Amendment No. 1
to
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, 1995 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 21, 1996, was 1,000,000.
The Exhibit Index for this document appears on page 71 hereof.
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Page 1 of 172 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 and one television station for which Outlet Broadcasting
supplies programming under a time brokerage agreement. The owned stations
include two NBC network-affiliated VHF television stations and one NBC network-
affiliated UHF television station. Outlet Broadcasting has also entered into an
agreement to supply programming under a time brokerage agreement with the
permittee of a station still under construction in New Bedford, Massachusetts,
WLWC(TV) (formerly WFDG(TV)).
The two VHF television stations are WJAR(TV), Providence, Rhode Island,
which serves the Providence-New Bedford market area and WCMH(TV), which is
located in Columbus, Ohio and serves that market. The owned UHF television
station is WNCN(TV), Goldsboro, North Carolina, which has studios and offices
located in Raleigh, 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.
Since April 18, 1994, Outlet Broadcasting has also provided programming to
UHF television station WWHO(TV), Chillicothe, Ohio, under a time brokerage
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 is an affiliate of The
WB Television Network.
By letters dated March 7, 1996, the licensee of WWHO(TV) and the permittee
of WLWC(TV), which are under common ownership, purported to terminate the two
time brokerage agreements referred to above on the basis of claims that Outlet
had breached the agreements. By letters dated March 11, 1996, Outlet advised
the licensee of WWHO(TV) and the permittee of WLWC(TV) that Outlet had not
breached the agreements, that the termination letters dated March 7 were
therefore ineffective, and that the agreements remain in full force and effect.
This dispute remains unresolved.
Outlet Broadcasting also offers production services to advertisers and
others on an occasional basis. This activity does not generate significant
revenues.
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On August 2, 1995 Outlet Communications executed a definitive merger
agreement with the National Broadcasting Company, Inc. ("NBC") and CO
Acquisition Corporation, a subsidiary of NBC, providing for a transaction in
which NBC would acquire Outlet Communications and Outlet Communications'
stockholders would receive $47.25 per common share in cash. The merger
agreement was approved by Outlet Communications' Board of Directors and by the
holders of a majority of Outlet Communications' outstanding common stock. The
transaction closed on February 2, 1996.
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").
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 agreed to renew
the NBC network affiliation for Outlet Broadcasting's VHF television stations
for a period of six years. Effective October 2, 1995, Outlet Broadcasting and
NBC agreed to an NBC network affiliation for WNCN(TV) for a period of six years.
The affiliations give Outlet Broadcasting's owned 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.
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Approximately 62% of the television programming aired on Outlet
Broadcasting's Providence station is provided by NBC and approximately 25% is
provided or licensed by independent third parties. Outlet Broadcasting's
Columbus station receives 56% of its programming from NBC and 30% is provided or
licensed by independent third parties. Outlet Broadcasting's Raleigh station
receives 65% of its programming from NBC and 24% is provided or licensed by
independent third parties. The remaining portion of Outlet Broadcasting's owned
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 varying amounts of the advertising time that would
otherwise be available for sale by the stations to national or local
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.
The principal portion of television station programming for WWHO(TV)
consists of syndicated shows, children's programs, movies and 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 provided one night of prime time programming for two hours. A second
night of prime-time programming commenced 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.
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 such station
as a result of its affiliation with WB and to pay to WB 25% of such added value
and/or profitability. No payment was made for 1995 nor was a payment required.
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 is licensed to and 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.
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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), Goldsboro, North Carolina, is a UHF television station with
studios and offices located in Raleigh, North Carolina. It broadcasts over
Channel 17 in the Raleigh-Durham (Fayetteville, Goldsboro and Rocky Mount) North
Carolina television market, which is ranked 30th in the nation in terms of
number of television households in its DMA. Since September 10, 1995, the
station has broadcast programming provided by NBC. Prior to that time, WNCN(TV)
broadcast WB programming.
WWHO(TV)
WWHO(TV) is a 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, including radio, as well as
with other advertising media, such as newspapers, magazines, outdoor
advertising, transit advertising, direct mail and cable systems.
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
Federal Communications Commission ("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 WLWC(TV), Channel 28, New Bedford,
Massachusetts in the Providence market. See "Introduction" above, with respect
to Outlet Broadcasting's time brokerage agreement with the permittee of
WLWC(TV).
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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.
The Signal Carriage Provisions of the Cable Television Consumer Protection
and Competition Act of 1992 require CATV system operators to transmit the
broadcast signal of local commercial television stations that request such
carriage. 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 to negotiate a grant of
retransmission consent. 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 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. Under the Telecommunications Act of 1996 (the "Telcom Act"), a
local telephone company will be permitted to deliver video programming directly
to consumers, operating as cable system operators, as common carriers, or as
"open video systems", which will have attributes of both cable systems and
common carrier operations. 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
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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 owned 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 WWHO(TV) provide an attractive alternative to the
more traditional news and network-provided programming.
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
owned television stations towards building on local news leadership and
selectively reducing purchases of syndicated programs. At WWHO(TV), Outlet
Broadcasting has engaged in a network affiliation 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'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 owned 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 1995 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.
WNCN(TV) is now broadcasting news shows at 5:30 to 7:00 AM and at
6:00, 7:00 and 11:00 PM while WWHO(TV) has instituted a one-half hour
10:00 p.m. news program.
- 7 -
Optimize Selection of Syndicated Programming. At its owned 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.
However, WWHO(TV) is more dependent on syndicated programs for its
overall programming needs. At this station, Outlet Broadcasting has
sought to upgrade the quality of syndicated programs, on a cost-
effective basis, in order to provide a more attractive product to
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 maintains up-to-date production facilities
and audience research capabilities that it makes available for the
benefit of its advertisers. In addition, Outlet Broadcasting's sales
staff is committed to serve and support its advertising customers.
Management believes, therefore, that Outlet Broadcasting's
relationships with its customer base is facilitated and strengthened
through its policy decisions, physical capabilities and sales support
activities.
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.
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 and limits the percentage of alien ownership of
broadcast stations. 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.
Effective with the Telcom Act, the terms of television licenses will, upon
their next renewals, be extended from five years to eight years. Licenses are
renewable for additional terms upon application to the FCC, which will approve
the renewal without a hearing if there are no petitions to deny by third parties
conflicting with the renewal applications (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, under the Telcom Act, comparative renewal
proceedings are eliminated by requiring the FCC to decide whether a station's
license should be renewed before accepting competing applications. 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 now permit cognizable ownership by one entity of an unlimited
number of television stations, nationally, except for an ownership limit based
on audience reach. Under the audience-reach limitation, an entity may acquire
cognizable ownership interests in television stations only if the aggregate
number of television households reached by the television stations does not
exceed 35% of the national television household audience as determined by
market households. The percentage of the national television household audience
reached by the television stations owned by Outlet Broadcasting will be
aggregated with the percentage of the national audience reached by television
stations in which NBC and General Electric Company have an attributable
interest. The percentage of national television households reached by all such
stations is significantly below the 35% limitation.
There is no overall limitation on the number of radio stations a single
entity may own. There are certain limitations, however, based on market size
and the number of commercial radio stations in each market.
Present FCC rules prohibit ownership of two television stations with
overlapping Grade B signal contours. Currently, FCC rules generally prohibit
the common ownership of a television station and either an AM or an FM radio
station with overlapping areas of local service. 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. All of the FCC's local ownership
limitations that apply to television (except the newspaper/TV limitation) are
under reexamination in an FCC rulemaking proceeding that is not expected to be
concluded prior to the fourth quarter of 1996.
The FCC requires the attribution of the licenses held by a broadcasting
company to its officers, directors, and holders of specified levels of its
voting securities. There would be a violation of FCC regulations if an officer,
director, or corporate stockholder of a broadcasting company held an
attributable interest in more than the permitted number of stations or in
stations that serve the same area.
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Effective January 1, 1992, the FCC implemented commercial time limitations
in children's programming, pursuant to legislation adopted by Congress in 1990.
Commercial matter in programs designed for viewing by children 12 years of age
and under is limited to 12 minutes per hour on weekdays and 10.5 minutes per
hour on weekends. In addition, all television stations have been required since
October 1, 1991 to broadcast some television programming specifically designed
to meet the educational and informational needs of children 16 years of age and
under.
New methods of digital television transmission will in the future make it
technically feasible for television stations to transmit "high definition
television" having greatly improved picture resolution, color rendition and
sound, and wider screen picture. Alternatively, digital transmission will
permit stations to transmit multiple standard definition television channels and
other non-broadcast materials in the same amount of frequency space currently
used to transmit one current television signal. Digital broadcasting will
ultimately also permit consumers to utilize a single reception device for
television, computer data, materials offered via the Internet, and any other
form of digital information. Because existing television sets cannot receive a
digital signal, however, it will be necessary to transition to a new digital
system by broadcasting digital signals on a second set of television channels
for a period of years, while existing stations continue to broadcast their
present analogue signals on their present channels. After the transition is
complete, the government intends to reclaim one set of channels.
Under the Telcom Act, the FCC would be permitted to allocate frequency
space for the transition to digital television. If the FCC does make such an
allocation, the Telcom Act provides that the eligibility to receive the
additional transition frequencies will be limited to existing television
licensees; that special fees would be assesssed such licensees with respect to
any non-broadcast uses of the frequencies; and that, under a schedule to be
determined by the FCC (and which continues to be a subject of debate within the
government), each broadcaster would eventually be required to give back to the
government one of its two frequencies. Notwithstanding these provisions of the
Telcom Act, various members of Congress continue to advocate a present auction
of the transition frequencies, and the FCC has agreed to make no allocation of
transition channels until Congress has had a further opportunity to review the
matter.
Broadcasters who obtain a second channel for the transition to digital
transmission will be required to make significant capital investments in order
to build and operate a second station in each market. Should broadcasters fail
to make this additional investment, they would in the long term be likely to
suffer competitive adverse effects because cable television, direct broadcast
satellites and distributors of recorded video materials are likely to deliver
digital signals and programs to consumers. Broadcasters would also suffer
adverse effects were the government to determine that the digital transition
channels must be made available for present auction, or if the time period
permitted for the digital transition process is unduly short.
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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, the Telcom 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 July 1995 Outlet Broadcasting was advised that a committee representing
the television industry reached agreement with ASCAP music licensing
organization on the final terms of music license fees payable by television
stations. Pursuant to the agreement, industry-wide blanket license fees were
established for the initial license period October 1, 1995 to March 31, 1997
which fees would be allocated to each station according to the formula used to
allocate additional fees payable to ASCAP during 1995. Industry-wide blanket
fees were set at annual levels of $88.4 million - pro-rated for the fourth
quarter of 1995, $91.8 million for 1996, and $91.8 million pro-rated for the
first quarter of 1997. Effective with the 1995 fourth quarter, the new
agreement resulted in increased music license fees payable by the Outlet
Broadcasting television stations totalling approximately $88,000 per year.
The agreement with ASCAP also provided for a one year extension of the
license period to March 31, 1998. The industry-wide blanket license fee
applicable to the extension has not yet been determined but will be subject to
allocation pursuant to existing methodology. Either ASCAP or the television
industry may opt out of the final twelve months of this agreement, effective
April 1, 1997, and elect to begin negotiations on new license terms. If either
party chooses this option and the negotiations fail to produce an agreement, the
unresolved negotiations will be referred automatically to the ASCAP rate court.
BMI music licensing organization 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 439 full-
time employees. Approximately 181 of such employees are represented by labor
unions under collective bargaining agreements. These agreements expire on
various dates through November 1997. Outlet Broadcasting contributes to and
maintains employee benefit and retirement plans for its employees.
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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
- --------- -------- -------------------
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
Raleigh, North Carolina Leased 23,200
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.
Item 3. Legal Proceedings.
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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
-------------------------------------------------
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 net income (loss) in the following table of Selected
Financial Information is affected by 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, both of which occurred in 1993.
Also, net income in 1995 includes an extraordinary loss for merger expenses
totalling $4,733,000
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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1995 1994 1993 1992 1991
--------------------------------------------------
Net revenue $ 66,210 $ 59,442 $ 46,952 $ 45,153 $ 39,434
Operating income 19,767 20,175 12,428 10,297 2,232
Income (loss) before
non-recurring items
and income taxes 11,772 11,229 2,342 (2,825) (12,343)
Net income (loss) 3,439 10,569 4,634 (1,552) (9,265)
Income (loss) per share $ 3.44 $ 10.57 $ 4.63 $ (1.55)$ (9.27)
Total assets $129,545 $129,928 $117,611 $126,646 $143,029
Long-term debt excluding
current maturities 70,000 75,000 79,500 87,447 95,961
Other long-term
liabilities 12,926 15,098 13,392 18,085 18,933
Stockholder's equity 22,421 16,404 5,785 1,113 2,665
_______________________________________________________________________________
- 14 -
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 time brokerage agreement. The owned
stations include two NBC network-affiliated VHF television stations and one NBC
network-affiliated 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 which
serves the Raleigh-Durham (Fayetteville, Goldsboro and Rocky Mount), North
Carolina market area.
Outlet Broadcasting also operates UHF television station WWHO-TV,
Chillicothe, Ohio, under a time brokerage agreement with that station's
licensee. Outlet Broadcasting serves as a broker for the sale of WWHO-TV's
advertising time and provides it with certain programming and operating
capabilities. In return, Outlet Broadcasting retains a substantial percentage
of the station's net operating income to the extent that it exceeds cumulative
net operating losses. Operations under the time brokerage agreement became
effective April 18, 1994. WWHO-TV is affiliated with The WB Television Network.
Outlet Broadcasting has also entered into an agreement to supply
programming under a time brokerage agreement with the permittee of a station
still under construction in New Bedford, Massachusetts, WLWC-TV (formerly WFDG-
TV). On March 7, 1996, the licensee of WWHO-TV and the permittee of WLWC-TV,
which are both under common ownership, notified Outlet Broadcasting that they
were terminating the local marketing agreements. Outlet Broadcasting believes
and has notified the licensee/permittee that they have no right to terminate,
that the notice was ineffective and that the agreement remain in full force
and effect.
On August 2, 1995 Outlet Communications executed a definitive merger
agreement with the National Broadcasting Company, Inc. ("NBC") and CO
Acquisition Corporation, a subsidiary of NBC, providing for a transaction in
which the NBC subsidiary would be merged into Outlet Communications and Outlet
Communications stockholders would receive $47.25 per common share in cash. The
merger agreement was approved by Outlet Communications' Board of Directors and
by the holders of a majority of Outlet Communication's outstanding common stock.
The transaction closed on February 2, 1996.
- 15 -
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 1995 % Change 1994 % Change 1993
- ------------------------------------------------------------------------
Net revenue:
Non-political $65,645 17.9% $55,696 19.2% $46,735
Political 565 (b) 3,746 (b) 217
_______________________________________________________________________
Total revenue 66,210 11.4% 59,442 26.6% 46,952
Operating expenses 46,443 18.3% 39,267 13.7% 34,524
_______________________________________________________________________
Operating income $19,767 (2.0%) $20,175 62.3% $12,428
=========================================================================
Net cash provided
by operations (a) $ 7,944 (59.2%) $19,466 402.7% $ 3,872
=========================================================================
Operating cash
flow (a) $25,634 .3% $25,555 47.9% $17,276
=========================================================================
(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.
Revenues
In 1995, total net revenue of $66,210,000 increased by $6,768,000 or 11.4%
compared with $59,442,000 in 1994. Outlet Broadcasting's two VHF television
stations had a combined revenue increase of 3.1% with both of the stations
contributing to such increase. Outlet Broadcasting's two UHF stations provided
a 1995 revenue increase amounting to 8.3% of the prior year's revenue total.
However, because these stations were added to Outlet Broadcasting's operations
during 1994, their revenue comparison reflects operations for all of 1995 versus
only part of the prior year.
Non-political revenue in 1995 totalled $65,645,000. This was an increase
of $9,949,000 or 17.9% compared with $55,696,000 in 1994. The increase in non-
political revenue at the VHF stations was 9.2%. Favorable market conditions and
attractive programming enabled those stations to maintain advantageous audience
levels during 1995. This allowed for selected improvements in advertising
rates. The VHF stations increased their national spot and local time sales over
the prior year by 9.2% and 5.4%, respectively. Also, an increase in network
compensation of approximately $1,465,000, or 51.9%, resulted from the VHF
stations' renewed affiliation with the NBC network, as of September 1, 1994, on
more favorable terms.
- 16 -
Political revenue in 1995 totalled $565,000. Since 1995 was not a major
election year, advertiser spending for political campaigns was not significant.
In the 1994 election year, political revenue totalled $3,746,000 and comprised
6.3% of total revenue.
For the fourth consecutive year, WCMH-TV established a record high in
station revenue. The station increased its non-political local and national
spot revenue for the year by approximately 4.2%. The increased revenue
reflected an estimated 7% growth in the Columbus advertising market.
WJAR-TV increased its non-political local and national spot revenue for the
year by approximately 17.1%. The increased revenue reflected an estimated 2%
growth in the Providence advertising market. Thus, WJAR-TV was able to increase
its market share from that of 1994.
WNCN-TV significantly improved its revenue growth, and programming, by
introducing a local news show during 1995 and by becoming an affiliate of the
NBC network. During the year, the Raleigh-Durham, North Carolina television
market advanced from 32nd position to be the 30th ranked television market in
the country.
Since becoming part of Outlet Broadcasting's operations, in 1994, both
WNCN-TV and WWHO-TV have made continued progress. By improving their
organizational structure, programming and signal delivery, the stations have
become more productive; have been able to increase advertising rates; and have
generally enhanced their overall operating and revenue performance.
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. Revenue contributed by stations
WWHO-TV and WNCN-TV 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, all of
which allowed advertising rates to continue to trend higher. There were
increases in both national spot and local time sales. Improved terms in Outlet
Broadcasting's renewed affiliation with the NBC network resulted in an increase
of more than 16% in network compensation.
Advertiser spending for political campaigns was significant in the 1994
election year and political revenue totalled $3,746,000. Since 1993 was not a
major election year, political revenue amounted to a minimal $217,000.
- 17 -
Both of Outlet Broadcasting's VHF television stations increased their total
revenue during 1994. WCMH-TV increased its non-political local and national
spot revenue by approximately 11.4%. Political advertising provided an
additional 4.6% increase in 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 in 1994
by approximately 20.6%. Political advertising provided a further increase of
12.4% to the station's total revenue. 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.
Operating Expenses
Operating expenses in 1995 totalled $46,443,000. This was an increase of
$7,176,000 or 18.3% compared with $39,267,000 in 1994. The increase was
attributable to inclusion of operating expenses for WNCN-TV and WWHO-TV for a
full year in 1995. Excluding the effect of those added stations, there was a
moderate 1% decrease in total operating expenses. In 1994, total operating
expenses of $39,267,000 increased by $4,743,000 or 13.7% compared with
$34,524,000 in 1993. Most of this increase also resulted from the addition of
the two UHF stations during the year. As a percentage of revenue, total
expenses increased to 70.1% in 1995 after having decreased to 66.1% in 1994 from
73.5% in 1993.
Technical, programming and news expenses in 1995 of $23,784,000 increased
by $3,671,000 or 18.3% compared with $20,113,000 in 1994. All of the increase
was accounted for by the effect of added stations. In 1994, technical,
programming and news expenses increased by $2,078,000 or 11.5% from $18,035,000
in the prior year. Virtually all of this increase also resulted from the added
stations.
Programming expense at Outlet Broadcasting's VHF television stations
decreased by approximately 7.4% and 2% in 1995 and 1994, respectively.
Programming expenses include departmental operating costs as well as charges for
amortization of film contract rights. Outlet Broadcasting has strategically
reduced its annual cost for film contract amortization by selectively replacing
more costly programs with local programming, particularly news, or by otherwise
replacing costly programs with more popular and/or cost-effective programs.
During 1995, 1994 and 1993, Outlet Broadcasting recorded lump-sum charges
of $1,453,000, $598,000 and $358,000, respectively, representing valuation
write-downs of certain film contracts. The 1995 charge primarily includes
write-downs of "Empty Nest" at the VHF television stations and, at the UHF
stations, a film contract valuation adjustment for "Full House". The 1994 and
1993 write-downs primarily apply to film contract valuations for "Who's the
Boss."
- 18 -
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. As a result, Outlet
Broadcasting has undertaken to expand its production of local news programs.
Total news department expenses at the VHF stations increased by approximately 2%
in 1995 after having increased by approximately 6% in 1994. In addition, a news
program instituted at WNCN-TV in September 1995 resulted in a significant
increase in that station's news costs.
Selling, general and administrative expenses of $16,792,000 in 1995
increased by $3,018,000 or 21.9% compared with $13,774,000 in 1994.
Approximately 90% of the total increase resulted from inclusion of television
stations WNCN-TV and WWHO-TV for a full year in 1995. The balance of the
increase reflected increased promotion costs at WJAR-TV along with higher sales
commissions and incentive awards payable because of Outlet Broadcasting's
improved operating performance. In 1994, selling, general and administrative
expenses of $13,774,000 increased by $2,133,000 or 18.3% compared with
$11,641,000 in the prior year. The higher amount for 1994 also reflected the
costs of two added television stations as well as increased incentive payments.
Depreciation expense increased in 1995 because of Outlet Broadcasting's
prior year investments in WWHO-TV and WNCN-TV. Amortization of intangible
assets decreased as certain programming and advertising contracts acquired with
the new television stations became fully amortized. In 1994, depreciation
expense and amortization of intangibles both increased due to addition of the
new stations.
Outlet Broadcasting's operating income of $19,767,000 for 1995 decreased by
$408,000 or 2% when compared with operating income of $20,175,000 in 1994. The
current year's reduction in operating income reflects revenue growth of 11.4%
reduced by a 18.3% increase in total expenses. In 1994, operating income of
$20,175,000 increased by $7,747,000 or 62.3% when compared with operating income
of $12,428,000 in 1993. The 1994 improvement reflected a 26.6% increase in
revenue reduced by a 13.7% increase in total expenses.
As a percentage of revenue, operating income for 1995 declined to 29.9%
from 33.9% in 1994, although up from 26.5% in 1993. The 1995 decrease in
operating income percent was primarily attributable to operating losses
sustained by the two UHF television stations. These stations remain categorized
as start-up operations, although Outlet Broadcasting has made significant
improvements to their overall development.
- 19 -
Interest Expense
The following table summarizes interest expense for the last three years.
Dollars in thousands 1995 % Change 1994 % Change 1993
- -----------------------------------------------------------------------
Interest expense:
Loan and notes payable $8,505 .4% $8,467 14.5% $ 7,392
Note to shareholder -0- - -0- - 4,016
- -----------------------------------------------------------------------
Total $8,505 .4% $8,467 (25.8%) $11,408(a)
=======================================================================
(a) Net of capitalized interest of $225,000.
Interest expense increased by $38,000 in 1995, when compared with 1994,
because of the effect of higher market interest rates on Outlet Broadcasting's
senior loan with a bank. Interest expense decreased in 1994 versus 1993 due to
reductions made in outstanding debt and also due to a 1993 refinancing of total
debt with borrowings having a reduced rate of interest.
In 1993, interest expense for loan and notes payable included an amount
applicable to 13 1/4% Senior Subordinated Notes (the "Senior Notes") which were
repaid during the year. 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 which was also repaid in 1993.
Details of the 1993 refinancing are provided in the discussion on net cash used
by financing activities.
Cash interest payments for 1995, 1994 and 1993 were $8,108,000, $8,096,000
and $13,071,000 (net of capitalized interest of $225,000), respectively. The
amounts paid in 1995 and 1994 include interest of $1,583,000 and $1,571,000,
respectively, on Outlet Broadcasting's senior bank loan and interest of
$6,525,000 in each year 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. An accretion of debt discount of $649,000 in
1993 represents 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%.
Other Income (Expense) Items
Interest income increased in 1995 due to higher average cash balances
maintained during the year and because of improved returns on invested funds.
Interest income declined in 1994 as a result of lower cash balances and/or lower
market interest rates. Other income increased in 1995 because of the reversal
of accruals for music license fees and other items that were no longer
- 20 -
required. A gain on the sale of marketable securities provided a further
increase to other income. In 1994, other income principally represents tower
rental income and other sundry items. In 1993, other income principally
represents an accrual that was reversed upon settlement of a music licensing
dispute.
Other expense in 1995 and 1994 includes miscellaneous charges associated
with the UHF stations along with approximately $456,000 and $260,000,
respectively, as the cost of employee stock options. In 1993, other expense
included a write-down of $117,000 pertaining to an unsuccessful attempt to
license a black and white television series.
The 1995, 1994 and 1993 income tax expenses of $3,600,000, $660,000 and
$316,000, respectively, represent the applicable current year's provision for
taxes. The provisions for 1995 and 1994 were reduced as the result of
adjustments of prior year net operating losses. See Note 5 to the Consolidated
Financial Statements.
In 1995, an extraordinary loss of $4,733,000 or ($4.73) per share, net
of taxes, represents costs incurred in connection with Outlet Communications'
pending merger with NBC that was consummated on February 2, 1996. 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
6 and 8 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 10 to the Consolidated Financial Statements. The effect of adoption of
Statement 106 was not material.
In 1995, Outlet Broadcasting had income before extraordinary loss of
$8,172,000 or $8.17 per share. This compares with 1994 net income of
$10,569,000 or $10.57 per share. After the extraordinary loss, net income for
1995 amounted to $3,439,000 or $3.44 per share. In 1993, Outlet Broadcasting's
income before extraordinary loss and cumulative effect of change in accounting
principle was $2,026,000 or $2.03 per share. After giving effect to the
extraordinary loss and change in accounting principle, net income for 1993
amounted to $4,634,000 or $4.63 per share.
- 21 -
Liquidity and Capital Resources
In 1995, net cash provided by operations totalled $7,944,000. This was a
decrease of $11,522,000 or 59.2% when compared with net cash provided by
operations of $19,466,000 in 1994. The decrease included the effect of a
bonus of $5.5 million paid to an officer of Outlet Broadcasting in
December 1995, pursuant to the terms of an agreement with the officer.
The payment was recorded as an extraordinary loss. The decrease in net
cash provided by operations also included other merger related expenses
reported as an extraordinary loss. See Note 8 to the Consolidated Financial
Statements.
The 1995 decrease in net cash provided by operations further reflected an
amount of $5 million received in 1994 from NBC upon renewal of Outlet
Broadcasting's affiliation with that network. This was a one-time payment not
repeated in 1995. The amount has been reported as deferred revenue and is being
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.
In 1994, net cash provided by operations of $19,466,000 increased by
$15,594,000 or 402.7% compared with $3,872,000 in 1993. The improvement
included the one-time payment received from NBC as described above and also
reflected Outlet Broadcasting's trend of improved operating results.
The effect of non-cash operating expenses on Outlet Broadcasting's 1995
operating results contributed to a moderate increase in operating cash flow.
Operating cash flow in 1995 of $25,634,000 increased by $79,000 or .3% compared
with $25,555,000 in 1994. In 1993, operating cash flow amounted to $17,276,000.
Outlet Broadcasting's increased investment in film contract rights during
the years 1995, 1994 and 1993 amounted to $5,672,000, $4,149,000 and $4,672,000,
respectively. The increases for 1995 and 1994 were partially attributable to
film contract rights acquired for WNCN-TV and WWHO-TV, the television stations
that were added during 1994.
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, the increased number of viewing hours committed to news shows has
reduced the need for film acquisitions.
- 22 -
Although Outlet Broadcasting is strategically committed to a reduced
investment in film contract rights, it has been selective in this process. At
December 31, 1995 Outlet Broadcasting had commitments to acquire approximately
$10,641,000 of film contract rights compared to commitments of $10,992,000 at
December 31, 1994. The total amounts are substantially effected by an extended
commitment to the Oprah Winfrey Show, to the year 2000, by WJAR-TV. Management
believes that the total benefits to be derived from this program will provide a
sound economic return to the broadcast station.
The net decreases in film contracts payable of $372,000, $1,773,000 and
$409,000 in 1995, 1994 and 1993, respectively, reflect payments of film contract
obligations in accordance with the contracted terms and in the normal course of
business. 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 1993 through 1995 also include the previously described lump-sum charges
for valuation write-downs of certain film contracts.
The increase in accounts receivable of $2,933,000 in 1995 primarily results
from the year's increased volume of business and the effect of two television
stations added in 1994. The 1995 increase in accrued expenses primarily
reflects accrued costs related to the pending merger of Outlet Communications
with NBC and a stockholders' equity pension adjustment resulting from the
requirement to recognize an additional minimum pension liability.
In 1995, net cash used by investing activities amounted to $10,863,000.
This included capital expenditures totalling $10,307,000 of which approximately
two-thirds was spent in behalf of WNCN-TV. During the year, WNCN-TV moved its
broadcast studio and offices to a newly leased facility in Raleigh, North
Carolina. This required capital outlays for new equipment, fixtures and studio
and office renovations. Outlet Broadcasting's television stations currently
operate from modern studio facilities and it is not expected that significant
amounts of capital will be required to be invested each year.
Investing activities also include payments made, in the amount of $556,000,
pursuant to a time brokerage agreement entered into with the licensee of a
television station to be constructed and operated in New Bedford, Massachusetts.
Subject to final regulatory approvals, it is expected that the New Bedford
station will be operational in the second half of 1996. It is also anticipated
that any further funds required in this venture will be available from internal
operations.
In 1994, net cash used by investing activities totalled $9,932,000. This
included capital expenditures of $3,385,000, for all four television stations,
and an investment of $1,055,000 pursuant to a time brokerage 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.
- 23 -
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.
Net cash used by financing activities in 1995 amounted to $4,032,000. This
included a total of $4,500,000 in quarterly installments paid to Outlet
Broadcasting's senior bank lender on a term loan. In 1994, net cash used by
investing activities of $3,450,000 included total payments to the senior bank
lender of $3,500,000.
In 1995, 1994 and 1993, Outlet Broadcasting received capital contributions
of $1,084,000, $50,000 and $38,000, respectively, from the exercise of Outlet
Communications stock options. The amount for 1995 was reduced by an accrual
for stock option expense in the amount of $616,000. Also in 1995, Outlet
Broadcasting received a tax benefit of $1,989,000 from an employee's premature
disposition of Outlet Communications common stock acquired under a stock option,
which amount was recorded as a non-cash contribution of capital.
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.
On July 15, 1993 Outlet Broadcasting completed a public offering of 10
7/8% Senior Subordinated Notes due 2003 (the "Senior Subordinated Notes"), 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. The reduced interest rates contributed to subsequent reductions in
annual interest expense.
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.
- 24 -
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.
On February 2, 1996, upon Outlet Communications' merger with NBC, the
outstanding Senior Loan was repaid in full from funds provided by NBC and the
Credit and Guaranty Agreement dated June 28, 1993 was terminated. As a result,
Outlet Broadcasting's revolving credit facility was also terminated.
On March 2, 1996, Outlet Broadcasting commenced an offer to repurchase
its outstanding Senior Subordinated Notes in whole, or in part in multiples
of $1,000, in cash in an amount equal to 101% of the aggregate principal amount
plus interest accrued to the change of control payment date specified in such
offer, April 1, 1996. The funds will be provided by NBC.
At December 31, 1995 Outlet Broadcasting had an excess of current
liabilities over current assets, in the amount of $2,434,000. This was a
reduction of 5,009,000 compared with an excess of current assets over current
liabilities of $2,575,000 at December 31, 1994. The decrease in net working
capital primarily resulted from the bonus paid to an officer.
In 1995, operating cash flow totalled $25,634,000 and the ratio of such
amount to interest expense of $8,505,000 was 3.0 to 1. In 1994, the ratio of
operating cash flow of $25,555,000 to interest expense of $8,467,000 was also
3.0 to 1, although in 1993 such ratio was 1.5 to 1.
Outlet Broadcasting's cash position decreased by $6,951,000 during 1995.
This reflected funds provided by operations of $7,944,000 reduced by aggregate
funds of $14,895,000 used in investing and financing activities. The funds were
primarily used for capital expenditures and debt reduction. In 1994, improved
results of operations provided a net increase of $6,084,000 in Outlet
Broadcasting's cash position and also contributed to that year's overall
increase in net working capital. It is expected that 1996 operations, along
with current cash on hand, will provide sufficient funds to meet all cash
requirements for that year, including debt service.
- 25 -
Item 8. Financial Statements and Supplementary Data,
--------------------------------------------
The Financial Statements of Outlet Broadcasting appear on Pages F-1 through
F-24 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 following named individuals were the executive officers and directors
of Outlet Broadcasting through February 2, 1996, the date of Outlet
Communications' merger with NBC:
Position with Years with
Name Age Outlet Broadcasting Outlet Broadcasting
- ---- --- ------------------- -------------------
James G. Babb 64 Chairman of the (3)
Board, President
and Chief Executive
Officer
Felix W. Oziemblewski 61 Vice President and 27
Chief Financial
Officer
Joanne E. Schenck 38 Secretary 21
Linda Sullivan 42 Vice President-- 11
General Manager
WJAR-TV
Douglas E. Gealy 35 Vice President-- (3)
General Manager
WCMH-TV
Adam G. Polacek 53 Vice President-- (1)
General Manager
WNCN-TV
Letitia Baldrige 70 Director (5)
Julius Koppelman 79 Director (5)
Frank E. Walsh, Jr. 55 Director (5)
Frank E. Richardson 56 Director (5)
Robert C. Butler 65 Director (4)
Leonard Lieberman 67 Director (4)
James K. Makrianes 71 Director (4)
Stephen J. Carlotti 53 Director (3)
Frederick R. Griffiths 75 Director (2)
Solomon M. Yas 54 Director (2)
_____________________
(1) Since 1994.
(2) Since 1992.
(3) Since 1991.
(4) Since 1988.
(5) Since 1986.
- 27 -
Set forth below is certain information with respect to the executive
officers and directors of Outlet Broadcasting through February 2, 1996:
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 Communications in those capacities since its formation in 1986. Prior to
joining Outlet Broadcasting, Mr. Oziemblewski, a certified public accountant,
was employed by Ernst & Young LLP. 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.
Adam G. Polacek
Mr. Polacek was appointed Vice President-General Manager of WNCN-TV in
August 1994. Prior to joining Outlet Broadcasting, from 1991 to 1994, Mr.
Polacek was Vice President and General Manager of WLFL-TV, Raleigh, North
Carolina. Prior thereto, he was President and Chief Operating Officer of
Heritage Broadcast Group, Inc. for approximately five years.
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.
- 28 -
Robert C. Butler
Mr. Butler was Senior Vice President and Chief Financial Officer of
International Paper Company, a forest products company, from 1988 to September
1995. 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.
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 -
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.
Effective with the February 2, 1996 merger of Outlet Communications with
NBC, the above named executive officers and directors of Outlet Broadcasting
were removed from office, except for Ms. Sullivan and Messrs. Gealy and Polacek
(who retained their position), and Ms. Schenck (who was elected an Assistant
Secretary), and replaced with the following listed executive officers and
directors:
Position with Years with
Name Age Outlet Broadcasting Outlet Broadcasting
- ---- --- ------------------- -------------------
John Rohrbeck 55 President (a)
Robert Finnerty 52 Vice President (a)
Warren Jenson 39 Vice President & (a)
Treasurer and
Director
Richard Cotton 51 Secretary and
Director (a)
Robert C. Wright 52 Director (a)
Edward L. Scanlon 61 Director (a)
(a) Since February 2, 1996
Set forth below is certain information with respect to the newly elected
executive officers and directors of Outlet Broadcasting:
John Rohrbeck
Mr. Rohrbeck was named President, NBC Television Stations in December 1991.
From August 1984 until December 1991, Mr. Rohrbeck was President and General
Manager of KNBC-TV in Los Angeles.
- 30 -
Robert Finnerty
Mr. Finnerty has been Vice President, Finance and Operations of NBC since
December 1987.
Warren Jenson
Mr. Jenson was named Senior Vice President, Chief Financial Officer of NBC
in July 1992. Prior to joining NBC, Mr. Jenson spent four years at General
Electric, first as Staff Executive and Manager of Mergers and Acquisitions, and
then as Director of GE Investor Relations.
Robert C. Wright
Mr. Wright has been President and Chief Executive Officer of NBC since
September 1986, when he joined that company.
Edward L. Scanlon
Mr. Scanlon has been Executive Vice President, Employee Relations at NBC
since 1987.
Richard Cotton
Mr. Cotton has been Executive Vice President and General Counsel of NBC
since October 1989.
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, 1995.
- 31 -
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, 1995 $377,769$5,750,000 $37,623 $ 0 0 $4,500
President 1994 331,154 225,000 22,819 0 90,000 1,848
and Chief 1993 294,615 200,000 23,014 0 0 0
Executive
Officer
Felix W. Oziemblewski Vice 1995 138,192 60,000 4,533 0 0 4,500
President- 1994 127,819 55,000 5,542 0 8,000 1,200
Chief 1993 121,554 60,000 8,781 0 0 0
Financial
Officer and
Treasurer
Douglas E. Gealy Vice 1995 170,481 65,000 4,915 0 0 4,500
President- 1994 146,538 60,000 4,660 0 12,000 1,558
General 1993 133,077 65,000 5,101 0 0 0
Manager
WCMH-TV
Linda W. Sullivan Vice 1995 146,385 60,000 4,347 0 0 4,500
President- 1994 124,808 50,000 4,386 0 12,000 1,200
General 1993 111,539 57,500 5,138 0 0 0
Manager
WJAR-TV
Adam G. Polacek Vice 1995 147,349 35,000 0 0 0 1,925
President- 1994 49,053 10,000 0 0 15,000 0
General 1993 N/A N/A N/A N/A N/A N/A
Manager
WNCN-TV(5)
(1) Amounts represent incentive compensation awards except that in 1995, the
amount for Mr. Babb also includes an accelerated bonus of $5,500,000
made pursuant to an agreement between Outlet Communications, Inc and Mr.
Baab. Also, the amounts for 1993 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.
- 32 -
(Continued on next page)
(3) As of December 31, 1995, 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, if any, 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, 1995, Mr. Babb had purchased 30,000 shares, 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.
Mr. Polacek has not received any restricted stock awards. As of December
31, 1995, 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 $-0-, $154,198, $154,198 and $308,349 for
unpurchased shares, respectively. No restricted stock awards were made in
1995.
(4) Amounts represent Outlet Broadcasting's contribution to the Outlet
Broadcasting, Inc. 401(k) and Profit Sharing Plan.
(5) Mr. Polacek joined Outlet Broadcasting in August 1994.
- 33 -
Stock Options
Options reflected in the Summary Compensation Table were granted under the
Outlet Communications 1992 Stock Incentive Plan (the "Plan") as approved by
stockholders on June 25, 1992, amended April 27, 1993 and May 2, 1995. 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 600,000 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 Plan was terminated in connection with the NBC
merger and all options were accelerated and cancelled upon payment of the
difference between $47.25 and the exercise price of each such option.
There were no options granted in the last fiscal year to the executive
officers named in the Summary Compensation Table.
The following table summarizes options exercised during 1995 and shows
fiscal year-end option values for the executive officers named in the Summary
Compensation Table.
Fiscal Year-end Option Values
- -------------------------------------------------------------------------
Number
of Shares Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Value Year-End Year-End(2)
on Exer- Realized Exer- Unexer- Exer- Unexer-
Name cise (1) cisable cisable cisable cisable
___________________________________________________________________________
James G. Babb 120,000 $4,882,500 0 0 $ 0 $ 0
Felix W. Oziemblewski 0 0 12,667 5,333 524,010 167,990
Douglas E. Gealy 0 0 14,000 8,000 566,000 252,000
Linda W. Sullivan 0 0 10,667 8,000 419,348 252,000
Adam G. Polacek 0 0 5,000 10,000 198,125 396,250
(1) Value is based on average of the bid and ask prices on the
date of exercise less the exercise price.
(2) Value is based on the last sales price per share ($47.25) on
December 29, 1995, as reported on the NASDAQ National Market
System, less the applicable option price.
- 34 -
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 (the
"Curtailment Date"), 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 93,750 112,500 120,000*
300,000 67,500 90,000 112,500 120,000* 120,000*
400,000 90,000 120,000 120,000* 120,000* 120,000*
450,000 101,250 120,000* 120,000* 120,000* 120,000*
500,000 112,500 120,000* 120,000* 120,000* 120,000*
600,000 120,000* 120,000* 120,000* 120,000* 120,000*
_________________________________________________________________
* 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.
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
Retirement Plan participants through the Curtailment Date (which amounts are
included in the Salary and Bonus columns of the Summary Compensation Table), and
(iv) benefits are paid in the form of a straight-life annuity.
- 35 -
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 5,000
300,000 52,500 60,000 37,500 30,000 30,000
400,000 70,000 80,000 80,000 80,000 80,000
450,000 78,750 105,000 105,000 105,000 105,000
500,000 87,500 130,000 130,000 130,000 130,000
600,000 120,000 180,000 180,000 180,000 180,000
_________________________________________________________________
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
also included in the Salary and Bonus columns of the Summary Compensation Table.
As of December 31, 1995, 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, Mr. Gealy has 3.2
years and Mr. Polacek has -0- years.
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.
- 36 -
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 $385,000,
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 was 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. Such provision specifies
that Mr. Babb is to receive on the closing date of such merger or sale an amount
in cash equal to 2% of the aggregate amount by which the per share cash price
paid in a merger or sale exceeds $9.00 per share, up to $12.00 per share, and 3%
of the aggregate amount by which the per share cash price paid exceeds $12.00
per share. Based on the total number of shares of Outlet Communications Common
Stock outstanding at the time of merger with NBC, Mr. Babb would have been
entitled to receive at closing a total of approximately $7,514,868 under this
provision. On December 14, 1995, the Board of Directors, with the approval of
NBC, authorized the unconditional acceleration of all of Mr. Babb's stock
options and the unconditional payment to him of $5,500,000. Such payment of
$5,500,000 was made prior to December 31, 1995, was not conditioned upon the
closing of the merger, and reduced the amount to which he would have been
entitled in the event of the merger as described above.
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. On February 2, 1996, upon the
consummation of the merger of Outlet Communications with NBC, Mr. Babb's
employment contract was terminated and Mr. Babb received compensation in the
amount of $1,110,230 for the remaining portion of his employment period.
- 37 -
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 $175,000 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 $150,000 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, 1995 this amounted to $140,000. 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 served as Chairman and Messrs. Butler, Richardson and Walsh
and Ms. Baldrige served 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 provided management
consulting services to Outlet Broadcasting pursuant to an agreement entered into
in July 1986. Under the agreement, Harding Service agreed to provide Outlet
Broadcasting with general management, corporate finance, marketing and business
investment advice until July 1996. Such advice included 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 agreed to pay
consulting services fees equal to 0.333% of annual gross revenues to Harding
Service, which fees totalled $264,095 in 1995. 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. As a condition of the closing of the merger of Outlet
Communications with NBC, the agreement with Harding Service was cancelled as of
February 2, 1996.
- 38 -
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.
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
were parties to a stockholders' agreement (the "Stockholders' Agreement"). The
Stockholders' Agreement required 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 were 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. 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. Mutual
Benefit was placed in rehabilitation by the New Jersey Commissioner of
Insurance on July 16, 1991.
The Stockholders' Agreement also provided 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 agreed to be bound by
the Stockholders' Agreement and afford each stockholder the opportunity to sell
a pro rata portion of his shares on the same terms and conditions.
The Stockholders' Agreement provided that it would terminate 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. Upon consummation of the merger of Outlet Communications with NBC, on
February 2, 1996, the Stockholders' Agreement was terminated.
- 39 -
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."
Transactions with the Law Firm of Hinckley, Allen & Snyder The law firm of
Hinckley, Allen & Snyder of which Mr. Stephen J. Carlotti, a former director of
Outlet Broadcasting, is Managing Partner, provided legal services to Outlet
Broadcasting during fiscal year 1995.
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.
- 40 -
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, 1995, and
1994.
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements -- December 31,
1995.
(2) The following Financial Statement Schedules of Outlet
Broadcasting, Inc. are included herein.
For the years ended December 31, 1995, 1994 and 1993:
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.
A report on Form 8-K dated February 2, 1996 was filed regarding (i)
change in control of Outlet Broadcasting upon the merger of Outlet
Communications into a subsidiary of NBC on February 2, 1996, (ii) the
termination of Outlet Broadcasting's Credit and Guaranty Agreement with a bank
upon full payment of Outlet Broadcasting's obligations and liabilities to such
bank by NBC and General Electric Company and (iii) Outlet Broadcasting's intent
to offer to repurchase its outstanding 10 7/8% Senior Subordinated Notes at 101%
of principal amount plus accrued interest.
(c). Exhibits (an exhibit index immediately preceding the exhibits
indicates the page number where each exhibit can be found).
- 41 -
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) Amended and Restated By-Laws, dated February 2,
1996;************
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;***as amended May 2, 1995***********(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)
(f)(vii) Agreement dated December 27, 1995 between
Outlet Communications, Inc. and James G.
Babb************(1)
(g) Lease Agreement dated as of September 27, 1982
between WBNS-TV and Outlet Broadcasting, Inc.
regarding tower facility of WCMH;***
- 42 -
(h) Station Affiliation Agreement, dated as of
September 1, 1994, between WB Communications and
Outlet Broadcasting;********
(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.********
(k) Merger Agreement dated as of June 30, 1995, among
Renaissance Communications, Corp., Renaissance
Communications Acquisition Corp., and Outlet
Communications, Inc.*********
(l) Merger Agreement dated as of August 2, 1995, among
National Broadcasting Company, Inc., CO Acquisition
Corporation and Outlet Communications, Inc.**********
(m) Time Brokerage Agreement dated as of December 14,
1994, among Outlet Broadcasting, Inc. and BAF
Enterprises, Inc. and Fant Broadcasting Company
of Ohio, Inc.************
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.
- 43 -
******** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1994.
********* Incorporated by reference from Current Report on
Form 8-K dated June 30, 1995.
********** Incorporated by reference from Current Report on
Form 8-K dated August 2, 1995.
*********** Incorporated by reference from the Definitive 14A Proxy Statement
filed by Outlet Communications, Inc. on March 30, 1995.
************ Filed herewith.
________________________________________________
(1) Management contract or compensatory plan or arrangement.
- 44 -
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities and
Exchange Act of 1934, the registrant has duly caused this amendment to Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
OUTLET BROADCASTING, INC.
Dated: April 1, 1996 By: /s/ Robert Finnerty
-------------------------------
Name: Robert Finnerty
Title: Vice President
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, 1995 and 1994, and the
related consolidated statements of income, stockholder's equity, and cash flows
for each of the three years in the period ended December 31, 1995. 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 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. 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 5 and 10 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 19, 1996
F-1
Outlet Broadcasting, Inc.
Consolidated Balance Sheets
December 31
1995 1994
---------------------------
Assets
Current Assets
Cash and cash equivalents $ 889,000 $ 7,840,000
Trade accounts receivable, less allowance
for doubtful accounts of $450,000 in
1995 and $321,000 in 1994 16,573,000 13,640,000
Film contract rights 3,148,000 3,350,000
Other current assets 1,154,000 1,171,000
---------------------------
Total Current Assets 21,764,764 26,001,000
Other Assets
Film contract rights 346,000 1,012,000
Deferred financing costs and other 3,480,000 3,399,000
---------------------------
3,826,000 4,411,000
Property and Equipment
Land 1,899,000 1,899,000
Buildings 11,633,000 10,967,000
Fixtures and equipment 45,672,000 36,766,000
---------------------------
59,204,000 49,632,000
Less accumulated depreciation 29,728,000 27,115,000
---------------------------
29,476,000 22,517,000
Intangible Assets 74,479,000 76,999,000
---------------------------
$129,545,000 $129,928,000
=============================
F-2
December 31
1995 1994
---------------------------
Liabilities and Stockholder's Equity
Current Liabilities
Trade accounts payable $ 1,492,000 $ 801,000
Accrued expenses 11,522,000 10,394,000
Film contracts payable 3,814,000 4, 174,000
Deferred revenue 833,000 833,000
Federal and state income taxes 1,537,000 2,724,000
Current portion of long-term debt 5,000,000 4,500,000
---------------------------
Total Current Liabilities 24,198,000 23,426,000
Long-Term Debt
Loan payable 10,000,000 15,000,000
Notes payable 60,000,000 60,000,000
---------------------------
70,000,000 75,000,000
Other Liabilities
Film contracts payable 1,007,000 1,019,000
Unfunded pensions 2,242,000 2,355,000
Deferred revenue 3,056,000 3,889,000
Deferred income taxes 3,564,000 4,403,000
Other 3,057,000 3,432,000
---------------------------
12,926,000 15,098,000
Stockholder's Equity
Capital stock 10,000 10,000
Capital surplus 35,605,000 32,532,000
Accumulated deficit (12,699,000) (16,138,000)
Pension liability adjustment (495,000) -
----------------------------
22,421,000 16,404,000
----------------------------
$129,545,000 $129,928,000
============================
See accompanying notes.
F-3
Outlet Broadcasting, Inc.
Consolidated Statements of Income
Year ended December 31
1995 1994 1993
-------------------------------------
Net revenue $66,210,000 $59,442,000 $46,952,000
Operating expenses:
Technical, programming and news 23,784,000 20,113,000 18,035,000
Selling, general and administrative 16,792,000 13,774,000 11,641,000
Depreciation 3,347,000 2,775,000 2,488,000
Amortization of intangibles 2,520,000 2,605,000 2,360,000
----------------------------------
46,443,000 39,267,000 34,524,000
-----------------------------------
Operating income 19,767,000 20,175,000 12,428,000
Interest expense:
Loan and notes payable (8,505,000) (8,467,000) (7,392,000)
Note payable to shareholder (4,016,000)
Other income (expense):
Interest income 382,000 141,000 239,000
Other income 1,246,000 276,000 1,694,000
Other expense (1,118,000) (896,000) (611,000)
------------------------------------
Total interest and other income
(expense) (7,995,000) (8,946,000)(10,086,000)
Income before income taxes,
extraordinary loss and cumulative
effect of change in accounting
principle 11,772,000 11,229,000 2,342,000
Income taxes 3,600,000 660,000 316,000
----------------------------------
Income before extraordinary loss and
cumulative effect of change in
accounting principle 8,172,000 10,569,000 2,026,000
Extraordinary loss, net (4,733,000) (1,826,000)
Cumulative effect of change in
method of accounting for income taxes 4,434,000
-----------------------------------
Net income $ 3,439,000 $10,569,000 $ 4,634,000
====================================
F-4
Outlet Broadcasting, Inc.
Consolidated Statements of Income (continued)
Year ended December 31
1995 1994 1993
----------------------------
Income per share:
Before extraordinary loss and
cumulative effect of change in
accounting principle $8.17 $10.57 $2.03
Extraordinary loss, net (4.73) ( 1.83)
Cumulative effect of change in
method of accounting for income
taxes 4.43
----------------------------
Net income per share $3.44 $10.57 $4.63
----------------------------
See accompanying notes.
F-5
Outlet Broadcasting, Inc.
Consolidated Statements of Stockholder's Equity
Class A Common Stock
-------------------------- Pension
Number of Par Capital Accumulated Liability
Shares Value Surplus Deficit Adjustment Total
--------------------------------------------------------------------------------------
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
Contribution of capital 3,073,000 3,073,000
Net income 3,439,000 3,439,000
Pension liability adjustment $(495,000) (495,000)
--------------------------------------------------------------------------------------
Balances at December 31, 1995 1,000,000 $10,000 $35,605,000 $(12,699,000) $(495,000) $22,421,000
======================================================================================
See accompanying notes.
F-6
Outlet Broadcasting, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994 1993
-----------------------------------------
Operations:
Net income $ 3,439,000 $10,569,000 $4,634,000
Adjustments to reconcile net income
to net cash provided by operations:
Depreciation and amortization 5,867,000 5,380,000 4,848,000
Amortization of other assets 365,000 365,000 272,000
Accretion of debt discount 649,000
Change in accounting principle (4,434,000)
Extraordinary loss--net 1,826,000
Increase (decrease) in deferred
taxes 1,150,000 (151,000) 1,186,000
Increase in accounts receivable (2,933,000) (2,800,000) (1,010,000)
Amortization of film contract
rights and valuation adjustments 6,540,000 5,662,000 5,633,000
Increase in prepaid film contract
rights (5,672,000) (4,149,000) (4,672,000)
(Increase) decrease in other
current assets 17,000 (369,000) 395,000
Increase (decrease) in accounts
payable and accrued expenses 2,435,000 2,148,000 (3,575,000)
Decrease in film contracts payable (372,000) (1,773,000) (409,000)
(Decrease) increase in deferred
revenue (833,000) 4,722,000
(Decrease) increase in income
taxes payable (1,187,000) 524,000 (984,000)
Other (872,000) (662,000) (487,000)
-----------------------------------------
Net Cash Provided by Operations 7,944,000 19,466,000 3,872,000
F-7
Outlet Broadcasting, Inc.
Consolidated Statements of Cash Flows (continued)
Year ended December 31
1995 1994 1993
---------------------------------------
Investing:
Capital expenditures--net of disposals (10,307,000) (3,385,000) (5,907,000)
Investment in time brokerage
agreements (556,000) (1,055,000)
Acquisition of broadcast station (5,478,000)
Other (14,000)
---------------------------------------
Net Cash Used by Investing (10,863,000) (9,932,000) (5,907,000)
Financing:
Issuance of notes payable 60,000,000
Proceeds from issuance of term loan 25,000,000
Payment of loan payable (4,500,000) (3,500,000) (2,000,000)
Payment of long-term debt (44,150,000)
Redemption of note payable to
shareholder (43,946,000)
Contribution of capital 468,000 50,000 38,000
Debt refinancing costs (3,151,000)
Premium on debt refinancing (2,207,000)
---------------------------------------
Net Cash Used by Financing (4,032,000) (3,450,000) (10,416,000)
---------------------------------------
Net (decrease) increase in cash and
cash equivalents (6,951,000) 6,084,000 (12,451,000)
Cash and cash equivalents at
beginning of year 7,840,000 1,756,000 14,207,000
---------------------------------------
Cash and Cash Equivalents at End
of Year $ 889,000 $ 7,840,000 $ 1,756,000
=======================================
See accompanying notes.
F-8
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
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. and its wholly-owned
subsidiaries. All material intercompany accounts are eliminated.
The Company's operations consist of three owned television stations and one
television station operated under a time brokerage agreement. The owned stations
include two NBC network-affiliated VHF television stations and one NBC network-
affiliated UHF television station. The two VHF television stations are WJAR,
which serves the Providence, Rhode Island-New Bedford, Massachusetts area and
WCMH, which serves the Columbus, Ohio area. The UHF television station is WNCN,
which services the Raleigh-Durham (Fayetteville, Goldsboro and Rocky Mount),
North Carolina market area. The Company also operates UHF television station
WWHO, Chillicothe, Ohio, under a time brokerage agreement with that station's
licensee.
2. Merger With National Broadcasting Company, Inc.
On August 2, 1995, the Parent Company executed a definitive merger agreement
with the National Broadcasting Company, Inc. ("NBC") providing for a transaction
in which NBC would acquire the Parent Company and the Parent Company's
stockholders would receive $47.25 per common share in cash. The merger agreement
was approved by the Parent Company's Board of Directors and by the holders of a
majority of the Parent Company's outstanding common stock. The transaction
closed on February 2, 1996. (See Note 9)
F-9
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
3. 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 NBC and is being 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.
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.
F-10
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
3. Significant Accounting Policies (continued)
Income Per Share
Income per share is computed by dividing net income 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.
Advertising
The Company expenses advertising costs as incurred. Advertising expense was
$1,447,000, $1,139,000, and $775,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual amounts could differ from those estimates.
Concentration of Credit Risk
The Company operates television stations which serve the following markets:
Columbus and Chillicothe, Ohio; Providence, Rhode Island--New Bedford,
Massachusetts and Raleigh--Durham (Fayetteville, Goldsboro and Rocky Mount),
North Carolina. The Company grants credit to customers, substantially all of
whom are either local advertisers within these markets or national advertising
agencies.
F-11
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
3. Significant Accounting Policies (continued)
Recently Issued Accounting Standards
The Company has estimated that the impact of adopting recently issued
accounting standards with delayed effective dates on the Company's financial
statements will not be material.
4. Acquisition and Time Brokerage Agreements
In March 1994, the Company entered into a time brokerage agreement ("TBA") 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 TBA 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 TBA. In addition, the Company agreed to
reimburse the licensee for certain annual operating expenses and debt service
which totaled $603,000 and $392,000 during 1995 and 1994, respectively. The
Company has also agreed to pay the licensee specified percentages of net
operating income (as defined in the TBA) after the Company recovers its
aggregate investment, excluding the option. There were no such payments required
in 1995 and 1994. The TBA will automatically renew for two additional periods of
five years unless canceled by the Company.
In December 1994, the Company entered into a TBA with the licensee of UHF
television station WLWC (formerly WFDG), New Bedford, Massachusetts; the terms
of which are similar to the TBA described above. This station has not yet
commenced operations. Under the TBA, the Company is required to spend up to $4
million for construction of improvements to the station of which $1,151,000 has
been expended as of December 31, 1995. The Company is also required to make an
initial investment in the TBA of $1,172,500, which includes an option, valued at
$512,500, to purchase the station. As of December 31, 1995, the Company has
made the payment associated with the purchase option.
F-12
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
4. Acquisition and Time Brokerage Agreements (continued)
On August 10, 1994, the Company purchased the assets and broadcast license of
television station WNCN for an aggregate price of $5,478,000. WNCN is 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 would not have been
significantly different from the actual historical results.
5. Income Taxes
The components of income tax expense (benefit) for the years ended December 31
are as follows:
1995 1994 1993
--------------------------------
(Dollars in thousands)
Current:
Federal $ 255 $531 $ (870)
State 450 280
--------------------------------
705 811 (870)
Deferred:
Federal 2,790 (70) 1,265
State 105 (81) (79)
--------------------------------
2,895 (151) 1,186
--------------------------------
3,600 660 316
Extraordinary items:
Federal (1,870) (940)
State (250)
--------------------------------
(2,120) 0 (940)
--------------------------------
$1,480 $660 $ (624)
================================
Income taxes paid $1,186 $287 $ 114
================================
F-13
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
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
1995 1994 1993
--------------------------------
(Dollars in thousands)
Statutory tax expense $ 4,002 $ 3,930 $ 796
State income taxes (net of
federal income tax benefit) 748 129 (52)
Amortization of intangible assets 500 529 500
Adjust prior year tax estimate 1,435 311 (1,040)
Change in valuation reserve (3,148) (4,256) 93
Alternative minimum tax 115
Other 63 17 (96)
--------------------------------
$ 3,600 $ 660 $ 316
The Company's income tax liability for both federal and state purposes in 1995
was reduced by the tax benefit derived from the exercise of incentive stock
options and subsequent sale of the related common stock and the exercise of non-
qualified stock options, all related to the Parent Company. The benefit totaled
approximately $1,989,000 for the year ended December 31, 1995 and was credited
to capital surplus.
In 1995, the Company's net operating loss carryover was increased by $3,470,000
to reflect additional amortization expense related to debt financing fees
incurred in 1986 and 1987; thereby increasing the deferred tax asset and the
related valuation reserve by $1,220,000.
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.
F-14
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
Deferred income taxes represent the net tax effects 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, 1995 and 1994, are as follows:
1995 1994
-------------------
(Dollars in thousands)
Deferred tax liabilities:
Amortization of network affiliation agreements
and FCC licenses $11,700 $12,058
Amortization of film contracts 890 1,173
Depreciation 2,748 1,400
Other 1,789 7
-------------------
Total deferred tax liabilities 17,127 14,638
Deferred tax assets:
Net operating loss carryover 10,832 9,244
Accrued expenses not currently deductible for
tax purposes 1,106 768
Unfunded pensions 2,161 2,282
Deferred revenue 1,672 2,030
Other 1,741 1,788
-------------------
Total deferred tax assets 17,512 16,112
Valuation reserve for deferred tax assets (3,949) (5,877)
-------------------
Net deferred tax assets 13,563 10,235
-------------------
Net deferred tax liability $ 3,564 $ 4,403
===================
F-15
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
5. Income Taxes (continued)
The Company has tax loss carryforwards in the amount of $28,336,000 which expire
as follows:
Year
----
2005 $ 5,787
2006 14,072
2007 5,310
2008 2,430
2010 737
--------------
$28,336
==============
6. Long-term Debt
Long-term debt consists of the following:
December 31
1995 1994
-------------------------
(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% (8.375% at December 31, 1995)
secured by substantially all of the assets of the
Company $15,000 $19,500
10 7/8% Senior Subordinated Notes, due July 15,
2003, interest payable semiannually on
January 15 and July 15 60,000 60,000
-----------------------
75,000 79,500
Less current portion 5,000 4,500
-----------------------
$70,000 $75,000
=======================
F-16
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-term Debt (continued)
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 was waived. On February 2, 1996, in connection with the closing of the
Parent Company's merger with NBC, all of the obligations under the Agreement
were paid in full and the Agreement was terminated. Annual maturities of long-
term debt during each of the next five years would have been as follows (dollars
in thousands): 1996-$5,000; 1997-$5,500; 1998-$4,500; 1999 and 2000-none.
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. The
estimated fair value of fixed rate debt, $60,600,000 at December 31, 1995, was
determined using an offering price for repurchase of the debt.
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.
F-17
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
6. Long-term Debt (continued)
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
semiannually 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 was a shareholder of the Parent
Company through February 2, 1996.
Cash payments for interest during the years ended December 31, 1995, 1994 and
1993 were $8,108,000, $8,096,000, and $13,071,000, respectively.
7. Lease Obligations and Commitments
The Company has several operating leases involving equipment. As of December 31,
1995, the future minimum payments under noncancelable operating leases with
initial or remaining terms of one year or more were as follows:
(Dollars
(in thousands)
--------------
1996 $ 463
1997 339
1998 335
1999 311
2000 262
Thereafter 643
------
$2,353
======
Rent expense for all operating leases was approximately $703,000, $604,000, and
$692,000, for the years ended December 31, 1995, 1994 and 1993, respectively.
The Company has commitments to acquire approximately $10,641,000 of film
contract rights at December 31, 1995. 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 TBA. The reimbursement for 1996 is
estimated at $611,000 and, in subsequent years, may approximate that amount.
F-18
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
7. Lease Obligations and Commitments (continued)
At December 31, 1995, the Company remains contingently liable on approximately
$11,380,000 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 $4,044,000 of building and tower leases related to radio and
television stations sold in March 1990.
8. Extraordinary Losses
The extraordinary loss in 1995 represents costs incurred by the Company in
connection with the Parent Company's merger with NBC, including a $5,500,000
payment to the Chairman of the Board. Other costs, directly related to the
change in the control of the Parent Company, will be recognized as of the
closing date of the Parent Company's merger with NBC.
The extraordinary loss in 1993 represents debt extinguishment costs as described
in Note 6.
9. Commissions
Net revenue for the years ended December 31, 1995, 1994, and 1993 are net of
agency and national representative commissions of approximately $13,018,000,
$11,547,000, and $9,140,000, respectively.
10. 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 and certain employees who did not qualify
for participation in the pension plan which was suspended in 1994 (see below).
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.
F-19
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
10. Employee Benefit Plans (continued)
Benefits are based on (i) the three consecutive years in which compensation
affords the highest average, and (ii) total years of service. The Company
suspended a non-union qualified pension plan as of September 1, 1994. The
Company's actuary determined the curtailment loss associated with the suspended
benefits to be $220,000.
Net pension costs for the indicated years ended December 31 consist of:
1995 1994 1993
---------------------------------
(Dollars in thousands)
Service costs--benefits earned
during the period $ 28 $ 215 $ 305
Interest cost on projected
benefit obligations 1,552 1,583 1,613
Actual return on assets (1,266) (1,341) (1,311)
Net amortization and other (22) 108 73
---------------------------------
$ 292 $ 565 $ 680
=================================
Assumptions used in accounting for the pension plans are as follows at
December 31:
1995 1994 1993
---------------------------------
Discount rate 7% - 7.25% 7.5% 7.5%
Average rate of increase in
compensation levels 6% 6% 6%
Expected long-term rate of return
on assets 5.5% - 9% 5.5% - 8.5% 5.5%-8.5%
The following table sets forth the funded status of the plans measured as of
December 31:
1995 1994
-------------------------
(Dollars in thousands)
Vested benefit obligations $(20,883) $(20,051)
=========================
Accumulated benefit obligations $(21,580) $(20,281)
=========================
F-20
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
10. Employee Benefit Plans (continued)
1995 1994
---------------------
(Dollars in thousands)
Projected benefit obligations $(21,580) $(20,281)
Plan assets at fair value, primarily cash
equivalents and listed stocks and bonds
16,844 15,326
---------------------
Projected benefit obligation in excess of
plan assets (4,736) (4,955)
Unrecognized net actuarial gain (804) (876)
Unrecognized prior service cost 141 159
Unrecognized net transition obligation 939 1,313
Adjustment for minimum liability (638) (774)
---------------------
Accrued pension liability $ (5,098) $ (5,133)
=====================
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 1995 and 1994 was
approximately $213,000 and $67,000, respectively. 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 the
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. As permitted by the new standard,
the Company elected to recognize its accumulated postretirement benefit
obligation at January 1, 1993, on a delayed basis. Postretirement benefit costs
are estimated by management.
F-21
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
10. Employee Benefit Plans (continued)
The following table provides information on the status of the medical
reimbursement benefit plan as of December 31:
1995 1994
-------------------------
(Dollars in thousands)
Accumulated postretirement benefit obligation:
Retirees $(603) $(682)
Fully eligible plan participants (76) (71)
Other active plan participants (38) (28)
-------------------------
Total (717) (781)
Unrecognized transition obligation 493 522
-------------------------
Accrued postretirement benefit cost $(224) $(259)
=========================
Net periodic postretirement benefit cost for the indicated years ended
December 31, consists of the following:
1995 1994
-------------------------
(Dollars in thousands)
Service cost - benefits attributed to service
during the period $10 $10
Interest cost on accumulated postretirement
benefit obligation 58 60
Amortization of unrecognized transition
obligation 29 29
-------------------------
Net periodic postretirement benefit cost $97 $99
=========================
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.
F-22
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
11. Intangible Assets
Intangible assets consist of the following at December 31:
1995 1994
-------------------------
(Dollars in thousands)
Network affiliation agreements $34,917 $34,917
Station licenses and goodwill 62,231 62,231
-------------------------
97,148 97,148
-------------------------
Less accumulated amortization 22,669 20,149
-------------------------
$74,479 $76,999
=========================
12. Accrued Expenses
Accrued expenses consist of the following at December 31:
1995 1994
-------------------------
(Dollars in thousands)
Accrued interest $ 3,046 $ 3,043
Accrued pensions 2,856 2,778
Accrued property taxes 472 471
Accrued salaries, wages and benefits 2,062 2,120
Accrued license fees, commissions and
promotion costs 569 668
Accrued liabilities for claims and contingencies 503 596
Accrued merger costs 838
Other 1,176 718
-------------------------
$11,522 $10,394
=========================
F-23
Outlet Broadcasting, Inc.
Notes to Consolidated Financial Statements (continued)
13. Capitalization
The capitalization of the Company at December 31, 1995 and 1994 was as follows:
Description Issued and 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 -
14. Litigation
During 1995, the Parent Company entered into, and subsequently terminated, a
merger agreement with a third party. In connection with the termination of this
merger agreement, the Parent Company was obligated to pay a fee of $6.5 million.
NBC paid this fee on behalf of the Parent Company.
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.
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.
15. Fourth Quarter Adjustments (Unaudited)
During the fourth quarter of 1995, the Company recognized an extraordinary item
relating to its merger with NBC (Note 8), lump sum charges of $1,453,000
representing valuation write downs of certain film contracts, reversal of
accruals for music license fees and other items no longer required aggregating
approximately $800,000 and a change in the estimated effective tax rate.
F-24
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, 1993
Allowance for
doubtful accounts $300 $275 $275 $300
==== ==== ==== ====
Year ended
December 31, 1994
Allowance for
doubtful accounts $300 $154 $133 $321
==== ==== ==== ====
Year ended
December 31, 1995
Allowance for
doubtful accounts $321 $438 $309 $450
==== ==== ==== ====
S-1
- 71 -
EXHIBIT INDEX
Page
----
3. (a) Certificate of Incorporation*, as amended
December 17, 1987;**and September 19, 1989***
(b) Amended and Restated By-Laws, dated February 2,
1996;************ 75
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;***as amended May 2, 1995***********(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)
(f)(vii) Agreement dated December 27, 1995 between
Outlet Communications, Inc. and James G.
Babb************(1) 90
(g) Lease Agreement dated as of September 27, 1982
between WBNS-TV and Outlet Broadcasting, Inc.
regarding tower facility of WCMH;***
- 72 -
Page
----
(h) Station Affiliation Agreement, dated as of
September 1, 1994, between WB Communications and
Outlet Broadcasting;********
(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.********
(k) Merger Agreement dated as of June 30, 1995,
among Renaissance Communications, Corp.,
Renaissance Communications Acquisition Corp.,
and Outlet Communications, Inc.*********
(l) Merger Agreement dated as of August 2, 1995,
among National Broadcasting Company, Inc.,
CO Acquisition Corporation and Outlet
Communications,Inc.**********
(m) Time Brokerage Agreement dated as of December 14,
1994, among Outlet Broadcasting, Inc. and BAF
Enterprises, Inc. and Fant Broadcasting Company
of Ohio, Inc.************ 95
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.
- 73 -
Page
----
******* Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1993.
******** Incorporated by reference from Annual Report on
Form 10-K for the year ended December 31, 1994.
********* Incorporated by reference from Current Report on
Form 8-K dated June 30, 1995.
********** Incorporated by reference from Current Report on
Form 8-K dated August 2, 1995.
*********** Incorporated by reference from the Definitive 14A
Proxy Statement filed by Outlet Communications, Inc. on
March 30, 1995.
************ Filed herewith.
________________________________________________
(1) Management contract or compensatory plan or arrangement.
- 74 -