Additionally, management believes that the syndicated programs, movies and
children's programs offered by Outlet Broadcasting's UHF television stations
provide an attractive alternative to the more traditional news and network-
provided programming.
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Successful programming of broadcast television requires constant
refinement, on the basis of cost effectiveness, of the match between
available programming and the changing tastes of the local viewing audience.
In conjunction with its strategy to reduce overall costs and increase
profitability, Outlet Broadcasting has directed the programming focus at its
VHF television stations towards building on local news leadership and
selectively reducing purchases of syndicated programs. At its UHF stations,
however, Outlet Broadcasting has engaged in network affiliations, as
available, while simultaneously developing local news programming and
improving its offerings of syndicated and children's programs. Outlet
Broadcasting intends to continuously refine its programming mix in order to
attract and hold the audiences desired by advertisers and to increase
profitability. Outlet Broadcasting also believes that its improving
financial condition will enable it to consider the acquisition of desirable
broadcast or related properties, should such properties become available.
Outlet Broadcasting's strategy has the following elements:
Build on Local News Leadership. Local news programming is
commercially valuable because of its high viewership level, the
attractiveness to advertisers of the demographic characteristics
of the typical news audience (allowing stations to charge higher
rates for advertising time) and the enhanced ratings of other
programming in time periods following the news. In addition,
strong local news product helps differentiate local broadcast
stations from cable system competitors, which generally do not
provide this service. The cost of producing local news
programming is generally lower than other sources of non-network
programming, and the amount of local news programming can be
increased for very modest incremental increases in cost.
Moreover, such programming can be increased or decreased on very
short notice, providing Outlet Broadcasting with greater
programming flexibility. Outlet Broadcasting has focused on
maintaining and building each VHF station's local news franchise
as the foundation of its strategy to maintain and build audience
loyalty and increase revenues and profitability. According to the
November 1994 Nielsen report, WJAR(TV) remained as the leading
news station in its market while WCMH (TV)'s weekday news programs
generally captured the second largest share of the Columbus
audience in their time periods. WWHO(TV) has instituted a one-
hour 10:00 p.m. news program and WNCN(TV) is in process of
installing a news department to prepare to provide local news
programming during the latter half of 1995.
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Optimize Selection of Syndicated Programming. At its VHF
television stations, Outlet Broadcasting has operated to reduce
its dependence on, and financial commitment to, syndicated
programming. Within this framework, Outlet Broadcasting has
balanced the cost of available syndicated programs with their
potential to increase advertising revenue, while giving due
consideration to the risk of reduced popularity during the term of
the program contract. Outlet Broadcasting is now selectively
buying only those programs which are available on a cost-effective
basis and for contractual periods which permit financial and
programming flexibility. Selected programs must also complement a
station's overall and/or competitive programming strategies.
Outlet Broadcasting's UHF television stations are more dependent
on syndicated programs for their overall programming needs. At
these stations, Outlet Broadcasting has sought to upgrade the
quality of their syndicated programs, on a cost-effective basis,
in order to provide a more attractive product to their viewers.
Strengthen Advertiser Relationships. Advertising by political
candidates injects significant revenues in relatively short time
periods, but disrupts traditional commercial advertising. In
conjunction with a policy decision not to accept advertising by
political candidates during local news programs, Outlet
Broadcasting effectively limited the amount of such advertising
its stations will carry, thereby minimizing the disruption to
commercial advertisers. Outlet Broadcasting also improved its
audience research capability and enlarged the production
facilities available to its advertisers. In addition, Outlet
Broadcasting expanded its sales staff devoted to supporting its
advertising customers. Management believes that these actions
will strengthen Outlet Broadcasting's relations with these
customers.
Control Costs. Management believes that controlling costs is
essential to achieving and maintaining the profitability of its
broadcast television stations. Therefore, Outlet Broadcasting
implemented a program to control costs which, beginning in 1992,
led to substantially improved operating results. The cost control
measures included reducing financial commitments to costly, long-
term syndicated program contracts, increasing the amount of local
news programming, reducing staff and corporate overhead and
relocating WJAR(TV) and corporate headquarters to a more efficient
facility. Through its ongoing strategic planning and annual
budget processes, Outlet Broadcasting intends to continue to
identify and implement cost saving opportunities.
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Seasonality
Outlet Broadcasting's operating revenues are generally highest in the
second and fourth quarters of each year, due in part to increases in
beverage advertising in the spring and retail advertising in the period
leading up to and including the holiday season. Revenues may also be
affected by special events carried by NBC, such as the Olympic Games or the
Super Bowl. In addition, advertising revenues are generally higher during
political election years due to campaign spending by political candidates.
Other Activities
In addition to its broadcasting properties, Outlet Broadcasting has
interests in certain television production activities. These activities now
only include the offering by each of Outlet Broadcasting's television
stations of production services to advertisers and others. It is not
anticipated that any of such activities will generate significant revenues.
Exploration of Strategic Alternatives
On March 21, 1995, Outlet Communications announced that the Board of
Directors had retained a financial advisor to help Outlet Communications
explore strategic alternatives to enhance shareholder value, including a
possible business combination, the sale of all or a portion of Outlet
Communications, potential acquisitions or any other similar transactions.
Outlet Communications said that there can be no assurance that any
transaction will result from the exploration process.
Federal Regulation of Broadcasting
Television broadcasting is subject to the jurisdiction of the FCC under
the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits television broadcasting except in accordance
with a license issued by the FCC. The Communications Act also empowers the
FCC, among other things, to issue, revoke or modify broadcasting licenses,
to determine the location of stations, to regulate the equipment used by
stations, to adopt such regulations as may be necessary to carry out the
provisions of the Communications Act, and to impose penalties for violation
of such regulations. The assignment of a broadcast license or the transfer
of control of a corporation holding a license cannot be effected without the
prior approval of the FCC.
Television licenses are issued for terms of five years. Licenses are
renewable for additional terms upon application to the FCC, which will
approve the renewal without a hearing if there are no conflicting
applications or petitions to deny by third parties conflicting with the
renewal applications (either of which could require a hearing), or adverse
findings as to the licensee's qualifications. In recent years, there have
been a number of challenges and competing applications to broadcast license
renewal applications although, in the vast majority of cases, television
licenses are renewed by the FCC.
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Outlet Broadcasting's station licenses have the following expiration dates,
until renewed:
WJAR(TV) . . . . . . . . . . . . . April 1, 1999
WCMH(TV) . . . . . . . . . . . . . October 1, 1997
WNCN(TV) . . . . . . . . . . . . . February 1, 1997
WWHO(TV) . . . . . . . . . . . . . October 1, 1997
The FCC rules permit cognizable ownership by one entity of up to twelve
television stations, up to eighteen FM radio stations and up to eighteen AM
radio stations. With respect to television stations, however, the FCC
adopted an additional ownership limit based on audience reach. Under the
audience-reach limitation, an entity may acquire cognizable ownership
interests in up to twelve television stations only if the aggregate number
of television households reached by the television stations does not exceed
25% of the national television household audience as determined by market
ratings. The percentage of the national television household audience
reached by the television stations owned by Outlet Broadcasting is
significantly below these limitations.
The FCC rules also generally prohibit the common ownership of a television
station and either an AM or an FM radio station with overlapping areas of
local service, although an AM-FM station combination by itself is permitted.
Ownership of a newspaper, CATV system, and a television station in the same
market is also prohibited. These rules apply only to those who seek new
authorizations or FCC approval of transfers of existing combinations.
The FCC requires the attribution of the licenses held by a broadcasting
company to its officers, directors, and certain holders of its voting
securities, so that there would be a violation of FCC regulations where an
officer, director, or stockholder and a broadcasting company together hold
more than the permitted number of stations or own stations that serve the
same area.
The foregoing is only a brief summary of certain provisions of the
Communications Act and the regulations of the FCC. Reference is made to the
Communications Act, FCC regulations and the public notices promulgated by
the FCC for further information. Outlet Broadcasting is unable to predict
what impact, if any, changes in these laws would have.
Music Licensing
In 1983, the U.S. District Court for the Southern District of New York
upheld a challenge by members of the television industry to the legality,
under the antitrust laws, of the so-called "blanket" music-licensing system
routinely used by the ASCAP and BMI music-licensing organizations in
authorizing broadcasters to use copyrighted musical works in syndicated
television programming. The District Court established an interim blanket
license rate frozen at the level in effect in 1980. This interim
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rate was set to permit the licensing organizations to collect some revenue
pending final court determination of the case, with the understanding that
television stations would be liable for any retroactive rate increases set
by the court. However, the judgment of the District Court was reversed by
the U.S. Court of Appeals for the Second Circuit. Subsequently, the U.S.
Supreme Court refused to hear an appeal of the case, thereby affirming the
Second Circuit's determination that blanket music licensing is permissible.
A final determination of retroactive adjustments in music-licensing rates
for the interim time period remained pending.
On February 26, 1993, the District Court ruled that broadcasters may pay
music license fees on either a per program basis or a blanket license based
on a flat fee (ASCAP had sought a blanket license based on a percentage of
each station's revenue). In addition, the District Court established a
formula for determining industry-wide license payments for the retroactive
period to 1983. The District Court also instructed the parties to develop a
formula to govern the allocation of annual blanket license fees among
television stations.
In September 1993 the members of the television industry and ASCAP reached
final agreement on television music performance rights fees payable by
television stations through 1994. The agreement provides for continuation
of the interim blanket and per program licenses and payments through the end
of 1994. The parties also agreed that ASCAP receive an additional industry-
wide payment of $4 million for 1993 and an additional $10.65 million to be
paid in 1994. (The 1993 and 1994 add-on payments allocated to WJAR(TV) and
WCMH(TV) amounted to approximately $60,000 in the aggregate).
ASCAP has appealed the rate court decision establishing blanket and per
program license fees effective January 1, 1995. Pending resolution of the
appeal, ASCAP and a committee representing the television industry have
agreed that television stations will continue to pay ASCAP for the period
January 1, 1995 through June 30, 1995 on the same basis as the stations were
currently reporting and paying. The parties have also agreed that ASCAP
receive an additional industry-wide payment for the six month period of
$3.064 million. This amount will be allocated to individual stations by
formula. It is expected that the allocation to Outlet Broadcasting's
television stations will be relatively minor.
In March 1994 a committee representing members of the television industry
announced that a final agreement had been reached with BMI, whose music
licensing fees are generally tied to ASCAP fees. The agreement provided for
continuation of the interim blanket and per program licenses and payments to
BMI through the end of 1994. The agreement also called for an additional,
industry-wide payment of $14 million to be made during the balance of 1994
($6.125 payable by May 20, 1994 and the remaining $7.875 payable at $1.125
million each month June through
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December, 1994). The add-on payments were allocated to each television
station in accordance with the formula developed for the previous ASCAP
settlement allocation.
BMI currently receives approximately 70% of what ASCAP receives. However,
BMI is continuing to advocate that it should be paid on parity with ASCAP.
As a result, BMI and the committee representing the television industry are
continuing to negotiate fee determinations. The final fee determinations,
as noted above, could have an effect on Outlet Broadcasting's continuing
costs of music licensing for its television properties.
Employee Relations
Outlet Communications and Outlet Broadcasting have approximately 325 full-
time employees. Approximately 172 of such employees are represented by
labor unions under collective bargaining agreements. These agreements
expire on various dates through February 1997. Outlet Broadcasting
contributes to and maintains employee benefit and retirement plans for its
employees.
Item 2. Properties
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Outlet Broadcasting's and Outlet Communications' corporate headquarters as
well as the studio facility for WJAR(TV) are located at 23 Kenney Drive,
Cranston, Rhode Island 02920.
The following table sets forth certain information concerning Outlet
Broadcasting's principal facilities.
Owned or Approximate Square
Location: Leased Footage
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Corporate Headquarters/
WJAR(TV) Studio Facilities
Cranston, Rhode Island Owned 42,000
WCMH(TV) Studio Facilities
Columbus, Ohio Owned 54,000
WNCN(TV) Studio Facilities
Clayton, North Carolina Owned 6,281
WWHO(TV) Studio Facilities
Chillicothe, Ohio (A) 1,162
(A) Leased by licensee
The tower site for WJAR-TV is owned. The tower sites for WCMH-TV and
WNCN(TV) are leased. The tower site for WWHO(TV) is leased by that
station's licensee.
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Item 3. Legal Proceedings.
------------------
Outlet Broadcasting is not a party, and none of its assets is subject,
to any pending legal proceedings, other than ordinary routine litigation
incidental to Outlet Broadcasting's businesses and against which it is
adequately insured, or which are not material.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
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PART II
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Item 5. Market for Registrant's Common Equity and Related
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Stockholder Matters.
--------------------
Outlet Broadcasting's authorized capital stock consists of 3,000,000
shares of Class A Common Stock, par value $.01 per share, 1,000,000 shares
of non-voting Class B Stock, par value $.01 per share, and 1,000,000 shares
of Preferred Stock, with no par value. Of such shares, 1,000,000 shares of
Class A Common Stock and no shares of Class B Common Stock or Preferred
Stock are issued and outstanding. All of Outlet Broadcasting's issued and
outstanding shares are owned by Outlet Communications. Accordingly, there
is no established public trading market for Outlet Broadcasting's common
stock.
Outlet Broadcasting has no present intention to pay dividends on its
common stock. Among other things, the future payment of dividends will
depend on Outlet Broadcasting's earnings and financial condition, capital
requirements, and general economic conditions. In addition, Outlet
Broadcasting's ability to pay dividends is restricted by the terms of its
debt agreements.
Item 6. Selected Financial Information.
-------------------------------
The comparability of the data in the following table of Selected
Financial Information is affected by dispositions of broadcast stations
including two radio stations and two UHF television stations that were sold
in 1990. Also, net income in 1993 includes the cumulative effect of a
change in method of accounting for income taxes in the amount of $4,434,000
and an extraordinary loss for debt extinguishment of $1,826,000.
Outlet Broadcasting has not paid cash dividends on its capital stock
during any of the periods presented below.
(dollars in thousands, except per share amounts)
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1994 1993 1992 1991 1990
----------------------------------------------------
Net revenue $ 59,442 $ 46,952 $ 45,153 $ 39,434 $ 49,187
Operating income 20,175 12,428 10,297 2,232 9,072
Income (loss) before
non-recurring items
and income taxes 11,229 2,342 (2,825) (12,343) (5,243)
Net income (loss) 10,569 4,634 (1,552) (9,265) 6,112
Income (loss) per share $ 10.57 $ 4.63 $ (1.55) $ (9.27) $ 6.11
Total assets $129,928 $117,611 $126,646 $143,029 $156,499
Long-term debt excluding
current maturities 75,000 79,500 87,447 95,961 91,885
Other long-term
liabilities 15,098 13,392 18,085 18,933 25,566
Stockholders' equity 16,404 5,785 1,113 2,665 11,930
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Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
Results of Operations
---------------------
Outlet Broadcasting's operations consist of three owned television
stations and one television station operated under a local marketing
agreement. The owned stations include two NBC network-affiliated VHF
television stations and one independent UHF television station.
The two VHF television stations are WJAR-TV, which serves the
Providence, Rhode Island-New Bedford, Massachusetts area and WCMH-TV, which
serves the Columbus, Ohio area. The UHF television station, acquired by
Outlet Broadcasting on August 10, 1994, is WNCN-TV (formerly WYED-TV) which
serves the Raleigh-Durham (Fayetteville, Goldsboro and Rocky Mount), North
Carolina market area.
Since April 18, 1994, Outlet Broadcasting has also operated independent
UHF television station WWHO-TV, Chillicothe, Ohio, under a local marketing
agreement with that station's licensee. Outlet Broadcasting serves as a
broker for the sale of that station's advertising time and provides it with
certain programming and operating capabilities. In return, Outlet
Broadcasting retains a substantial percentage of WWHO-TV's net operating
income to the extent that it exceeds net operating losses.
The following table summarizes Outlet Broadcasting's operating results
for the last three years and shows rates of change applicable thereto. The
table also shows the amounts of revenue obtained from both non-political and
political revenue sources.
Dollars in thousands 1994 % Change 1993 % Change 1992
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Net revenue:
Non-political $55,696 19.2% $46,735 7.1% $43,639
Political 3,746 (b) 217 (b) 1,514
-------------------------------------------------------------------------------
Total revenue 59,442 26.6% 46,952 4.0% 45,153
Operating expenses 39,267 13.7% 34,524 (1.0%) 34,856
------------------------------------------------------------------------------
Operating income $20,175 62.3% $12,428 20.7% $10,297
===============================================================================
Net cash provided
by operations (a) $19,466 402.7% $ 3,872 6.3% $ 3,644
-------------------------------------------------------------------------------
Operating cash flow (a) $25,555 47.9% $17,276 13.0% $15,285
===============================================================================
(a) "Net cash provided by operations" means all cash flows (including
working capital changes) other than cash flow associated with investing
or financing activities and "Operating cash flow" means operating
income plus depreciation and amortization of intangibles.
(b) Not shown, since most political advertising occurs in alternate years.
- 15 -
Revenues
In 1994, total net revenue of $59,442,000 increased by $12,490,000 or
26.6% compared with $46,952,000 in 1993. Of the 1994 revenue total, non-
political revenue amounted to $55,696,000. This was an increase of
$8,961,000 or 19.2% compared with $46,735,000 in the prior year. Recent
station additions, WWHO-TV and WNCN-TV, added marginally to the revenue
gain. Their aggregate revenue amounted to less than 4% of the prior year's
revenue total.
The increase in non-political revenue was primarily attributable to
overall improvement in economic conditions, a strong demand for advertising
time and favorable viewership of Outlet Broadcasting's VHF television
stations. This allowed advertising rates to continue to trend higher.
Increases occurred in both national spot and local time sales. There was
also an increase of more than 16% in network compensation. This was a
favorable result of the terms of Outlet Broadcasting's renewed affiliation
with the NBC network which became effective September 1, 1994.
Advertiser spending for political campaigns was significant in the 1994
election year and political revenue totalled $3,746,000. This amount
comprised 6.3% of total revenue in 1994, whereas in 1992, political
advertising of $1,514,000 comprised 3.4% of the revenue total.
Both of Outlet Broadcasting's VHF television stations had increases in
total revenue. For the third consecutive year, WCMH-TV established a record
high in station revenue. WCMH-TV increased its non-political local and
national spot revenue for the year by approximately 11.4%. Political
advertising provided a further 4.6% increase to the station's revenues. The
increased revenue reflected an estimated 15% growth in the Columbus
advertising market.
WJAR-TV increased its non-political local and national spot revenue for
the year by approximately 20.6% with political advertising providing a
further increase to the station's revenue of 12.4%. The increased revenue
reflected an estimated 17% growth in the Providence advertising market.
Thus, WJAR-TV was able to increase its market share from that of 1993.
In 1993, total net revenue of $46,952,000 increased by $1,799,000 or 4%
compared to $45,153,000 in 1992. Of the 1993 revenue total, non-political
revenue amounted to $46,735,000. This was an increase of $3,096,000 or 7.1%
compared to $43,639,000 in the prior year. Since 1993 was not a traditional
election year, advertiser spending for political campaigns was minimal and
net political revenue declined to $217,000.
- 16 -
Revenues were favorably affected in 1993 by a rebounding economy along
with strong viewer ratings at Outlet Broadcasting's television stations.
This allowed advertising rates to trend generally higher. The increase in
non-political revenue occurred notwithstanding that 1992 had approximately
$2,000,000 in added revenues associated with that year's Summer Olympics.
Total network compensation in 1993 remained approximately even with that of
the prior year.
In 1993, total revenue increased at both of Outlet Broadcasting's
television stations. Increased revenue at WCMH-TV reflected continued
growth in the Columbus advertising market. Exclusive of political
advertising, local revenue at WCMH-TV was up by more than 13%.
Non-political local and national revenue in the Providence market, during
1993, remained approximately even with the prior year. Nevertheless, WJAR-
TV increased its local and national spot revenues for the year by
approximately 8%. Thus, the station was able to increase its market share
from that of 1992.
In order to reduce dependency on an inconsistent revenue source, as of the
1992 election year Outlet Broadcasting began limiting the advertising spots
available to political candidates on its television stations. As part of
this strategy, Outlet Broadcasting opted not to offer political advertising
spots during its local news programs. This allowed Outlet Broadcasting to
better serve its regular local and national advertisers by providing them
advertising time that is not always available, during election years, at
competing television stations. Compared to prior election years, political
revenue in 1992 declined at both television stations. However, the amount
of political revenue in the 1994 election year rebounded substantially.
Operating Expenses
Operating expenses in 1994 totalled $39,267,000. This was an increase of
$4,743,000 or 13.7% compared with $34,524,000 in 1993. More than two-thirds
of the total increase resulted from inclusion of operating expenses for
WNCN-TV and WWHO-TV in 1994. Excluding the effect of these added stations,
there was a moderate 4% increase in total operating expenses. In 1993,
total operating expenses of $34,524,000 decreased by $332,000 or 1% compared
to $34,856,000 in 1992. As a percent to revenue, total expenses decreased
from 77.2% in 1992 to 73.5% in 1993 and to 66.1% in 1994.
Technical, programming and news expenses in 1994 of $20,113,000 increased
by $2,078,000 or 11.5% compared with $18,035,000 in 1993. Virtually all of
the increase was accounted for by the added stations. In 1993, technical,
programming and news expenses decreased by $674,000 or 3.6% from $18,709,000
in the prior year.
- 17 -
Programming expenses include departmental operating costs as well as
charges for amortization of film contract rights. Since 1992 Outlet
Broadcasting has strategically reduced its annual costs for amortization of
film contracts. This was done by selectively replacing more costly programs
with increased local programming, particularly news, or by replacing such
costly programs with more popular and/or cost-effective programs. As a
result, programming expense at Outlet Broadcasting's VHF television stations
decreased by approximately 2% and 15% in 1994 and 1993, respectively.
During 1994, 1993 and 1992, Outlet Broadcasting recorded lump sum charges
of $598,000, $358,000 and $457,000, respectively, representing valuation
write-downs of certain film contracts. The 1994 and 1993 charges primarily
apply to "Who's the Boss" and the 1992 charge applies to "The Cosby Show",
licensed to WCMH-TV. The show is no longer an important producer of
revenue.
As a result of Outlet Broadcasting's increased production of local news
programs, total news department expenses at the VHF stations increased by
approximately 6% in 1994 after having increased by more than 4% in 1993.
Outlet Broadcasting believes that increasing its commitment to local
programs, while at the same time reducing its reliance on, and the term of,
purchased programming, will help increase its market share and improve
programming as well as provide cost flexibility.
Selling, general and administrative expenses of $13,774,000 in 1994
increased by $2,133,000 or 18.3% compared with $11,641,000 in 1993. The
addition of television stations WNCN-TV and WWHO-TV accounted for
approximately two-thirds of the total increase. The balance of the increase
primarily reflected higher sales commissions and incentive awards payable
because of Outlet Broadcasting's improved operating performance. In 1993,
selling, general and administrative expenses of $11,641,000 increased by
$482,000 or 4.3% compared with $11,159,000 in the prior year. The amount
for 1993 included added costs for employee benefits and uncollectible
customer accounts. As a percentage of revenue, selling, general and
administrative expenses declined to 23.2% in 1994 from approximately 24.7%
in each of the prior two years.
Depreciation expense and amortization of intangibles both increased in
1994 due to Outlet Broadcasting's recent investments in WNCN-TV and WWHO-TV.
Depreciation expense decreased in 1993 as certain asset values became fully
depreciated.
The favorable effect of increased revenue and controlled operating
expenses, in each of the last two years, provided a significant improvement
to operating income. In 1994, operating income of $20,175,000 increased by
$7,747,000 or 62.3% when
- 18 -
compared with operating income of $12,428,000 in 1993. This improvement
reflected a 26.6% increase in revenue reduced by a 13.7% increase in total
expenses. In 1993, operating income of $12,428,000 increased by $2,131,000
or 20.7% compared with $10,297,000 in 1992. As a percent of revenue, the
operating income for 1994 was 33.9% and exceeded the operating margins of
26.5% and 22.8% for 1993 and 1992, respectively.
Interest Expense
The following table summarizes interest expense for the last three years.
Dollars in thousands 1994 % Change 1993 % Change 1992
---------------------------------------------------------------------------------
Interest expense:
Loan and notes payable $8,467 14.5% $ 7,392 10.7% $ 6,680
Note to shareholder -0- - 4,016 (45.1%) 7,309
---------------------------------------------------------------------------------
Total $8,467 (25.8%) $11,408(a) (18.5%) $13,989
=================================================================================
(a) Net of capitalized interest of $225,000.
Total interest expense decreased in each of the last two years due to
(a) reductions made to outstanding debt over the same time period, and (b) a
1993 refinancing of Outlet Broadcasting's total debt with borrowings at a
lower rate of interest. Details of the 1993 refinancing are provided in the
discussion on net cash used by financing activities within this report.
Debt reductions included, in 1992, Outlet Broadcasting's repayment of
the outstanding balance of a former senior bank loan in the principal amount
of $3.3 million and open market purchases of its 13 1/4% Senior Subordinated
Notes (the "Senior Notes") in the amount of $6.8 million. Outlet
Broadcasting also paid off its outstanding mortgage debt of $2.8 million, in
1992, from the proceeds of a sale of real estate.
Interest expense on the note to shareholder represents the annual
accretion on the Junior Subordinated Note (the "Junior Note") payable to The
Mutual Benefit Life Insurance Company at its effective interest rate of
17.2%. Commencing in 1992, the terms of the debt instrument required an
annual cash interest payment of $6,250,000 based on a principal amount of
$50,000,000 and an annual interest rate of 12 1/2%.
- 19 -
Other Income (Expense) Items
Interest income principally represents earnings on invested cash.
Interest income declined in 1994 and 1993 due to lower average cash balances
and/or lower market interest rates. In 1992, interest income also included
interest received on tax refunds. In 1994 and 1992, other income
principally represents tower rental income and other miscellaneous items.
In 1993, other income principally represents a reversed accrual which
provided for Outlet Broadcasting's potential exposure in a music licensing
dispute that was settled that year.
Other expense in 1994 included approximately $260,000 as the cost of
employee stock options. Other expense in 1993 and 1992 included write-downs
of $117,000 and $165,000, respectively, attributable to an investment in a
television series, "Hennesey," which Outlet Broadcasting acquired pursuant
to a shared distribution venture. Outlet Broadcasting has attempted to
license the black and white television series to other broadcasters but has
not been successful in doing so.
In April 1993 Outlet Broadcasting moved corporate headquarters and
WJAR-TV to a newly acquired and renovated facility, located in Cranston,
Rhode Island, after having sold its former Providence facility in 1992. The
1992 sale of real estate resulted in a nonrecurring gain of $1,401,000.
The 1994, 1993 and 1992 income tax expenses of $660,000, $316,000 and
$128,000, respectively, represent the applicable current year's provision
for taxes. The 1994 provision for income taxes was reduced as the result of
an adjustment of prior year net operating losses. See Note 4 to the
Consolidated Financial Statements.
In 1993, an extraordinary loss of $1,826,000 or ($1.83) per share, net
of taxes, represented one-time debt extinguishment costs resulting from a
debt refinancing. See Notes 5 and 7 to the Consolidated Financial
Statements.
Effective January 1, 1993, Outlet Broadcasting adopted Financial
Accounting Standards Board (FASB) Statement No. 109, "Accounting for Income
Taxes", which requires a change to the liability method of accounting for
deferred income taxes. Adoption of Statement 109 resulted in a cumulative
effect of change in accounting principle, in the amount of $4,434,000 or
$4.43 per share, representing the recognition of previously unrecognized tax
benefits.
Outlet Broadcasting also adopted, as of January 1, 1993, FASB Statement
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." See Note 9 to the Consolidated Financial Statements. The effect
of adoption of Statement 106 was not material.
- 20 -
Outlet Broadcasting had net income for 1994 of $10,569,000 or $1.61 per
share. This compares with income before extraordinary loss and cumulative
effect of change in accounting principle, in 1993, of $2,026,000 or $.31 per
share. After giving effect to the extraordinary loss and change in
accounting principle, net income for 1993 amounted to $4,634,000 or $.71 per
share. In 1992 there was a net loss of $1,552,000 or ($.24) per share.
Liquidity and Capital Resources
In 1994, net cash provided by operations totalled $19,466,000. This
was an increase of $15,594,000 or 402.7% compared to $3,872,000 in 1993. In
1993, there was an improvement of $228,000 in net cash provided by
operations compared to 1992. The positive trend in net cash from operations
reflects the improved operating results described in "Results of
Operations." In addition, net cash from operations in 1994 reflects a one-
time payment of $5,000,000 received from NBC upon renewal of Outlet
Broadcasting's affiliation with that network. This amount has been reported
as deferred revenue and will be amortized into revenue over the six year
duration of the affiliation. The amount of deferred revenue to be amortized
over the ensuing period of twelve months is included in current liabilities.
The improved operating results also caused Outlet Broadcasting's
operating cash flow to increase. Operating cash flow of $25,555,000
increased by $8,279,000 or 47.9% compared to $17,276,000 in 1993. In 1992,
operating cash flow amounted to $15,285,000.
Over the last three years, Outlet Broadcasting's investment in film
contract rights has been at a relatively stable but reduced level. The
annual increases in film contracts during 1994, 1993 and 1992 amounted to
$4,149,000, $4,672,000 and $3,460,000, respectively. The increase for 1994
was partially attributable to WNCN-TV and WWHO-TV, the television stations
added during the year. Overall, the amounts invested in film contract
rights have enabled Outlet Broadcasting to maintain attractive programs on a
cost-effective basis. The result has been successful in that audience
levels have been retained, while investments in film contract rights have
been reasonable and manageable. In addition, since the number of viewing
hours committed to news shows has been expanded, the demand for film
acquisitions has been reduced.
Although Outlet Broadcasting is strategically committed to a reduced
investment in film contract rights, it has been selective in this process.
At December 31, 1994 Outlet Broadcasting had commitments to acquire
approximately $10,992,000 of film contract rights compared to commitments of
$3,492,000 at December 31, 1993. The increased commitment primarily
reflects Outlet Broadcasting's extended association with the Oprah Winfrey
Show, to the year 2000, in behalf of WJAR-TV. It was considered that the
total benefits to be derived from this program would provide a sound
economic return to the broadcast station.
- 21 -
The net decreases in film contracts payable of $1,773,000, $409,000 and
$2,497,000 in 1994, 1993 and 1992, respectively, reflect payments of film
contract obligations in accordance with the contracted terms and in the
normal course of business. Along with the reduced investment in film
contract rights, the payments contributed to the overall reduction in film
contracts payable at December 31, 1994.
Amortization of film contract rights reflect the normal write-off of
film contract values over the period of their use. The reported amounts for
the years 1992 through 1994 have trended lower and also include the
previously described lump-sum charges for valuation write-downs of certain
film contracts.
Cash interest payments for 1994, 1993 and 1992 were $8,096,000,
$13,071,000 (net of capitalized interest of $225,000) and $13,150,000,
respectively. The amount paid in 1994 includes interest of $1,571,000 on
Outlet Broadcasting's senior bank loan and interest of $6,525,000 on the
outstanding 10 7/8% Senior Subordinated Notes. The amount paid in 1993
includes interest of $6,769,000 on loan and notes payable (primarily the
Senior Notes), along with interest of $6,527,000 (two semi-annual
installments of $3,125,000 each plus accrued interest through date of
redemption) on the Junior Note. Cash interest payments on the Junior Note
commenced February 1, 1992 on a semi-annual basis.
Interest payments in 1992 included interest on the Senior Notes along
with interest on a senior loan and a mortgage loan. In 1992 there were also
cash interest payments required with respect to the Junior Note. Interest
payments also trended lower because of Outlet Broadcasting's 1992 purchase
of Senior Notes in open market transactions and because of repayments of
its senior loan and mortgage loan, both of which were fully repaid in 1992.
Accretion of debt discount of $649,000 and $1,059,000 in 1993 and 1992,
respectively, represent interest accrued on the Junior Note in excess of the
$6,250,000 payment, pursuant to the Junior Note's effective interest rate of
17.2%.
The increase in accounts receivable of $2,800,000 in 1994 primarily
results from the year's increased volume of business and the effect of two
added television stations. The 1994 increase in accrued expenses primarily
reflects employee related obligations, including those of the added
television stations, and an increase in commissions payable to third
parties.
In 1994, net cash used by investing activities totalled $9,932,000.
This included capital expenditures, for all four television stations, of
$3,385,000, and an investment of $1,055,000 pursuant to a local marketing
agreement entered into with the licensee of WWHO-TV. In addition, Outlet
Broadcasting purchased the assets and broadcast license of WNCN-TV for an
aggregate price of $5,478,000, including acquisition costs of approximately
$105,000.
- 22 -
In 1993, net cash used by investing activities of $5,907,000
represented capital expenditures for, primarily, completion of renovations
and improvements to Outlet Broadcasting's new corporate headquarters and
WJAR-TV broadcast facility in Cranston, Rhode Island. This amount also
included costs for equipping such facility with studio and technical
equipment.
In 1992, net cash provided by investing activities amounted to
$4,157,000. This included proceeds of $7.1 million received from the sale
of land and a building in Providence, Rhode Island. In connection with the
purchase and renovation of its new Cranston facility, as of December 31,
1992 Outlet Broadcasting incurred costs for construction in progress
totalling $2,062,000. This principally represented the cost of land,
building and partially completed improvements. Outlet Broadcasting made
additional capital expenditures in 1992 of $881,000, primarily for studio
and technical equipment.
Outlet Broadcasting's VHF television stations operate from modern
studio facilities and do not require significant amounts of capital to be
invested each year. However, in order for the UHF television stations to
maximize their operating potential, a considerable upgrading of the
facilities and equipment utilized by these stations is required. In order
to accomplish this, from the total planned capital expenditures for 1995 of
approximately $10,000,000 for all four television stations, approximately
$7,200,000 will be allocated to the UHF stations. Outlet Broadcasting
anticipates that these capital expenditures can be financed from funds
generated by internal operations. Outlet Broadcasting's senior bank lender
has agreed to waive any loan covenant restrictions that would otherwise have
limited the amount of capital expenditures for the year.
Net cash used by financing activities during 1994 amounted to
$3,450,000. This included payment of required quarterly installments
totalling $3,500,000 due on a term loan with Outlet Broadcasting's senior
bank lender. Also in 1994, a capital contribution of $50,000 was provided
to Outlet Broadcasting by its parent company.
In 1993, net cash used by financing activities amounted to $10,416,000.
During the year, Outlet Broadcasting undertook a refinancing of its total
debt and thereby obtained benefits from lower interest rates and extended
maturities on its subordinated borrowings along with improved financial
flexibility. Pursuant to the refinancing, on June 28, 1993 Outlet
Broadcasting entered into a Credit and Guaranty Agreement with a bank (the
"Senior Loan") under which the bank agreed to provide a secured senior
credit facility consisting of a term loan in the principal amount of
$25,000,000 and revolving loans in the maximum principal amount outstanding
of $5,000,000.
- 23 -
On July 15, 1993 Outlet Broadcasting completed a public offering of
10 7/8% Senior Subordinated Notes due 2003, in the principal amount of
$60,000,000. Proceeds of the public offering were used to prepay the
principal balance of the Junior Note due 1997 at its carrying value of
$43,946,000 plus accrued interest.
Also, on August 17, 1993 Outlet Broadcasting redeemed in full its
Senior Notes due 1997 in the principal amount of $44,150,000, at 105% of par
plus accrued interest. The premium payment on the redemption totalled
$2,207,000. Funds for the redemption included a balance remaining from the
above public offering along with available cash and funds provided by the
Senior Loan in the amount of $28,000,000. The interest rates applicable to
the public offering and the Senior Loan were less than the interest rates on
the Senior Notes and the Junior Note, resulting in a decrease in 1993
interest expense.
During 1993, Outlet Broadcasting repaid $5,000,000, net, against its
Senior Loan including term loan installments of $2,000,000. Overall, there
was a net decrease in long-term debt in 1993 of $4,447,000.
Costs incurred in connection with the debt refinancing, $3,151,000,
were capitalized to other assets. On a pretax basis, debt extinguishment
costs, comprised of the premium on debt refinancing - $2,207,000,
unamortized note costs of the redeemed debt - $555,000, and other - $4,000,
were reported as an extraordinary loss. A capital contribution of $38,000
was also provided to Outlet Broadcasting in 1993 by its parent company.
In 1992, net cash used by financing activities totalled $12,994,000.
This included a repayment of the outstanding balance of Outlet
Broadcasting's former senior loan in the amount of $3,310,000 which matured
on January 2, 1992. Outlet Broadcasting also paid its outstanding mortgage
loan in the amount of $2,859,000 upon sale of land and a building in
Providence, Rhode Island in 1992. In addition, Outlet Broadcasting
purchased an aggregate $6,825,000 face amount of its outstanding Senior
Notes in open-market transactions.
At December 31, 1994 Outlet Broadcasting had net working capital, or an
excess of current assets over current liabilities, in the amount of
$2,575,000. At December 31, 1993, there was an excess of current
liabilities over current assets in the amount of $1,776,000. The increase
in working capital during 1994 was directly attributable to Outlet
Broadcasting's improved results of operations. In summary, Outlet
Broadcasting's cash position increased by $6,084,000 during 1994. This
reflected funds provided by operations of $19,466,000 less aggregate funds
used in
- 24 -
investing and financing activities of $13,382,000. In 1993, a net decrease
of $12,451,000 in Outlet Broadcasting's cash position contributed to the
year's overall decrease in net working capital. The decrease primarily
resulted from funds used for completion of the Cranston headquarters and
broadcast studio along with funds used for debt reduction and debt
refinancing.
Under the provisions of its Senior Loan, Outlet Broadcasting has
available to it a revolving credit facility in the amount of $5,000,000.
Outlet Broadcasting expects that internally generated funds from operations
and amounts available under the revolving credit facility will provide
sufficient liquidity for Outlet Broadcasting to meet its ongoing operating
and capital expenditure needs.
In 1994, operating cash flow totalled $25,555,000 and the ratio of such
amount to interest expense of $8,467,000 was 3.0 to 1. In 1993, the ratio
of operating cash flow of $17,276,000 to interest expense of $11,408,000 was
1.5 to 1.
It is expected that 1995 operations, along with current cash on hand,
will provide sufficient funds to meet all cash requirements for that year,
including debt service. Outlet Broadcasting will continue to require
substantial cash flow from operations in order to service its debt. To the
extent that funds are committed to debt service, they will not be available
for other purposes, including capital expenditures, acquisitions or
distributions to stockholders.
- 25 -
Item 8. Financial Statements and Supplementary Data,
--------------------------------------------
The Financial Statements of Outlet Broadcasting appear on Pages F-1
through F-23 hereof.
Item 9. Changes in and Disagreements on Accounting and
----------------------------------------------
Financial Disclosure.
---------------------
None
- 26 -
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The current executive officers and directors of Outlet Broadcasting are
as follows:
Years with
Position with Outlet Communications
Name Age Outlet Broadcasting or Outlet Broadcasting
---- ---- ------------------- --------------------------------------------
James G. Babb 63 Chairman of the (3)
Board, President
and Chief Executive
Officer
Felix W. Oziemblewski 60 Vice President and 26
Chief Financial
Officer
Joanne E. Schenck 37 Secretary 20
Linda Sullivan 41 Vice President-- 10
General Manager
WJAR-TV
Douglas E. Gealy 34 Vice President-- (3)
General Manager
WCMH-TV
Letitia Baldrige 69 Director (5)
Julius Koppelman 78 Director (5)
Frank E. Walsh, Jr. 54 Director (5)
Frank E. Richardson 55 Director (5)
Robert C. Butler 64 Director (4)
Leonard Lieberman 66 Director (4)
James K. Makrianes 70 Director (4)
Stephen J. Carlotti 52 Director (3)
Frederick R. Griffiths 74 Director (2)
Solomon M. Yas 53 Director (2)
Victor H. Palmieri 65 Director (1)
-------------------
(1) Since 1993.
(2) Since 1992.
(3) Since 1991.
(4) Since 1988.
(5) Since 1986.
- 27 -
Set forth below is certain information with respect to Outlet
Broadcasting's current executive officers and directors.
James G. Babb
Mr. Babb was elected Chairman, President and Chief Executive Officer of
Outlet Broadcasting as of May 1, 1991. Before joining Outlet Broadcasting,
from November 1988 to January 1991, Mr. Babb was President of Jefferson-
Pilot Communications Company, an owner-operator of radio and television
broadcasting stations and broadcasting-related businesses. Prior thereto,
he served as Executive Vice President and Chief Operating Officer of that
company.
Felix W. Oziemblewski
Mr. Oziemblewski has been with Outlet Broadcasting since 1968, has
served as its Vice President and Chief Financial Officer since 1984 and has
served Outlet Broadcasting in those capacities since its formation in 1986.
Prior to joining Outlet Broadcasting, Mr. Oziemblewski, a certified public
accountant, was employed by Ernst & Young. He has been active in several
professional organizations.
Joanne E. Schenck
Ms. Schenck has been with Outlet Broadcasting since 1974 and has served
as its Personnel Administrator since 1985. She was appointed Secretary in
January 1992.
Douglas E. Gealy
Mr. Gealy was appointed Vice President-General Manager of WCMH-TV in
July 1991 and also made General Manager of WWHO-TV in April 1994. Prior to
joining Outlet Broadcasting, from 1989 to 1991, Mr. Gealy was President and
General Manager of WHOI-TV, Peoria, Illinois. Prior thereto, he was
associated with WKEF-TV Dayton, Ohio for five years where he became General
Sales Manager.
Linda Sullivan
Ms. Sullivan has been with Outlet Broadcasting since 1985. She was
appointed Vice President-General Manager of WJAR-TV in February 1991. From
1985 to 1986 she was the National Sales Manager for WJAR-TV and from 1986
until February 1991 she served that station as its General Sales Manager.
Letitia Baldrige
Since 1964, Ms. Baldrige has been the owner of Letitia Baldrige
Enterprises, Inc., a management training and public relations consulting
firm. She is an author, lecturer, and columnist. Ms. Baldrige is also a
director of Hartmarx Corporation, Federal Home Loan Bank of Atlanta and a
member of the board of numerous non-profit organizations.
Robert C. Butler
Mr. Butler has been Senior Vice President and Chief Financial Officer
of International Paper Company, a forest products company, since 1988. Mr.
Butler was a Group Executive Vice President of the National Broadcasting
Company ("NBC") from 1984 to 1988. From 1979 to 1984 he served as Executive
Vice President-Finance of NBC.
- 28 -
Stephen J. Carlotti
Mr. Carlotti is Managing Partner of Hinckley, Allen & Snyder, a
Providence, Rhode Island law firm, and has been a partner in that firm since
January 1992 and from May 1970 to July 1989. He was Senior Executive Vice
President, Chief Operating Officer and General Counsel of The Mutual Benefit
Life Insurance Company ("Mutual Benefit") from August 1989 to August 1991
and a consultant to Mutual Benefit from September 1991 to December 1991.
Frederick R. Griffiths
Mr. Griffiths is a retired former Vice President-Corporate Affairs of
Outlet Broadcasting for the period from 1976 to 1987. He previously served
in various administrative and creative capacities during a thirty year
affiliation with Outlet Broadcasting.
Julius Koppelman
Mr. Koppelman has been Chairman of the Board of Harding Service
Corporation ("Harding Service"), a management consulting firm, since 1985
and was previously Chairman of the Board of Harding Resources, Inc.
("Harding"), its predecessor. From 1982 to 1985, he was President of
Harding. For more than five years prior to September 1981, when he retired,
he was Executive Vice President and a director of RCA Corporation, a
communications and electronics company. Mr. Koppelman is also a director of
other companies, including Dyersburg Fabrics, Inc. and Princess House, Inc.
Leonard Lieberman
Mr. Lieberman was elected a director of Outlet Broadcasting in 1988.
Mr. Lieberman was elected on January 4, 1991 to serve as Chairman, President
and Chief Executive Officer of Outlet Broadcasting until he was succeeded by
Mr. Babb. Mr. Lieberman was President and Chief Executive Officer of
Supermarkets General Corporation from 1983 to 1987 and was Chairman of that
company from 1986 to 1987. He is also a director of other corporations,
including Celestial Seasonings, Inc., Republic New York Corporation, Sonic
Corp., The William Carter Company and La Petite Academy, Inc.
James K. Makrianes
Mr. Makrianes is a Director of Webb, Johnson Associates, an executive
search firm, since March 1995. He was formerly a Partner of Ward Howell
International, an executive search firm, from February 1989 to February
1995. Mr. Makrianes was President of Haley Associates, an executive
recruitment firm, from 1981 to 1987, and was Chairman of the Board of that
firm from 1987 to 1988.
- 29 -
Victor H. Palmieri
Mr. Palmieri has been Special Deputy Rehabilitator, Confederation Life
Insurance Company (U.S.) since August 1994. He was Deputy Rehabilitator and
Chief Executive Officer of Mutual Benefit from August 1991 to April 1994 and
from April 1994 to March 1995 he was President and Chief Executive Officer
of MBL Life Assurance Corp. Mr. Palmieri is also Chairman of The Palmieri
Company, a firm organized in 1969 to provide assistance in the management of
business and government institutions. He was engaged as Trustee and Chief
Executive Officer of Colorado-Ute Association, an electric utility, from
1990 to 1991 and completed a successful reorganization of that utility. He
is also a director of other corporations, including Ernst Home Center, Inc.,
The William Carter Company and Broadcasting Partners, Inc.
Frank E. Richardson
Mr. Richardson is President and a Director of Wesray Capital
Corporation ("Wesray"), a private investment banking firm of which he has
been an officer for over five years. He is a director of several other
corporations, including Alex. Brown & Sons, Dyersburg Fabrics, Inc., New
River Industries, Inc. and Sonic Corp.
Frank E. Walsh, Jr.
Mr. Walsh has been Chairman of Wesray since August 1989. Mr. Walsh was
Vice Chairman of Wesray from 1986 to 1989 and Executive Vice President of
Wesray from 1984 to 1986. He has been a director of Wesray since 1984. Mr.
Walsh is also a director of other companies, including Tyco Laboratories,
Inc.
Solomon M. Yas
Mr. Yas is a consultant in the field of Human Resources. He is a
former Vice President-Human Resources of Outlet Broadcasting, having served
from 1985 until retirement as of June 1, 1991. From 1964 to 1973, he was
Director of Personnel for ARA Services, Inc.
Item 11. Executive Compensation.
-----------------------
The following table sets forth certain information with respect to
compensation paid to the Chief Executive Officer and the most highly
compensated executive officers as to whom the total annual salary and bonus
earned exceeded $100,000 for the fiscal year ended December 31, 1994.
- 30 -
Summary Compensation Table
-------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
Shares
Other Under- All
Annual Restricted lying Other
Principal Compen- Stock Options Compen-
Name Position Year Salary Bonus(1) sation(2) Awards(3) Granted sation(4)
James G. Babb Chairman, 1994 $331,154 $225,000 $22,819 $ 0 90,000 $1,848
President 1993 294,615 200,000 23,014 0 0 0
and Chief 1992 266,442 160,000 15,066 67,500 30,000 0
Executive
Officer
Felix W. Oziemblewski Vice 1994 127,819 55,000 5,542 0 8,000 1,200
President- 1993 121,554 60,000 8,781 0 0 0
Chief 1992 116,319 40,700 7,165 22,500 10,000 0
Financial
Officer and
Treasurer
Douglas E. Gealy Vice 1994 146,538 60,000 4,660 0 12,000 1,558
President- 1993 133,077 65,000 5,101 0 0 0
General 1992 113,615 41,700 4,080 22,500 10,000 0
Manager
WCMH-TV
Linda W. Sullivan Vice 1994 124,808 50,000 4,386 0 12,000 1,200
President- 1993 111,539 57,500 5,138 0 0 0
General 1992 102,539 35,100 4,136 22,500 10,000 0
Manager
WJAR-TV
(1) Amounts represent incentive compensation awards. The amounts for 1993
also include one-time bonuses of $25,000 for Mr. Babb and $15,000 each
for Mr. Oziemblewski, Mr. Gealy and Ms. Sullivan, paid upon completion of
a successful debt refinancing.
(2) Amounts listed represent gross-up payments for tax liabilities. Excludes
perquisites and other benefits, unless the aggregate amount of these
items exceeds the lesser of either $50,000 or 10 percent of the total
annual salary and bonus reported for the named executive officer.
(3) As of December 31, 1994, total restricted stock awards of 71,500 shares
had been made pursuant to Outlet Communications' 1992 Stock Incentive
Plan. The value of the restricted stock awards shown in the table is
based on the market value of the shares on the date of grant of the
award, less the purchase price ($1.00 per share). The shares subject to
such awards vest in three equal annual installments commencing in August
1993. As of December 31, 1994, Mr. Oziemblewski and Mr. Gealy had each
purchased 6,666 shares and Ms. Sullivan had purchased 3,333 shares in
accordance with the terms of the original grant. As of December 31,
1994, the market value of outstanding restricted stock awards held by Mr.
Babb, Mr. Oziemblewski, Mr. Gealy and Ms. Sullivan, less the purchase
price ($1.00 per share), was $472,500, $52,510, $52,510 and $105,005 for
unpurchased shares, respectively. No restricted stock awards were made
in 1994.
(4) Amounts represent Outlet Broadcasting's contribution to the Outlet
Broadcasting, Inc. 401(k) and Profit Sharing Plan.
- 31 -
Stock Options
-------------
Outlet Communications currently maintains the 1992 Stock Incentive Plan
(the "Plan") as approved by stockholders on June 25, 1992, amended April 27,
1993. The Plan authorizes grants of either non-qualified or incentive stock
options, or awards of restricted shares, to key employees. The aggregate
number of shares of Common Stock available for awards under the Plan is
300,000 shares. The purpose of the Plan is to encourage stock ownership by
executives and thereby increase the executives' personal interest in Outlet
Broadcasting's continued success and progress. The Plan is administered by
the Compensation Committee of the Board of Directors, which determines the
terms of options granted, the exercise price and exercisability thereof.
The following table sets forth certain information regarding option grants
in the last fiscal year to the executive officers named in the Summary
Compensation Table.
- 32 -
Option Grants in Last Fiscal Year
---------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term(2)
------------------------------------------------------------------------------------------------------------------------
% of Total
Options
Shares Under- Granted to
lying Stock Employees Exercise
Options in Fiscal Price Expiration
Name Granted(1) Year Per Share Date 0% 5% 10%
------------------------------------------------------------------------------------------------------------------------
James G. Babb 45,000 29.1% $13.00 July 11, 2004 $ 0 $ 953,100 $1,517,400
" " 45,000 29.1% 1.00(3) July 11, 2004 540,000 1,493,100 2,057,400
Felix W. Oziemblewski 8,000 5.2% 15.75 Oct. 27, 2004 0 205,280 326,800
Douglas E. Gealy 12,000 7.8% 15.75 Oct. 27, 2004 0 307,920 490,200
Linda W. Sullivan 12,000 7.8% 15.75 Oct. 27, 2004 0 307,920 490,200
(1) Options become exercisable in three equal annual installments commencing one
year from grant date.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 0%, 5% and 10%
compounded annually from the date the respective options were granted.
(3) The market price per share at date of grant was $13.00.
- 33 -
The following table shows fiscal year-end option values for the
executive officers named in the Summary Compensation Table. No options were
exercised by such individuals during 1994.
Fiscal Year-end Option Values
Number
of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Year-End Year-End(1)
---------------------------------------------------------------------------
Exer- Unexer- Exer- Unexer-
Name cisable cisable cisable cisable
---------------------------------------------------------------------------
James G. Babb 30,000 90,000 $405,000 $877,500
Felix W. Oziemblewski 10,000 8,000 135,000 67,000
Douglas E. Gealy 10,000 12,000 135,000 100,500
Linda W. Sullivan 6,667 12,000 90,005 100,500
(1) Value is based on the last sales price per share ($16.75) on
December 31, 1994, as reported on the NASDAQ National Market
System, less the applicable option price.
Retirement Plans
Outlet Broadcasting maintains a non-contributory qualified retirement plan
(the "Retirement Plan") for the benefit of its employees, including the
individuals named in the Summary Compensation Table. As of August 31, 1994,
Outlet Broadcasting curtailed the Retirement Plan and suspended the accrual
of further benefits for all employees. The following table shows the
estimated annual benefits payable upon retirement to persons in specified
salary and bonus levels and years of credited service.
Compen-
sation Years of Service
-------------- -------------------------------------------------
15 20 25 30 35
-----------------------------------------------------------------
$125,000 $ 28,125 $ 37,500 $ 46,875 $ 56,250 $ 65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 39,375 52,500 65,625 78,750 91,875
200,000 45,000 60,000 75,000 90,000 105,000
225,000 50,625 67,500 84,375 101,250 118,125
250,000 56,250 75,000 93,750 112,500 118,800*
300,000 67,500 90,000 112,500 118,800* 118,800*
400,000 90,000 118,800* 118,800* 118,800* 118,800*
450,000 101,250 118,800* 118,800* 118,800* 118,800*
500,000 112,500 118,800* 118,800* 118,800* 118,800*
600,000 118,800* 118,800* 118,800* 118,800* 118,800*
-----------------------------------------------------------------
* Maximum annual benefit permitted under Section 415 of the
Internal Revenue Code.
Note - The estimated annual benefits shown in the above table may
be further limited due to the provisions of section 401(a)(17) of
the Internal Revenue Code.
- 34 -
The amounts payable shown in the preceding table are based on the
following assumptions: (i) the individual shall have retired at the normal
retirement age of 65, (ii) "compensation" is the average of the covered
compensation paid to such individual during the three calendar years in
which salary is the highest, (iii) covered compensation is salary and
bonuses paid to Plan participants, and for 1994 is shown in the Salary and
Bonus columns of the Summary Compensation Table, and (iv) benefits are paid
in the form of a straight-life annuity.
In addition to the Retirement Plan, the individuals named in the
Summary Compensation Table also participate in a non-qualified supplemental
retirement plan (the "Supplemental Plan") which provides a supplemental
benefit based on a percentage of final average compensation and years of
service, less benefits paid under the Retirement Plan and Social Security
benefits. The following table shows the estimated annual benefits payable
under the Supplemental Plan to persons in the specified salary and bonus
levels and years of credited service.
Compen-
sation Years of Service
-----------------------------------------------------------------
15 20 25 30 35
-----------------------------------------------------------------
$125,000 $ 21,875 $ 25,000 $ 15,625 $ 6,250 $ 0
150,000 26,250 30,000 18,750 7,500 0
175,000 30,625 35,000 21,875 8,750 0
200,000 35,000 40,000 25,000 10,000 0
225,000 39,375 45,000 28,125 11,250 0
250,000 43,750 50,000 31,250 12,500 6,200
300,000 52,500 60,000 37,500 31,200 31,200
400,000 70,000 81,200 81,200 81,200 81,200
450,000 78,750 106,200 106,200 106,200 106,200
500,000 87,500 131,200 131,200 131,200 131,200
600,000 121,200 181,200 181,200 181,200 181,200
-----------------------------------------------------------------
The amounts payable shown in the above table are based on the following
assumptions: (i) the individual shall have retired at the normal age of 65,
(ii) "compensation" is the average salary paid to such individual during the
three calendar years in which salary is the highest in the five years prior
to retirement, plus the average Executive Incentive Compensation award for
the highest three years during the ten years prior to retirement, (iii)
benefits are paid in the form of a straight-line annuity, (iv) estimated
annual payments are after deduction for Retirement Plan benefits, but before
any deduction for Social Security benefits. Covered compensation under the
Supplemental Plan is included in the Salary and Bonus columns of the Summary
Compensation Table.
As of December 31, 1994, for purposes of computing benefits under the
Retirement Plan and the Supplemental Plan, Mr. Babb has 3.4 years of
service, Mr. Oziemblewski has 25.9 years, Ms. Sullivan has 9.4 years, and
Mr. Gealy has 3.2 years.
- 35 -
On September 1, 1994 Outlet Broadcasting adopted the Outlet Broadcasting,
Inc. 401(k) and Profit Sharing Plan (the "401(k) Plan"). This plan is a
qualified 401(k) deferred compensation plan whose purpose is to enable
eligible employees to save for retirement. Eligible employees are those
employees who are not covered by a collective bargaining agreement, unless
the agreement allows for participation in the 401(k) Plan, and who have
completed one year of service and have attained age 21.
Eligible employees may contribute up to the lesser of 15% of taxable
compensation in each calendar year, excluding the taxable value of stock
options, fringe benefits or moving and other expense reimbursements, or
$9,240. All employee contributions are allocated to the employee's
individual account and, at the employee's election, are invested in money
market, fixed income or equity funds. Outlet Broadcasting will make
matching contributions in an amount equal to 25% of the employee
contributions but subject to a maximum employee contribution of 6% of
eligible compensation. Outlet Broadcasting's matching contributions vest
with the employee at the rate of 20% for each year of service. Outlet
Broadcasting may also make annual discretionary profit sharing contributions
in an amount to be determined by the Board of Directors at the end of each
calendar year. The maximum contributions allowed are limited by regulations
promulgated under the Internal Revenue Code.
Employment Contracts
Mr. James G. Babb entered into an employment agreement as Chairman,
President and Chief Executive Officer, effective January 1, 1993, for a term
of five years, as amended. The agreement provides for a base salary of
$345,000, as adjusted. The agreement also provides that Mr. Babb will be a
participant in the Executive Incentive Compensation Plan and that he will be
eligible to receive awards of stock options under Outlet Communications'
stock option plans. Mr. Babb is further eligible to receive additional
compensation in the event of a merger or sale of assets pursuant to which
Outlet Communications' stockholders receive value in excess of $9 per share.
In the event of termination without cause, Outlet Broadcasting will pay Mr.
Babb his compensation for twelve months or the remaining portion of his
employment period, whichever is greater.
- 36 -
Mr. Douglas E. Gealy entered into an employment agreement as Vice
President-General Manager of WCMH-TV in May 1993 which remains in effect
until April 30, 1996. The contract provides for a base salary of $150,000
per annum, as adjusted, and also provides that the employee will be a
participant in the Executive Incentive Compensation Plan. Ms. Sullivan
entered into an employment agreement as Vice President-General Manager of
WJAR-TV, effective January 1, 1995, which remains in effect until December
31, 1996. The agreement provides for a base salary of $130,000 and also
provides that the employee will be a participant in the Executive Incentive
Compensation Plan. The employment contract of Mr. Oziemblewski with Outlet
Broadcasting expired as of March 31, 1992. The contract provides, however,
that if employment is terminated other than for cause, death or disability
within a five-year period following the term of the contract, Outlet
Broadcasting will pay a minimum of one year base salary as severance
payment. At December 31, 1994 this amounted to $130,000. In the event of a
merger of Outlet Communications or Outlet Broadcasting, or acquisition of
50% of their voting securities, or any other change in control, the
contracts are deemed to have been assigned to the successor entity.
Compensation Committee Interlocks and Insider Participation
Mr. Koppelman serves as Chairman and Messrs. Butler, Richardson and Walsh
and Ms. Baldrige serve as members of the Compensation Committee of the
Board. No member of the Compensation Committee is a current or former
officer or employee of Outlet Broadcasting or any of its subsidiaries. All
members of the Compensation Committee except Ms. Baldrige were designated by
Wesray pursuant to the Stockholders' Agreement described below under
"Certain Relationships and Related Transactions-Stockholders' Agreement."
Messrs. Richardson and Walsh are stockholders and Messrs. Koppelman,
Richardson and Walsh are directors of Harding Service, which provides
management consulting services to Outlet Broadcasting pursuant to an
agreement entered into in July 1986. Under the agreement, Harding Service
has agreed to provide Outlet Broadcasting with general management, corporate
finance, marketing and business investment advice until July 1996. Such
advice includes reviewing capital and operating budgets, capital
appropriations, executive compensation and employee incentive programs,
business strategies, budgeting and forecasting, and general corporate
planning and financial oversight. Harding Service provides management
consulting services to several other entities affiliated with Wesray. In
consideration of the consulting services, Outlet Broadcasting has agreed to
pay consulting services fees equal to 0.333% of annual gross revenues to
Harding Service, which fees totalled $236,630 in 1994. This agreement was
entered into when Outlet Communications was privately held and may not be on
terms as favorable to Outlet Broadcasting as could have been obtained from
an unaffiliated party.
- 37 -
Compensation Committee Report
The Compensation Committee of the Board of Directors of Outlet
Broadcasting, Inc. (the "Committee") herein presents the following report on
executive compensation:
Outlet Broadcasting maintains a Salary Administration Program of which
the primary purpose is to ensure that Outlet Broadcasting has a credible,
logical and consistent process for making salary decisions. The existence
of such a program enables Outlet Broadcasting to determine that each
executive receives a fair and reasonable salary for the level of work
performed and for the quality of that work. The program also directly
associates executive compensation with company performance.
Executive Compensation Policy. It is the policy of Outlet Broadcasting to
provide executive compensation that is equitable and competitively
attractive. In addition, executive compensation should be related to
improvements in corporate operating performance. Thus, compensation will be
established at levels that are fair and objectively determined and, through
incentives tied in to performance objectives, will be directly connected
with increases in the company's value for the ultimate benefit of the
shareholders.
Base Compensation. The Salary Administration Program, as it pertains to
base compensation, includes the following elements:
. Job Evaluation Establishes the economic value of each job and relates
the valuation to both the marketplace and other jobs. This results in
the development of a salary range for each level of work.
. Performance Appraisal Provides for a fair and equitable review of job
performance, conducted on a regular basis.
. Performance Planning Combines pay programs with fulfillment of operating
goals and/or financial objectives.
- 38 -
The Committee considers that the salary range levels developed for the
executive officers are reasonable and competitive. Actual salaries are
based on the established salary range as further adjusted within that range
by individual performance contributions. During fiscal 1994, Outlet
Broadcasting exhibited substantial growth and continued its favorable
performance trends. Operating results in 1994 were marked by significant
increases in revenue, operating income and net income. Outlet
Broadcasting's financial performance also improved with reductions in long-
term debt and interest expense. There was a substantial increase in
stockholders' equity. Also in 1994, Outlet Broadcasting added two
independent UHF television stations to its operations. In recognition of
Outlet Broadcasting's overall positive performance, the Committee granted
the executive officers named in the Summary Compensation Table (the "Named
Executives") an increase in base salary.
Executive Incentive Compensation Plan Key management employees are eligible
to participate in Outlet Broadcasting's Executive Incentive Compensation
Plan. Participants are selected based on ability to affect profitability,
with awards based primarily on the attainment of certain annual operating
objectives. The plan is intended to reward specific operating
accomplishments and provide competitive levels of compensation for the
attainment of those financial objectives. In particular, the plan aims to
focus activities toward optimum and steady earnings growth which, the
Committee believes, are primary determinants of stockholder value over
time. Under the plan, target awards are established for executive officers
as a percentage of their base salary range. The targeted awards are subject
to decrease or increase based on actual performance and at the discretion of
the Committee. The Committee may also grant discretionary awards to certain
key employees. During 1994, Outlet Broadcasting exceeded its financial
performance objectives and incentive compensation awards were made to the
Named Executives as shown in the Summary Compensation Table, to be paid in
1995.
Stock Incentive Program The Committee believes that by encouraging stock
ownership in Outlet Communications by executives, it serves to increase the
executives' personal interest in Outlet Broadcasting's continued success and
progress. Therefore, executives are eligible to receive stock options
and/or restricted shares, giving them the right to purchase shares of Common
Stock of Outlet Communications at a specified price in the future. The size
of individual stock grants is based upon job responsibility and individual
contribution to Outlet Broadcasting's success. Previous stock option grants
are considered when awards are determined.
In view of the substantial improvement in operating and financial
results over the past three year period, and to provide additional
incentives to further improve Outlet Broadcasting's performance in 1995 and
beyond, individual stock options were granted in 1994 to the Named
Executives and other key employees. In granting these options, the
individuals were provided with an immediate financial interest in increasing
stockholder value.
- 39 -
In addition, the Committee, subject to shareholder approval, has
approved an amendment to the 1992 Stock Incentive Plan to increase the
number of shares of Common Stock available thereunder by 300,000 shares,
which shares would then be used for future stock option grants or restricted
share awards.
Compensation for the Chairman and Chief Executive Officer Mr. James G.
Babb, Chairman, President and Chief Executive Officer joined Outlet
Broadcasting in May 1991. His employment agreement was structured to
provide Mr. Babb with a competitive base salary, subject to annual review,
along with an annual incentive opportunity. In considering Mr. Babb's
compensation for 1994, the Committee reviewed such compensation arrangements
and further reviewed the trend of the company's operating performance during
the year. It was noted that the company significantly exceeded its
financial operating objectives for 1994. In particular, the Committee noted
that the 1994 financial performance as measured by various factors,
including revenue growth, expense control, operating income and net income
per share, was a continuation of Outlet Broadcasting's significantly
improved financial performance since 1992. The Committee also noted that
Outlet Broadcasting successfully added two independent UHF television
stations to its operations in 1994.
Because of the growth and considerable success enjoyed by Outlet
Broadcasting in its 1994 operating results, and because its accomplishments
will further serve to benefit long-term business prospects, the Committee
has made the following determinations regarding the compensation of Mr.
Babb:
. Upon annual review, Mr. Babb's base salary was increased from $305,000
per year to $345,000 per year.
. Under the annual incentive compensation plan, an incentive award of
$225,000 was accrued for fiscal 1994.
. Under the 1992 Stock Incentive Plan, non-qualified and incentive stock
options were awarded for an aggregate 90,000 shares of Outlet
Communications' Common Stock, of which 45,000 are exercisable at $13.00
per share (fair market value on date of grant) and 45,000 are exercisable
at $1.00 per share. The Committee approved the discounted options for
Mr. Babb to reflect his importance to the company's future success.
- 40 -
Limitations on the Deductibility of Compensation Pursuant to the 1993
Omnibus Budget Reconciliation Act, a portion of annual compensation payable
after 1993 to any of the five highest paid executive officers is not
deductible for federal income tax purposes to the extent such officer's
overall compensation exceeds $1 million. Qualifying performance-based
incentive compensation, however, is both deductible and excluded for
purposes of calculating the $1 million base. Outlet Broadcasting has
determined that no portion of anticipated compensation payable to any
executive officer in 1995 will be non-deductible. Compensation includes the
"spread" or excess of the fair market value of the shares received upon
exercise of a stock option over the exercise price. The spread on the
discounted stock options granted to Mr. Babb in 1994 will not constitute
qualified performance-based compensation. Accordingly, the amount of
compensation attributable to such spread will not be deductible for federal
income tax purposes to the extent that Mr. Babb's total compensation (other
than qualifying performance-based compensation) exceeds $1 million in any
year. This is likely to occur if the stock price continues to increase or
if Mr. Babb exercises a substantial portion of the discounted options in a
single year. The Committee has determined that the negative impact of the
loss of deductibility for a portion of this non-cash compensation expense is
outweighed by the need to compensate Mr. Babb appropriately and adequately
for his contributions to Outlet Broadcasting's success and to recognize his
importance to long-term business prospects. The Committee will continue to
address the issue of deductibility in formulating compensation arrangements
for executive officers.
Summary All members of the Committee are nonemployee directors who are
independent of any relationships with any executive. As described above,
the Committee believes that the Salary Administration Program for executives
is competitive and that the executive compensation programs include variable
compensation opportunities that are based on achievements of financial
objectives and enhancements in shareholder value.
Compensation Committee: Julius Koppelman, Chairman, and Members Letitia
Baldrige, Robert C. Butler, Frank E. Richardson and Frank E. Walsh, Jr.
- 41 -
Performance Graph
The following performance graph compares the performance of Outlet
Communications' Common Stock to the Total Return Index for the Nasdaq Stock
Market (U.S. Companies) and to the Nasdaq Telecommunications Stocks Index
for the last five fiscal years. The graph assumes that the value of the
investment in Outlet Communications' Common Stock and each index was $100 at
December 31, 1989 and all dividends were reinvested.
A paper copy of the performance graph has been filed under cover of Form SE.
Fiscal Year Ended December 31,
----------------------------------
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
Outlet Communications 100 34 17 16 42 67
Nasdaq Total
Return
Index (US) 100 85 136 159 181 177
Nasdaq Tele-
communications
Stocks Index 100 67 93 114 176 146
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management.
---------------
All of the issued and outstanding shares of capital stock of Outlet
Broadcasting are owned by Outlet Communications.
- 42 -
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
Stockholders' Agreement Outlet Communications, Outlet Broadcasting, and each
of Outlet Communications' original stockholders (including MBL Life
Assurance Corp., successor to Mutual Benefit) and certain of their
successors and assigns are parties to a stockholders' agreement (the
"Stockholders' Agreement"). As of March 17, 1995, an aggregate of 4,156,579
shares of Outlet Communications Common Stock were beneficially owned by the
parties to the Stockholders' Agreement. The Stockholders' Agreement requires
that the stockholders party to the Stockholders' Agreement vote their shares
to fix the number of directors of Outlet Communications at 14 and elect as
directors five persons designated by certain management stockholders (the
"Management Stockholders") and nine persons designated by the stockholders
affiliated with Wesray (the "Wesray Stockholders"). The following persons
are parties to the Stockholders' Agreement: Hugh J. Byrnes, Richard D.
Ferrier, Maria E. Ferrier, The Hartington Trust, Keith Hightower, John D.
Howard, Julius Koppelman, Frank H. Pearl and selected trust, Frank E.
Richardson, E. Burke Ross, Jr., William E. Simon, Manfred L. Steyn, Henrik
N. Vanderlip, The OCI Trust, (Wesray Stockholders), Reginald Butts, Steve J.
Caminis, Charles G. Conklin, Estate of David E. Henderson and related
trusts, Frederick R. Griffiths, Thomas J. Mosher, Felix W. Oziemblewski,
Gerald T. Plemmons, Josephine Renola, Garland R. Robinson, John D. Sawhill,
Gerald Scher, Mara L. Snodgrass, Solomon M. Yas, Joseph A. Young (Management
Stockholders) and MBL Life Assurance Corp.
The Stockholders' Agreement also provides that each stockholder and MBL Life
Assurance Corp. may not agree to sell any securities to a buyer who would as
a result of such purchase own more than 50% of the outstanding Common Stock
of Outlet Communications unless prior to such sale the buyer agrees to be
bound by the Stockholders' Agreement and affords each stockholder the
opportunity to sell a pro rata portion of his shares on the same terms and
conditions.
The Stockholders' Agreement terminates on the earlier of (i) December 9,
1996; (ii) the date that the Wesray Stockholders, Management Stockholders
and MBL Life Assurance Corp. own an aggregate of less than 50% of Outlet
Communications issued and outstanding Common Stock; and (iii) the date of an
event of bankruptcy or insolvency of Outlet Communications or Outlet
Broadcasting or foreclosure or similar actions or proceedings by the senior
bank lender. Mutual Benefit was placed in rehabilitation by the New Jersey
Commissioner of Insurance on July 16, 1991 and is currently in liquidation.
MBL Life Assurance Corp. is the transferee of certain assets formerly held
by Mutual Benefit, including the holdings of Mutual Benefit in Outlet
Communications' Common Stock.
Management Consulting Agreement In July 1986, Outlet Broadcasting entered
into an agreement for management consulting services with Harding Service,
of which Mr. Richardson and Mr. Walsh are stockholders and Messrs.
Koppelman, Richardson and Walsh are directors. For a description of the
agreement with Harding Service, see "Compensation Committee Interlocks and
Insider Participation."
- 43 -
Transactions with the Law Firm of Hinckley, Allen & Snyder The law firm of
Hinckley, Allen & Snyder of which Mr. Carlotti, a director of Outlet
Broadcasting, is Managing Partner, provided legal services to Outlet
Broadcasting during fiscal year 1994.
Future Transactions with Affiliates
It is the policy of Outlet Broadcasting with respect to future
transactions with persons or entities affiliated with officers, directors,
employees, or stockholders of Outlet Broadcasting which relate to the
operation of the business of Outlet Broadcasting, that any such transactions
shall be on terms no less favorable to Outlet Broadcasting than could have
reasonably been obtained in arms-length transactions with independent third
parties and shall also be approved by a majority of the independent and
disinterested directors of Outlet Broadcasting. It is also the policy of
Outlet Broadcasting that any loans made in the future to officers,
employees, directors, stockholders, or affiliates of Outlet Broadcasting
must be approved by a majority of the independent and disinterested
directors of Outlet Broadcasting.
- 44 -
PART IV
Item 14. Exhibit, Financial Statement Schedules, and Reports on
------------------------------------------------------
Form 8-K.
---------
(a). (1) Financial Statements and Schedules
The following Consolidated Financial Statements of Outlet
Broadcasting, Inc., appear on pages F-1 through F-23 hereof.
Consolidated Balance Sheets as of December 31, 1994, and
1993.
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992.
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992.
Notes to Consolidated Financial Statements -- December 31,
1994.
(2) The following Financial Statement Schedules of Outlet
Broadcasting, Inc. are included herein.
For the years ended December 31, 1994, 1993 and 1992:
Page Herein Schedule
----------- --------
S-1 Schedule II -- Valuation and Qualifying
Accounts
All supporting schedules other than the above have been omitted because they
are not required or the information to be set forth therein is included in
the financial statements or in the notes thereto.
(b). Reports on Form 8-K. None.
(c). Exhibits (an exhibit index immediately preceding the exhibits
indicates the page number where each exhibit can be found).
- 45 -
Outlet Broadcasting will furnish, upon request, any exhibit listed
herein upon the payment of a fee not to exceed reasonable expenses incurred
by Outlet Broadcasting in furnishing such exhibit.
3. (a) Certificate of Incorporation*, as amended,
December 17, 1987;**and September 19, 1989;***
(b) By-Laws;**
4. Indenture, dated as of July 8, 1993 between Outlet
Broadcasting, Inc. and Bankers Trust Company, as
Trustee, governing Outlet Broadcasting, Inc. 10 7/8%
Senior Subordinated Notes Due 2003;***
10. Material contracts:
(a) Agreement for Management Consulting Services, dated
July 31, 1986, by and between Harding Service Corporation
and Outlet Communications, Inc.;*(1)
(b)(i) Stockholders' Agreement, dated December 10, 1986, by
and among Outlet Communications, Inc.; Outlet
Broadcasting, Inc. and the persons named therein
(the Stockholders' Agreement);***
(b)(ii) Amendment No. 1, dated as of December 1, 1987, to
the Stockholders' Agreement;***
(b)(iii) Agreement dated July 26, 1988, by and among Outlet
Communications, Inc.; Outlet Broadcasting, Inc.
and the persons named therein amending the
Stockholders' Agreement;***
(c) Credit and Guaranty Agreement dated as of June 28,
1993 among Outlet Broadcasting, Inc. and Outlet
Communications, Inc. and Fleet National Bank;***
(d) Supplemental Retirement Plan;***(1)
(e) 1992 Stock Incentive Plan, as amended and
restated;***(1)
(f)(i) Employment Agreement, dated April 1, 1989, among
Felix W. Oziemblewski and Outlet Broadcasting, Inc.
and Outlet Communications, Inc.;****(1)
(f)(ii) Employment Agreement, dated January 1, 1995, among
Linda Sullivan and Outlet Broadcasting, Inc.
and Outlet Communications, Inc.;********(1)
(f)(iii) Employment Agreement, dated May 1, 1993 among
Douglas E. Gealy and Outlet Broadcasting, Inc. and
Outlet Communications, Inc.***(1)
(f)(iv) Employment Agreement, dated January 1, 1993, between
James G. Babb and Outlet Communications, Inc.;******
as amended December 17, 1993;*******(1)
(f)(v) Employment Agreement, dated January 1, 1995, among
Adam G. Polacek and Outlet Broadcasting, Inc.
and Outlet Communications, Inc.;********(1)
(f)(vi) Employment Agreement, dated January 1, 1995 among
Steven Soldinger and Outlet Broadcasting, Inc. and
Outlet Communications, Inc.********(1)
(g) Lease Agreement dated as of September 27, 1982
between WBNS-TV and Outlet Broadcasting, Inc.
regarding tower facility of WCMH;***
(h) Station Affiliation Agreement, dated as of
September 1, 1994, between WB Communications and
Outlet Broadcasting;********
- 46 -
(i) Time Brokerage Agreement dated as of March 18,
1994 among Outlet Broadcasting, Inc. and Fant
Broadcasting Company of Ohio, Inc. and Outlet
Communications, Inc.********
(j) Press Release, dated March 21, 1995, announcing
the retention of a financial advisor to explore
strategic alternatives.********
22. Subsidiaries of the Registrant:
Outlet Productions, Inc.; Biltout, Inc.; and WATL-TV
Pro Wrestling, Inc.
__________________
* Incorporated by reference from the Registration
Statement on Form S-1, Registration No. 33-9442, declared
effective by the Securities and Exchange Commission on January 21,
1987.
** Incorporated by reference from Current Report on
Form 10-K for the year ended December 31, 1987.
*** Incorporated by reference from Outlet Broadcasting,
Inc. Registration Statement on Form S-1, Registration No. 33-62292, declared
effective by the Securities and Exchange Commission on July 8, 1993.
**** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1989.
***** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1990.
****** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1992.
******* Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1993.
******** Filed herewith.
________________________________________________
(1) Management contract or compensatory plan or arrangement.
- 47 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the registrant has duly caused this report to be
signed on behalf by the undersigned, thereunto duly authorized.
OUTLET BROADCASTING, INC.
/s/ James G. Babb
-------------------------------
By: James G. Babb
Chairman of the Board,
President and Chief
Executive Officer
Dated: March 27, 1995
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.
Signature Title Date
--------- ----- ----
Principal Executive
Officer:
/s/ James G. Babb Chairman of the March 27, 1995
----------------------- Board, President,
James G. Babb Chief Executive
Officer, and
Director
Principal Financial and
Accounting Officer:
/s/ Felix W. Oziemblewski Vice President and March 27, 1995
-------------------------- Chief Financial
Felix W. Oziemblewski Officer
- 48 -
Directors:
/s/ Letitia Baldrige Director March 27, 1995
-------------------------
Letitia Baldrige
/s/ Robert C. Butler Director March 27, 1995
-------------------------
Robert C. Butler
/s/ Stephen J. Carlotti Director March 27, 1995
-------------------------
Stephen J. Carlotti
/s/ Frederick R. Griffiths Director March 27, 1995
--------------------------
Frederick R. Griffiths
/s/ Julius Koppelman Director March 27, 1995
--------------------------
Julius Koppelman
/s/ Leonard Lieberman Director March 27, 1995
---------------------------
Leonard Lieberman
/s/ James K. Makrianes Director March 27, 1995
---------------------------
James K. Makrianes
/s/ Victor H. Palmieri Director March 27, 1995
---------------------------
Victor H. Palmieri
/s/ Frank E. Richardson Director March 27, 1995
---------------------------
Frank E. Richardson
/s/ Frank E. Walsh, Jr. Director March 27, 1995
---------------------------
Frank E. Walsh, Jr.
/s/ Solomon M. Yas Director March 27, 1995
---------------------------
Solomon M. Yas
- 49 -
Report of Independent Auditors
Board of Directors
Outlet Broadcasting, Inc.
We have audited the accompanying consolidated balance sheets of Outlet
Broadcasting, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the three years in the period ended December 31, 1994. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and the schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Outlet Broadcasting, Inc. and subsidiaries at December 31, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
As discussed in Notes 4 and 9 to the financial statements, in 1993 the Company
changed its method of accounting for income taxes and postretirement benefits
other than pensions.
ERNST & YOUNG LLP
Providence, Rhode Island
February 10, 1995
F-1
Outlet Broadcasting, Inc.
Consolidated Balance Sheets
December 31
1994 1993
------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 7,840,000 $ 1,756,000
Trade accounts receivable, less allowance for
doubtful accounts of $321,000 in 1994 and
$300,000 in 1993 13,640,000 10,840,000
Film contract rights 3,350,000 3,769,000
Other current assets 1,171,000 793,000
-----------------------------------------
Total Current Assets 26,001,000 17,158,000
Other Assets
Film contract rights 1,012,000 2,093,000
Deferred financing costs and other 3,399,000 3,385,000
-----------------------------------------
4,411,000 5,478,000
Property and Equipment
Land 1,899,000 1,832,000
Buildings 10,967,000 10,474,000
Fixtures and equipment 36,766,000 31,491,000
-----------------------------------------
49,632,000 43,797,000
Less accumulated depreciation 27,115,000 25,674,000
-----------------------------------------
22,517,000 18,123,000
Intangible Assets 76,999,000 76,852,000
-----------------------------------------
$129,928,000 $117,611,000
=========================================
F-2
December 31
1994 1993
--------------------------------------
Liabilities and Stockholder's Equity
Current Liabilities
Trade accounts payable $ 801,000 $ 153,000
Accrued expenses 10,394,000 8,894,000
Film contracts payable 4,174,000 4,187,000
Deferred revenue 833,000
Federal and state income taxes 2,724,000 2,200,000
Current portion of long-term debt 4,500,000 3,500,000
--------------------------------------
Total Current Liabilities 23,426,000 18,934,000
Long-Term Debt
Loan payable 15,000,000 19,500,000
Notes payable 60,000,000 60,000,000
--------------------------------------
75,000,000 79,500,000
Other Liabilities
Film contracts payable 1,019,000 2,754,000
Unfunded pensions 2,355,000 2,652,000
Deferred revenue 3,889,000
Deferred income taxes 4,403,000 4,554,000
Other 3,432,000 3,432,000
--------------------------------------
15,098,000 13,392,000
Stockholder's Equity
Capital stock 10,000 10,000
Capital surplus 32,532,000 32,482,000
Accumulated deficit (16,138,000) (26,707,000)
--------------------------------------
16,404,000 5,785,000
--------------------------------------
$129,928,000 $117,611,000
======================================
See accompanying notes.
F-3
Outlet Broadcasting, Inc.
Consolidated Statements of Operations
Year ended December 31
1994 1993 1992
----------------------------------------------------------------
Net revenue $59,442,000 $46,952,000 $45,153,000
Operating expenses:
Technical, programming and news 20,113,000 18,035,000 18,709,000
Selling, general and administrative 13,774,000 11,641,000 11,159,000
Depreciation 2,775,000 2,488,000 2,628,000
Amortization of intangibles 2,605,000 2,360,000 2,360,000
----------------------------------------------------------------
39,267,000 34,524,000 34,856,000
----------------------------------------------------------------
Operating income 20,175,000 12,428,000 10,297,000
Interest expense:
Loan and notes payable (8,467,000) (7,392,000) (6,680,000)
Note payable to shareholder (4,016,000) (7,309,000)
Other income (expense):
Interest income 141,000 239,000 910,000
Other income 276,000 1,694,000 574,000
Other expense (896,000) (611,000) (617,000)
----------------------------------------------------------------
Total interest and other income (expense) (8,946,000) (10,086,000) (13,122,000)
----------------------------------------------------------------
Income (loss) before items noted below 11,229,000 2,342,000 (2,825,000)
Nonrecurring items, net 1,401,000
----------------------------------------------------------------
Income (loss) before income taxes,
extraordinary loss and cumulative
effect of change in accounting principle 11,229,000 2,342,000 (1,424,000)
Income taxes 660,000 316,000 128,000
----------------------------------------------------------------
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting principle 10,569,000 2,026,000 (1,552,000)
Extraordinary loss, net (1,826,000)
Cumulative effect of change in method of
accounting for income taxes 4,434,000
----------------------------------------------------------------
Net income (loss) $10,569,000 $ 4,634,000 $(1,552,000)
================================================================
F-4
Outlet Broadcasting, Inc.
Consolidated Statements of Operations (continued)
Year ended December 31
1994 1993 1992
----------------------------------------------
Income (loss) per share:
Before extraordinary loss and
cumulative effect of change in
accounting principle $10.57 $2.03 $(1.55)
Extraordinary loss, net (1.83)
Cumulative effect of change in
method of accounting for income
taxes 4.43
----------------------------------------------
Net income (loss) per share $10.57 $4.63 $(1.55)
==============================================
See accompanying notes.
F-5
Outlet Broadcasting, Inc.
Consolidated Statements of Stockholder's Equity
Class A Common Stock
---------------------------
Number of Par Capital Accumulated
Shares Value Surplus Deficit Total
-----------------------------------------------------------------------------------
Balances at December 31, 1991 1,000,000 $10,000 $32,444,000 $(29,789,000) $ 2,665,000
Net loss (1,552,000) (1,552,000)
-----------------------------------------------------------------------------------
Balances at December 31, 1992 1,000,000 10,000 32,444,000 (31,341,000) 1,113,000
Contribution of capital 38,000 38,000
Net income 4,634,000 4,634,000
-----------------------------------------------------------------------------------
Balances at December 31, 1993 1,000,000 10,000 32,482,000 (26,707,000) 5,785,000
Contribution of capital 50,000 50,000
Net income 10,569,000 10,569,000
-----------------------------------------------------------------------------------
Balances at December 31, 1994 1,000,000 $10,000 $32,532,000 $(16,138,000) $16,404,000
===================================================================================
See accompanying notes.
F-6
Outlet Broadcasting, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1994 1993 1992
-----------------------------------------------
Operations:
Net income (loss) $10,569,000 $ 4,634,000 $(1,552,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operations:
Depreciation and amortization 5,380,000 4,848,000 4,988,000
Amortization of other assets 365,000 272,000 402,000
Accretion of debt discount 649,000 1,059,000
Change in accounting principle (4,434,000)
Extraordinary loss--net 1,826,000
(Decrease) increase in deferred
taxes (151,000) 1,186,000 423,000
Increase in accounts receivable (2,800,000) (1,010,000) (302,000)
Amortization of film contract
rights 5,662,000 5,633,000 6,995,000
Increase in prepaid film contract
rights (4,149,000) (4,672,000) (3,460,000)
(Increase) decrease in other
current assets (369,000) 395,000 (105,000)
Increase (decrease) in accounts
payable and accrued expenses 2,148,000 (3,575,000) (1,543,000)
Decrease in film contracts payable (1,773,000) (409,000) (2,497,000)
Increase in deferred revenue 4,722,000
Increase (decrease) in income
taxes payable 524,000 (984,000) 943,000
Gain on sale of real estate (1,401,000)
Other (662,000) (487,000) (306,000)
-----------------------------------------------
Net Cash Provided by Operations 19,466,000 3,872,000 3,644,000
F-7
Outlet Broadcasting, Inc.
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1994 1993 1992
-------------------------------------------------
Investing:
Capital expenditures--net of disposals (3,385,000) (5,907,000) (2,943,000)
Investment in local marketing
agreement (1,055,000)
Acquisition of broadcast station (5,478,000)
Proceeds from sale of real estate 7,100,000
Other (14,000)
-------------------------------------------------
Net Cash (Used) Provided by
Investing (9,932,000) (5,907,000) 4,157,000
Financing:
Issuance of notes payable 60,000,000
Proceeds from issuance of term loan 25,000,000
Payment of loan payable (3,500,000) (2,000,000)
Payment of mortgage (2,859,000)
Payment of long-term debt (44,150,000) (3,310,000)
Repurchase of debt (6,825,000)
Redemption of note payable to
shareholder (43,946,000)
Contribution of capital 50,000 38,000
Debt refinancing costs (3,151,000)
Premium on debt refinancing (2,207,000)
-------------------------------------------------
Net Cash Used by Financing (3,450,000) (10,416,000) (12,994,000)
-------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 6,084,000 (12,451,000) (5,193,000)
Cash and cash equivalents at
beginning of year 1,756,000 14,207,000 19,400,000
-------------------------------------------------
Cash and Cash Equivalents at End
of Year $7,840,000 $1,756,000 $14,207,000
================================================
See accompanying notes.
F-8
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements
December 31, 1994
1. Basis of Presentation
Outlet Broadcasting, Inc. (the Company) is a wholly-owned subsidiary of
Outlet Communications, Inc. (the Parent Company). The consolidated financial
statements include the accounts of Outlet Broadcasting, Inc. (the Company)
and its wholly-owned subsidiaries. At December 31, 1994, the Company's
operations consist of two owned VHF television stations and one owned UHF
television station along with one UHF television station operated under
a local marketing agreement. All material intercompany accounts are
eliminated.
2. Significant Accounting Policies
Revenues
Broadcasting stations derive revenue from the sale of program time and spot
announcements to local, regional and national advertisers, and from compensation
received from carrying network programs and commercials. Advertising revenue
and network compensation are recognized in the period during which the program
time and spot announcements are broadcast. Revenue is also derived from
the production of film and taping of advertising materials. Production
revenue is recognized in the period when the service is provided.
Deferred revenue represents a one-time payment received upon renewal of
the Company's affiliation with a broadcasting network which will be amortized
into revenue over the term of the affiliation. The amount of deferred revenue
to be amortized over the ensuing period of twelve months is included in
current liabilities.
Film Contract Rights
Film contract rights are recorded when the license period begins and the
program is available for showing. The costs of film contract rights are
amortized on accelerated methods over the contract period or as the program
is used, whichever provides the greater amortization on an accumulated basis.
The costs of programs expected to be used within one year are classified
as a current asset. Payments for film contracts are made pursuant to
contractual terms over periods that are generally shorter than the lives
of the rights.
F-9
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies (continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated on
the straight-line basis over the estimated useful lives of the property
and equipment varying from 3 to 40 years.
Intangible Assets
Intangible assets primarily include network affiliation agreements, station
licenses and goodwill and are being amortized using the straight-line method
up to 40 years.
Income (loss) Per Share
Income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock - 1,000,000 shares.
Cash Equivalents
Cash equivalents include highly liquid investments with a maturity of three
months or less when purchased.
Concentration of Credit Risk
The Company operates television stations which serve the Columbus and
Chillicothe, Ohio; Providence, Rhode Island--New Bedford, Massachusetts
and Raleigh--Durham (Fayetteville, Goldsboro and Rocky Mount), North Carolina
markets. The Company grants credit to customers, substantially all of whom
are either local advertisers within these markets or national advertising
agencies.
F-10
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
3. Acquisition and Local Marketing Agreement
In March 1994, the Company entered into a local marketing agreement ("LMA")
with the licensee of UHF television station WWHO, Chillicothe, Ohio. Under
the agreement, the Company will serve as a broker for the sale of WWHO's
advertising time and provide it with certain programming and operating
capabilities. The Company's obligations commenced April 18, 1994 and, since
that date, results of operations for WWHO are included with those of the
Company. The Company made an initial investment in the LMA of $1,055,000
which included an option, valued at $475,000, to purchase the station. The
total investment is being amortized over the initial ten-year term of the
LMA. In addition, the Company agreed to reimburse the licensee for certain
annual operating expenses and debt service which, during 1994, totaled
$392,000. The Company has also agreed to share with the licensee specified
percentages of net operating income, as defined in the LMA. In this regard,
the Company is allowed to recover its aggregate investment (excluding the
option) and operating expense and debt service payments from the net revenue
of WWHO prior to making percentage payments from net operating income. There
were no such payments required in 1994. The LMA will automatically renew
for two additional periods of five years unless canceled by the Company.
On August 10, 1994, the Company purchased the assets and broadcast license
of television station, WNCN (formerly WYED), for an aggregate price of
$5,478,000. WNCN is an independent television station licensed to Goldsboro,
NC, and broadcasts in the Raleigh--Durham (Fayetteville, Goldsboro, and
Rocky Mount), North Carolina market area. Funds for the acquisition were
provided by the Company's internal operations. The transaction was accounted
for using the purchase method of accounting. Results of operations for WNCN
are included with those of the Company subsequent to the date of acquisition.
Pro forma net revenue, net income and net income per share for 1994 and
1993 would not have been significantly different from the actual historical
amounts.
F-11
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes
The components of income tax expense (benefit) for the years ended December
31 are as follows:
1994 1993 1992
-----------------------------------------
(Dollars in thousands)
Current:
Federal $531 $ (870) $(281)
State 280 (14)
------------------------------------------
811 (870) (295)
Deferred:
Federal (70) 1,265 379
State (81) (79) 44
------------------------------------------
(151) 1,186 423
------------------------------------------
660 316 128
Extraordinary loss:
Federal (940)
------------------------------------------
-0- (940) -0-
------------------------------------------
$660 $ (624) $ 128
==========================================
Income taxes paid $287 $ 114 $ 17
==========================================
Income tax expense (benefit) computed using the federal statutory rate is
reconciled to the reported income tax provisions before extraordinary credits
as follows:
Year ended December 31
1994 1993 1992
------------------------------------------
(Dollars in thousands)
Statutory tax expense (benefit) $ 3,930 $ 796 $(484)
State income taxes (net of
federal income tax benefit) 129 (52) 20
Amortization of intangible assets 529 500 409
Original issue discount 360
Adjust prior year tax estimate 311 (1,040) (281)
Change in valuation reserve (4,256) 93
Alternative minimum tax 115
Other 17 (96) 104
------------------------------------------
$ 660 $ 316 $ 128
===========================================
F-12
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
Pursuant to tax regulations released in 1994, the Company allocated to equity
certain proceeds received from a prior year's issuance of debt and related
common stock purchase warrants, thereby increasing the Company's net operating
loss carryover by $13,301,000 and increasing the deferred tax asset and
the related valuation reserve by $4,745,000.
Effective January 1, 1993, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 109, "Accounting for Income Taxes" and adjusted
previously recorded deferred taxes. The Company has reflected the effect
of adopting Statement 109 as a change in accounting principle at the beginning
of 1993. The cumulative effect of the change increased net income for the
year ended December 31, 1993 by $4,434,000 or $4.43 per share.
Deferred income taxes represent the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, at currently enacted
rates. Significant components of the Company's deferred tax liabilities and
assets as of December 31, 1994 and 1993, are as follows:
1994 1993
-----------------------------
Deferred tax liabilities:
Amortization of network affiliation
agreements and FCC licenses $12,058 $12,475
Amortization of film contracts 1,173 620
Depreciation 1,400 313
Other 7 101
-----------------------------
Total deferred tax liabilities 14,638 13,509
Deferred tax assets:
Net operating loss carryover 9,244 9,631
Accrued expenses not currently deductible
for tax purposes 768 1,398
Unfunded pensions 2,282 1,687
Deferred revenue 2,030
Other 1,788 1,584
-----------------------------
Total deferred tax assets 16,112 14,300
Valuation reserve for deferred tax assets (5,877) (5,345)
-----------------------------
Net deferred tax assets 10,235 8,955
-----------------------------
Net deferred tax liability $ 4,403 $ 4,554
=============================
F-13
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
4. Income Taxes (continued)
The components of the deferred income tax provision for the year ended December
31, 1992 were as follows:
1992
------
Film amortization $(333)
Depreciation 435
Amortization of intangibles 919
State income taxes 34
Net operating loss (412)
Gain on sale of assets (396)
Other--net 176
-----
$ 423
=====
The Company has tax loss carryforwards totaling $24,025,000. The tax loss
carryforwards expire as follows:
Year
----
2005 $ 5,375
2006 13,970
2007 2,259
2008 2,421
-------
$24,025
=======
F-14
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-term Debt
Long-term debt consists of the following:
December 31
1994 1993
---------------------
(Dollars in thousands)
Senior loan payable to bank, principal and
interest payable in quarterly installments
to September 30, 1998, interest is based
on LIBOR plus 2.5% (7.8125% at December 31,
1994) secured by substantially
all of the assets of the
Company $19,500 $23,000
10 7/8% Senior Subordinated Notes, due
July 15, 2003, interest payable
semiannually on January 15 and
July 15 60,000 60,000
-----------------------
79,500 83,000
Less current portion 4,500 3,500
-----------------------
$75,000 $79,500
=======================
On June 28, 1993, the Company entered into a Credit and Guaranty Agreement
(the Agreement) with a bank under which the bank agreed to provide a secured
senior credit facility consisting of a term loan in the principal amount
of $25,000,000 and revolving loans in the maximum principal amount outstanding
of $5,000,000. The term loan is payable in quarterly installments through
September 30, 1998. Amounts outstanding on the revolving loan would be payable
in three fluctuating quarterly installments no later than June 30, 1999.
The Agreement provides for payment of a commitment fee equal to 1/2% of
the unused portion of the revolving loan. The Agreement also provides for
principal payments based on the immediately preceding fiscal year's excess
cash flow, as defined in the Agreement, commencing July 1, 1995; however,
the principal payment due July 1, 1995 has been waived by the bank. On July
15, 1993, in a public offering, the Company issued 10 7/8% Senior Subordinated
Notes due 2003 in the principal amount of $60,000,000.
F-15
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long-term Debt (continued)
The loan and notes payable contain certain covenants that, among other
things, limit the ability of the Company to incur debt, pay cash dividends
on or repurchase capital stock (as defined in the Agreement), enter into
certain transactions with affiliates, acquire and/or dispose of certain
assets and engage in mergers and consolidations. The obligations were entered
into in order for the Company to undertake a refinancing of its outstanding
long-term debt, which was completed during 1993. As a result of the
refinancing, the Company incurred one-time debt extinguishment costs in
the amount of $1,826,000, net of income taxes, reported as an extraordinary
loss during the year ended December 31, 1993.
During 1993, the Company repaid in full its Junior Subordinated Note payable
to The Mutual Benefit Life Insurance Company. Interest on the note was payable
(i) at the rate of 9% per annum (which interest was accrued and added
semiannually to the principal amount of the note through August 1, 1991),
and (ii) semiannually thereafter, based on the note's principal amount of
$50,000,000, with payments commencing on February 1, 1992, and continuing
until maturity on February 1, 1997, at 12.5% per annum. The note was recorded
at a discounted value at an effective interest rate of 17.2%, which was
being amortized over the term of the note. The Mutual Benefit Life Insurance
Company is a shareholder of the Parent Company.
Cash payments for interest during the years ended December 31, 1994, 1993
and 1992 were $8,096,000, $13,071,000 and $13,150,000, respectively.
Annual maturities of long-term debt during each of the next five years are
as follows (dollars in thousands): 1995-$4,500; 1996-$5,000; 1997-$5,500;
1998-$4,500; 1999-none.
F-16
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
6. Lease Obligations and Commitments
The Company has several operating leases involving equipment. As of December
31, 1994, the future minimum payments under noncancelable operating leases
with initial or remaining terms of one year or more were as follows:
(Dollars
(in thousands)
--------------
1995 $ 309
1996 274
1997 155
1998 157
1999 147
Thereafter 613
------
$1,655
======
Rent expense for all operating leases was approximately $604,000, $692,000,
and $796,000, for the years ended December 31, 1994, 1993 and 1992,
respectively.
The Company has commitments to acquire approximately $10,992,000 of film
contract rights at December 31, 1994. The Company has also agreed to reimburse
the licensee of television station WWHO for certain annual operating and
debt service expenses over the duration of the LMA. The reimbursement for
1995 is estimated at $612,000 and, in subsequent years, may approximate
that amount.
At December 31, 1994, the Company remains contingently liable on approximately
$12,884,000 of store leases expiring on various dates through 2007, applicable
to a retail division, which was sold as of the fiscal year ended January
31, 1983. Substantially all of the leases have been assumed by others, and
management believes that future payments, if any, would not be material
to the Company's financial statements. In connection with the sale of
television stations to third parties, the Company also remains contingently
liable on approximately $4,600,000 of building and tower leases related
to radio and television stations sold in March 1990.
F-17
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
7. Nonrecurring Items and Extraordinary Loss
The extraordinary loss in 1993 represents debt extinguishment costs as
described in Note 5. Nonrecurring items in 1992 represent a gain on the sale
of real estate, net of write-offs of marketable securities in the amount
of $148,000.
8. Commissions
Net revenue for the years ended December 31, 1994, 1993, and 1992 are net
of agency and national representative commissions of approximately $11,547,000
$9,140,000 and $8,877,000, respectively.
9. Employee Benefit Plans
The Company has both qualified and nonqualified noncontributory pension plans
covering all employees age 21 or over with one year of service, excluding
certain collective bargaining groups. Pension costs are actuarially computed.
The Company's policy is to fund amounts as are necessary on an actuarial
basis to provide for benefits in accordance with the requirements of ERISA.
Benefits are based on (i) the three consecutive years in which compensation
affords the highest average, and (ii) total years of service. Net pension
costs for the indicated years ended December 31 consist of:
1994 1993 1992
--------------------------------------------
(Dollars in thousands)
Service costs--benefits earned
during the period $ 215 $ 305 $ 256
Interest cost on projected
benefit obligations 1,583 1,613 1,590
Actual return on assets (1,341) (1,311) (1,278)
Net amortization and other 108 73 19
--------------------------------------------
$ 565 $ 680 $ 587
============================================
F-18
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
9. Employee Benefit Plans (continued)
The Company suspended the qualifed pension plan as of September 1, 1994.
The Company's actuary determined the curtailment loss associated with the
suspended benefits to be $220,000.
Assumptions used in accounting for the pension plans are as follows at December
31:
1994 1993 1992
------------------------------------------------
Discount rate 7.5% 7.5% 8.5%
Average rate of increase in
compensation levels 6% 6% 6%
Expected long-term rate of
return on assets 5.5%-8.5% 5.5%-8.5% 5.5%-8.5%
The following table sets forth the funded status of the plans measured as
of December 31:
1994 1993
--------------------------------
(Dollars in Thousands)
Vested benefit obligations $(20,051) $(21,092)
================================
Accumulated benefit obligations $(20,281) $(21,404)
================================
Projected benefit obligations $(20,281) $(22,773)
Plan assets at fair value, primarily cash
equivalents and listed stocks and bonds 15,326 16,657
--------------------------------
Projected benefit obligation in excess of
plan assets (4,955) (6,116)
Unrecognized net actuarial gain (876) (1,745)
Unrecognized prior service cost 159 372
Unrecognized net transition obligation 1,313 3,393
Adjustment for minimum liability (774) (651)
---------------------------------
Accrued pension liability $ (5,133) $ (4,747)
=================================
F-19
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
9. Employee Benefit Plans (continued)
On September 1, 1994, the Company established the Outlet Broadcasting Inc.
401(k) and Profit Sharing Plan (the Plan), which qualifies under Section 401(k)
of the Internal Revenue Code, for the benefit of substantially all employees
not covered by a collective bargaining agreement, unless the agreement allows
for participation in the Plan. The Plan allows the employees to contribute up
to 15% of their regular earnings. The Company contributes, for the personal
account of each employee, 25% of the first 6%. Plan expense in 1994 was
approximately $67,000. In addition, the Company may make discretionary profit
sharing contributions annually.
The Company provides postretirement medical reimbursement benefits to elected
corporate officers who have met certain service requirements. Most of eligible
participants are currently retired. As of January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which requires the cost of
providing postretirement medical reimbursement benefits to be accrued over the
eligible employees' service period. Prior to 1993, the Company expensed these
benefits as they were paid. As permitted by the new standard, the Company
elected to recognize its accumulated postretirement benefit of obligation at
January 1, 1993, on a delayed basis.
The following table provides information on the status of the medical
reimbursement benefit plan as of December 31:
1994 1993
-----------------------
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees $(682) $(686)
Fully eligible plan participants (71) (83)
Other active plan participants (28) (17)
-----------------------
Total (781) (786)
Unrecognized transition obligation 522 551
-----------------------
Accrued postretirement benefit cost $(259) $(235)
=======================
F-20
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
9. Employee Benefit Plans (continued)
Net periodic postretirement benefit costs for the indicated years ended
December 31, consisted of the following:
1994 1993
----------------------
(Dollars in thousands)
Service cost - benefits attributed to service during
the period $10 $ 10
Interest cost on accumulated postretirement benefit
obligation 60 61
Amortization of unrecognized transition obligation 29 29
----------------------
Net periodic postretirement benefit cost $99 $100
======================
The Company's policy is to fund postretirement benefits as claims are paid. The
accumulated postretirement benefit obligation was determined using a discount
rate of 8% and a health care cost trend rate of 6%, declining to 5% in the year
2000 and thereafter. The effect of a 1% annual increase in these assumed cost
trend rates would increase the accumulated postretirement benefit obligation by
approximately $83,000; the annual costs would not be materially affected.
10. Intangible Assets
Intangible assets consist of the following at December 31:
1994 1993
---------------------------
(Dollars in thousands)
Network affiliation agreements $34,917 $34,917
Station licenses and goodwill 62,231 59,479
---------------------------
97,148 94,396
Less accumulated amortization 20,149 17,544
---------------------------
$76,999 $76,852
===========================
F-21
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
11. Accrued Expenses
Accrued expenses consist of the following at December 31:
1994 1993
-----------------------
(Dollars in thousands)
Accrued interest $ 3,043 $3,043
Accrued pensions 2,778 2,095
Accrued property taxes 471 462
Accrued salaries, wages and benefits 2,120 1,404
Accrued license fees and commissions 608 462
Accrued liabilities for claims and contingencies 596 592
Other 778 836
-----------------------
$10,394 $8,894
=======================
12. Capitalization
The capitalization of the Company at December 31, 1994 and 1993 was as follows:
Issued and
Description Outstanding
--------------------------------------------------------------------------------
Preferred stock, no par value--authorized 1,000,000 shares --
Class A common stock, $.01 par value--authorized 3,000,000 shares 1,000,000
Class B common stock, $.01 par value--authorized 1,000,000 shares --
13. Litigation
During 1993, a representative body of the television broadcast industry reached
an agreement with the American Society of Composers, Authors and Publishers
(ASCAP) as to the total industry's obligation for the payment of music
performance rights fees to that organization. The agreement provided that each
television station's performance rights fees payable to ASCAP would generally
approximate what the stations had paid to date. Accordingly, the Company
reversed an accrued liability of $2,100,000 which provided for the Company's
potential additional exposure in this matter.
F-22
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
13. Litigation (continued)
The Company is also subject to litigation arising from its normal business
operations. Any liability which may result therefrom, to the extent not
provided by insurance or accruals, would not have a material effect on the
Company's financial position.
F-23
OUTLET BROADCASTING, INC.
VALUATION AND QUALIFYING ACCOUNTS Schedule II
(Dollars in thousands)
Balance at Additions Balance
beginning charged at end
of period to expense Deductions of period
---------- ---------- ---------- ---------
Year ended
December 31, 1992
Allowance for
doubtful accounts $285 $187 $172 $300
========== ========== ========== =========
Year ended
December 31, 1993
Allowance for
doubtful accounts $300 $275 $275 $300
========== ========== ========== =========
Year ended
December 31, 1994
Allowance for
doubtful accounts $300 $154 $133 $321
========== ========== ========== =========
S-1
EXHIBIT INDEX
Page
----
3. (a) Certificate of Incorporation*, as amended
December 17, 1987;**and September 19, 1989***
(b) By-Laws;**
4. Indenture, dated as of July 8, 1993 between
Outlet Broadcasting, Inc. and Bankers Trust
Company, as Trustee, governing Outlet
Broadcasting, Inc. 10 7/8% Senior Subordinated
Notes Due 2003;***
10. Material contracts:
(a) Agreement for Management Consulting Services,
dated July 31, 1986, by and between Harding
Service Corporation and Outlet Communications,
Inc.;*(1)
(b)(i) Stockholders' Agreement, dated December 10, 1986,
by and among Outlet Communications, Inc.; Outlet
Broadcasting, Inc. and the persons named therein
(the Stockholders' Agreement);***
(b)(ii) Amendment No. 1, dated as of December 1, 1987, to
the Stockholders' Agreement;***
(b)(iii) Agreement dated July 26, 1988, by and among Outlet
Communications, Inc.; Outlet Broadcasting, Inc.
and the persons named therein amending the
Stockholders' Agreement;***
(c) Credit and Guaranty Agreement dated as of June 28,
1993 among Outlet Broadcasting, Inc. and Outlet
Communications, Inc. and Fleet National Bank;***
(d) Supplemental Retirement Plan;***(1)
(e) 1992 Stock Incentive Plan, as amended
and restated;***(1)
(f)(i) Employment Agreement, dated April 1, 1989, among
Felix W. Oziemblewski and Outlet Broadcasting, Inc.
and Outlet Communications, Inc.;****(1)
(f)(ii) Employment Agreement, dated January 1, 1995,
among Linda Sullivan and Outlet Broadcasting, Inc.
and Outlet Communications, Inc.;********(1) 76
(f)(iii) Employment Agreement, dated May 1, 1993 among
Douglas E. Gealy and Outlet Broadcasting, Inc. and
Outlet Communications, Inc.***(1)
(f)(iv) Employment Agreement, dated January 1, 1993,
between James G. Babb and Outlet Communications,
Inc.;****** as amended December 17, 1993;*******(1)
(f)(v) Employment Agreement, dated January 1, 1995,
among Adam G. Polacek and Outlet Broadcasting, Inc.
and Outlet Communications, Inc.;********(1) 83
(f)(vi) Employment Agreement, dated January 1, 1995 among
Steven Soldinger and Outlet Broadcasting, Inc. and
Outlet Communications, Inc.********(1) 90
(g) Lease Agreement dated as of September 27, 1982
between WBNS-TV and Outlet Broadcasting, Inc.
regarding tower facility of WCMH;***
(h) Station Affiliation Agreement, dated as of
September 1, 1994, between WB Communications and
Outlet Broadcasting;******** 97
Page
----
(i) Time Brokerage Agreement dated as of March 18,
1994 among Outlet Broadcasting, Inc. and Fant
Broadcasting Company of Ohio, Inc. and Outlet
Communications, Inc.******** 117
(j) Press Release, dated March 21, 1995, announcing
the retention of a financial advisor to explore
strategic alternatives.******** 191
22. Subsidiaries of the Registrant:
Outlet Productions, Inc.; Biltout, Inc.; and WATL-TV
Pro Wrestling, Inc.
__________________
* Incorporated by reference from the Registration
Statement on Form S-1, Registration No. 33-9442, declared
effective by the Securities and Exchange Commission on
January 21, 1987.
** Incorporated by reference from Current Report on
Form 10-K for the year ended December 31, 1987.
*** Incorporated by reference from Outlet Broadcasting,
Inc. Registration Statement on Form S-1, Registration No. 33-62292, declared
effective by the Securities and Exchange Commission on
July 8, 1993.
**** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1989.
***** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1990.
****** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1992.
******* Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1993.
******** Filed herewith.
_____________________________________________
(1) Management contract or compensatory plan or arrangement.