Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 33-9443
OUTLET BROADCASTING, INC.
(Exact name of registrant as specified in its charter)
Rhode Island 05-0194550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Rockefeller Center 02920
New York, New York (Zip Code)
(Address of principal executive offices)
(212) 664-4444
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class A Common Stock March 31, 1996
- - --------------------- -----------------
Class A Common Stock, par value $.01 per share 1,000,000 shares
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Income --
Three Months Ended March 31, 1996 and
March 31, 1995
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1996 and
March 31, 1995
Notes to Condensed Consolidated Financial
Statements -- March 31, 1996
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, March 31,
1995 1996
------------ ------------
(Note) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 889,000 $ 2,179,000
Trade accounts receivable, less allowance
for doubtful accounts (December--$450,000;
March--$405,000) 16,573,000 13,844,000
Film contract rights 3,148,000 1,955,000
Other current assets 1,154,000 748,000
------------ ------------
TOTAL CURRENT ASSETS 21,764,000 18,726,000
OTHER ASSETS
Film contract rights 346,000 102,000
Deferred financing costs and other 3,480,000 4,260,000
------------ ------------
3,826,000 4,362,000
PROPERTY AND EQUIPMENT 59,204,000 58,809,000
Less accumulated depreciation 29,728,000 30,513,000
------------ ------------
29,476,000 28,296,000
INTANGIBLE ASSETS, less accumulated amortization
(December--$22,669,000; March--$23,297,000) 74,479,000 73,851,000
------------ ------------
$129,545,000 $125,235,000
============ ============
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS-Continued
December 31, March 31,
1995 1996
------------ ------------
(Note) (Unaudited)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 1,492,000 $ 1,053,000
Accrued expenses 11,522,000 8,210,000
Film contracts payable 3,814,000 2,669,000
Deferred revenue 833,000 833,000
Federal and state income taxes 1,537,000 2,304,000
Due to affiliate 16,129,000
Current portion of long-term debt 5,000,000
------------ ------------
TOTAL CURRENT LIABILITIES 24,198,000 31,198,000
LONG-TERM DEBT
Senior bank loan 10,000,000
10 7/8% Senior Subordinated Notes 60,000,000 60,000,000
------------ ------------
70,000,000 60,000,000
OTHER LIABILITIES
Film contracts payable 1,007,000 1,217,000
Unfunded pensions 2,242,000 41,000
Deferred revenue 3,056,000 2,847,000
Deferred income taxes 3,564,000 3,382,000
Other 3,057,000 3,057,000
------------ ------------
12,926,000 10,544,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock 10,000 10,000
Contributed capital 35,605,000 35,605,000
Accumulated deficit (12,699,000) (11,627,000)
Pension liability adjustment (495,000) (495,000)
------------ ------------
22,421,000 23,493,000
------------ ------------
$129,545,000 $125,235,000
============ ============
Note: The balance sheet at December 31, 1995 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
----------------------------
March 31, March 31,
1995 1996
------------ ------------
Net revenue $ 13,470,000 $ 16,216,000
Expenses:
Technical, programming and news 5,106,000 6,460,000
Selling, general and administrative 3,036,000 3,651,000
Corporate expenses 534,000 308,000
Depreciation 914,000 884,000
Amortization of intangible assets 631,000 628,000
------------ ------------
10,221,000 11,931,000
------------ ------------
Operating income 3,249,000 4,285,000
Other income (expense):
Interest expense (2,119,000) (1,758,000)
Interest income 89,000 62,000
Other income 46,000 45,000
Other expense (233,000) (215,000)
------------ ------------
Income before income taxes
and extraordinary loss 1,032,000 2,419,000
Income taxes 440,000 967,000
------------ ------------
Income before extraordinary loss $ 592,000 $ 1,452,000
Extraordinary loss, net of tax (379,000)
------------ ----------
Net income $ 592,000 $1,073,000
============ ============
Income per share:
Before extraordinary loss 0.59 1.45
Extraordinary loss, net (0.38)
------------ ------------
Net income per share 0.59 1.07
============ ============
Weighted average number of
common shares outstanding 1,000,000 1,000,000
============ ============
See accompanying notes.
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
----------------------------
March 31, March 31,
1995 1996
------------ ------------
Cash from operations $ 2,316,000 $ (117,000)
Investing activities:
Capital expenditures (1,849,000) (15,000)
Cash received from disposals 398,000
Investment in time brokerage agreement (95,000)
Other (317,000)
------------ ------------
(2,166,000) 278,000
Financing activities:
Payment of loan payable, net (1,125,000) (15,000,000)
Funding from affiliate, net 16,129,000
Other 5,000
----------- -----------
(1,120,000) 1,129,000
------------ ------------
Net increase (decrease) in cash and cash
equivalents $ (970,000) $ 1,290,000
============= =============
See accompanying notes.
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1996
Note 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
Note 2 - Merger with National Broadcasting Company, Inc.
- --------------------------------------------------------
On August 2, 1995 the Company's parent ("Parent Company") executed a
definitive merger agreement with the National Broadcasting Company, Inc.
("NBC"). The transaction closed on February 2, 1996. In connection with the
closing of the Parent Company's merger with NBC, the Company's $15,0000,000
senior loan payable was paid in full on February 2, 1996 and the underlying
credit agreement with a commercial bank was terminated. As a result of the early
repayment of the senior loan, the Company incurred one-time debt extinguishment
costs in the amount of $249,000, net of income taxes, reported as an
extraordinary loss during the quarter ended, March 31, 1996. In addition, merger
costs in the amount of $130,000, net of income taxes, are also included in the
extraordinary loss.
The funds utilized in repaying the senior loan were provided by NBC.
Subsequent to the closing of the merger, the Company's net cash balances are
transferred to NBC. Accordingly, the net balance due NBC is classified as a
current liability at March 31, 1996.
Note 3 - Income (Loss) Per Share
- - ---------------------------------
Income (loss) per share has been computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding during the
period.
Note 4 - Long-term debt
- - ------------------------
On March 2, 1996, in accordance with the Senior Subordinated Notes
indenture, the Company commenced an offer to repurchase each holder's Notes in
whole, or in part in multiple of $1,000, in cash in an amount equal to 101% of
the aggregate principal amount plus interest accrued thereon. This offer expired
on April 1, 1996 and resulted in the tender of $50,000 of Notes in aggregate
principal. As a result, $59,950,000 of Notes are outstanding as of April 30,
1996.
On May 13, 1996, the Company commenced soliciting the consent of the
registered holders of its Senior Subordinated Notes to amend or eliminate
certain convenants of the indenture. The amendment would, among other things,
have General Electric Company fully and conditionally guarantee the due and
punctual payment of the principal and interest of the notes.
Note 5 - Contingent Liabilities and Commitments
- -----------------------------------------------
The Company has commitments to acquire approximately $4,022,700 of film
contract rights at March 31, 1996. The company also remains contingently liable
on approximately $917,000 of film program commitments related to film program
rights sold to other television stations.
At March 31, 1996, the Company remains contingently liable on
approximately $11,062,000 of store leases associated with its retail division
which was sold as of the fiscal year ended January 31, 1983. 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.
The Company also remains contingently liable on approximately $3,905,000
of building and tower leases related to radio and television stations sold in
March 1990.
The Company may be 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OUTLET BROADCASTING, INC. AND SUBSIDIARIES
The Company's operations consist of three owned television stations and
one television station operated under a local marketing agreement. The owned
stations include two NBC network-affiliated VHF television stations and one
NBC network-affiliated independent 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 serves the Raleigh-Durham
(Fayetteville, Goldsboro and Rocky Mount), North Carolina market area.
The Company also operates UHF television station WWHO-TV, Chillicothe,
Ohio, under a time brokerage agreement with that station's licensee. The
Company serves as a broker for the sale of WWHO-TV's advertising time and
provides it with certain programming and operating capabilities. In return,
the Company retains a substantial percentage of the station's net
operating income to the extent that it exceeds cumulative net operating
losses. WWHO-TV is affiliated with the WB Television Network.
The Company 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 time brokerage 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 remains in full force and effect.
On February 2, 1996, Co Acquisition Corporation, a subsidiary of NBC
merged into Outlet Communications Inc., the owner of all the outstanding capital
stock of Outlet Broadcasting, Inc. As a result of the merger, the Company became
a wholly owned subsidiary of NBC.
Three Months Ended March 31, 1996 and March 31, 1995
The following table sets forth a comparison of total Company operating
results for the first quarters of 1995 and 1996.
Three Months Ended March 31
------------------------------
1995 1996
-------------- -------------- Increase(Decrease)
Percent Percent 1996 vs. 1995
of Net of Net Percentage
Dollars in thousands Amount Revenue Amount Revenue Amount Change
- -------------------- ------ ------- ------ ------- ------ ----------
Net revenue $13,470 100.0% $16,216 100.0% $2,746 20.4%
Expenses:
Technical, programming
and news 5,106 37.9 6,460 39.8 1,354 26.5
Selling, general and
administrative 3,036 22.5 3,651 22.5 615 20.3
Corporate expenses 534 4.0 308 1.9 (226) (42.3)
Depreciation and
amortization 1,545 11.5 1,512 9.3 (33) (2.1)
------ ----- ------- ----- ------ ----
Operating income $ 3,249 24.1% $ 4,285 26.4% $ 1,036 31.9%
======= ====== ======= ====== ======= =====
Net cash provided
by operations (a) $ 2,316 17.2% (117) (0.7%) $(2,433) (105.1%)
======= ====== ======= ====== ======= =====
Operating cash
flow (a) $ 4,794 35.6% $ 5,797 35.7% $ 1,003 20.9%
======= ====== ======= ====== ======= =====
(a) "Net cash provided by operations" includes all cash flows (including working
capital changes) other than cash flows associated with investing or
financing activities. "Operating cash flow" means operating income plus
depreciation and amortization.
Net revenue of $16,216,000 in the first quarter of 1996 increased by
$2,746,000 or 20.4% versus net revenue of $13,470,000 in the first quarter of
1995. Compared with the prior year period, 1995 first quarter revenue at WJAR
and WCMH increased by 3.2% and 12.3% respectively. Both WJAR and WCMH set first
quarter revenue records. This marked the fourth successive year that WCMH
established a record high in first quarter revenue. WNCN and WWHO provided an
aggregate revenue increase in the current quarter of 311.6% and 29.6%
respectively. 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.
Technical, programming and news expenses of $6,460,000 in the 1996 first
quarter increased by $1,354,000 or 26.5% from $5,106,000 in the prior year
period. As a percent to revenue, technical, programming and news expenses
increased to 39.8% in the 1996 first quarter from 37.9% a year ago. This is
primarily attributed to the increased news costs associated with WNCN-TV local
news show.
Selling, general and administrative expenses of $3,651,000 in the first
quarter of 1996 increased by $615,000 or 20.3% compared with $3,036,000 in the
1995 first quarter. As a percentage of revenue, selling, general and
administrative expenses remained at 22.5% for the comparable first quarter
period.
Corporate expenses had a decrease of $226,000 or 42.3% compared with the
prior year period. Upon the completion of the merger with NBC, Outlet's
corporate division was eliminated and management consulting agreement was
terminated.
Total expenses of $11,931,000 in the first quarter of 1996 increased by
$1,710,000 or 16.7% from $10,221,000 in the prior year.
Operating income of $4,285,000 in the 1996 first quarter increased by
$1,036,000 or 31.9% compared to $3,249,000 in the prior year. Operating income
increased as a percent to revenue, from 24.1% in the first quarter of 1995 to
26.4% in the first quarter of 1996 primarily as a result of revenue growth
offset by higher news costs and variable costs directly related to revenue.
Operating cash flow marginally increased to 35.7% of revenue for the 1996
first quarter from 35.6% in the prior year.
In the first quarter of 1996, total interest expense of $1,758,000
decreased by $361,000 or 17% compared to $2,119,000 a year ago due to the
company's early repayment of its $15,000,000 senior loan payable in connection
with the parent company merger with NBC. As a result of the reduced interest
expense, the ratio of operating cash flow - $5,797,000, to interest expense -
$1,758,000 in the 1996 first quarter increased to 3.3 to 1 from 2.3 to 1 in the
first quarter of 1995.
Interest income decreased by $27,000 in 1996 because of lower cash
balances maintained during current period resulting from the transfers of the
company's net cash balances to NBC.
In the first quarter 1996, the Company recorded an extraordinary loss of
$379,000 or $0.38 per share, net of taxes. This amount primarily represents a
write-off of deferred financing costs associated with the senior bank loan
and certain costs associated with the merger with NBC.
In 1996, The Company had income before extraordinary loss of first quarter
$1,452,000 or $1.45 per share. This compares with 1995 net income of $592,000 or
$0.59 per share.
Net cash required by operations totaled $117,000. This was a decrease of
$2,433,000 when compared with net cash provided by operations of $2,316,000 in
the first quarter of 1995. The decrease included the effect of a $3,100,000
payment for accrued but unfunded supplemental pension plan liabilities
resulting from merger of the Company's parent with NBC.
During the first quarter of 1996, the Company increased its cash
investment of film contract rights by $935,000, primarily by making payment of
film contract obligations. After giving effect to the period's amortization of
film contract rights of $1,131,000, the decrease in net investment in film
contract rights was $306,000. This compares with a cash investment in film
contract rights of $1,589,000 during the first quarter of 1995 and a net
increased investment in film contract rights of $386,000 for that period.
Because of the company's increased volume of business activity,
outstanding trade accounts receivable continued to trend at a higher level in
the 1996 first quarter compared with the same period a year ago.
In the first quarter of 1996, investing activities provided a net source
of cash totaling $278,000 primarily resulting from sale of WNCN assets in
connection with its move from Clayton, North Carolina to Raleigh, North Carolina
offset by capital expenditures $15,000. Investing activities also include
payments made, in the amount of $95,000, pursuant to a time brokerage agreement
entered into the license 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.
In 1995 cash required by investing activities totaled $2,166,000. This
included normal capital expenditures of $1,849,000 of which a substantial amount
represented payments made for new transmitting equipment at WNCN. Disbursements
for other investment activities totaled $317,000 and included deposits and other
miscellaneous payments.
Cash used by financial activities in the first quarter of 1996 amounted to
a source of cash of $1,129,000 and included $16,129,000 funding from NBC of
which the Company made a $15,000,000 prepayment of a term loan with the
company's senior bank lender. In 1995 a required quarterly installment of
$1,125,000 was paid on same term loan.
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.
The Company's overall cash position increased by $1,290,000 in the first
quarter of 1996. At March 31, 1996 the Company had an excess of current
liabilities over current assets, in the amount of $12,472,000. This was an
increase of $10,038,000 during the period compared with an excess of current
liabilities over current assets of $2,434,000. The decrease in net working
capital is primarily attributed to funding from NBC of $16,129,000 classified as
current liability offset by a $5,000,000 decrease in current portion of long
term debt resulting from the retirement of such debt upon merger with NBC. See
Note 2 to the Consolidated Financial Statements. The Company expects that
available cash will be able to meet its normal operating requirements over the
near term.
On March 2, 1996, in accordance with the Senior Subordinated Notes
indenture, the Company commenced an offer to repurchase each holder's Notes in
whole, or in part in multiple of $1,000, in cash in an amount equal to 101% of
the aggregate principal amount plus interest accrued thereon. This offer expired
on April 1, 1996 and resulted in the tender of $50,000 of Notes in aggregate
principal. As a result, $59,950,000 of Notes are outstanding.
On May 13, 1996, the Company commenced soliciting the consent of the
registered holders of its Senior Subordinated Notes to amend or eliminate
certain convenants of the indenture. The amendment would, among other things,
have General Electric Company fully and conditionally guarantee the due and
punctual payment of the principal and interest of the notes.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
There is no pending legal proceedings or actions against the Company or
its subsidiaries which would have a material effect on the business or financial
condition of the Company except for the legal proceedings and contingent lease
and film obligations as described in Note 5 to the consolidated condensed
financial statements of page 8 of this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -- None.
(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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OUTLET BROADCASTING, INC.
-------------------------
(Registrant)
/s/ John Rohrbeck
---------------------------------
Date May 15, 1996 John Rohrbeck
President
/s/ Warren Jenson
---------------------------------
Date May 15, 1996 Warren Jenson
Treasurer and Director