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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 1-8598
A. H. BELO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 75-0135890
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. BOX 655237
DALLAS, TEXAS 75265-5237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 977-6606
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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SERIES A COMMON STOCK, $1.67 PAR VALUE NEW YORK STOCK EXCHANGE
PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: SERIES B COMMON
STOCK, $1.67 PAR VALUE
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(Title of class)
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. [ ]
The aggregate market value of the registrant's voting stock held by
nonaffiliates on January 31, 1996, based on the closing price for the
registrant's Series A Common Stock on such date as reported on the New York
Stock Exchange, was approximately $1,109,387,351. *
Shares of Common Stock outstanding at January 31, 1996: 38,258,754 shares.
(Consisting of 28,978,861 shares of Series A Common Stock and 9,279,893 shares
of Series B Common Stock.)
* For purposes of this calculation the market value of a share of Series B
Common Stock was assumed to be the same as the share of Series A Common
Stock into which it is convertible.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's Proxy Statement relating to the Annual
Meeting of Shareholders to be held May 8, 1996 are incorporated by reference
into Part III (Items 10, 11, 12 and 13).
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A. H. BELO CORPORATION
FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . 8
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . 9
Item 8. Financial Statements and Supplementary Data (see Index to Financial Statements
below) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . 15
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . 15
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . 15
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . 15
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Consolidated Statements of Earnings for the years ended December 31, 1995, 1994 and 1993 . . . . . . . 22
Consolidated Balance Sheets as of December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 23
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Management's Responsibility for Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 37
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PART I
ITEM 1. BUSINESS
A. H. Belo Corporation (the "Company" or "Belo") owns and operates seven
network-affiliated VHF television stations in the top 60 U.S. television
markets and the largest daily newspaper in the Dallas-Fort Worth metropolitan
area. The Company's broadcast group reaches 8 percent of all U.S. television
households and its principal newspaper, The Dallas Morning News, has the
country's seventh largest Sunday circulation (800,147) and eighth largest daily
circulation (534,197). The Company believes the success of its media franchises
is built upon providing local news, information and community service of the
highest caliber. These principles have attracted and built relationships with
viewers, readers and advertisers and have guided the Company's success for 154
years.
Three of the Company's seven stations are in the top 12 television markets:
WFAA (ABC) Dallas-Fort Worth; KHOU (CBS) Houston; and KIRO (UPN)
Seattle-Tacoma. These major metropolitan areas are among the fastest growing in
the country. All of the Company's stations are ranked either number one or two
in overall sign-on/sign-off audience delivery, with the exception of KIRO,
which was acquired by the Company in 1995. The Company, through its subsidiary
Belo Productions, Inc. and a partnership with Universal Press Syndicate,
produces and distributes original programming to its station group and to
various outside purchasers.
The Dallas Morning News is one of the leading newspaper franchises in
America. The Dallas Morning News' success is founded upon the highest standards
of journalistic excellence, with a special emphasis on local news, information
and community service. The newspaper's outstanding reporting and editorial
initiatives have earned six Pulitzer Prizes since 1986. As the leading
newspaper in the Dallas-Fort Worth market, The Dallas Morning News' success is
measured by its high circulation and volume of advertising. In late 1995 and
early 1996, the Company expanded its publishing division by acquiring two daily
newspapers serving Bryan-College Station, Texas and Owensboro, Kentucky. The
Company also publishes nine other community newspapers in the Dallas-Fort Worth
suburban area and operates a commercial printing business.
Note 13 to the Consolidated Financial Statements contains information about
the Company's industry segments for the years ended December 31, 1995, 1994 and
1993.
TELEVISION BROADCASTING
The Company's television broadcast operations began in 1950 with the
acquisition of WFAA in Dallas-Fort Worth shortly after the station commenced
operations. In 1984, the Company significantly expanded its television
broadcast operations with the purchase of its four stations in Houston,
Sacramento, Hampton-Norfolk and Tulsa. In June 1994 and February 1995, the
Company acquired its stations in New Orleans and Seattle, respectively.
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The following table sets forth information for each of the Company's
stations and their markets:
NUMBER OF STATION
COMMERCIAL STATION AUDIENCE
MARKET YEAR NETWORK STATIONS IN RANK IN SHARE IN
MARKET RANK(1) STATION ACQUIRED AFFILIATION CHANNEL MARKET(2) MARKET(3) MARKET(4)
------ ------- ------- -------- ----------- ------- --------- --------- ---------
Dallas-Fort Worth 8 WFAA 1950 ABC 8 13 1 20%
Houston . . . . . 11 KHOU 1984 CBS 11 13 1* 16%
Seattle-Tacoma . 12 KIRO 1995 UPN 7 8 4* 8%
Sacramento . . . 21 KXTV 1984 ABC 10 9 2 14%
Hampton-Norfolk . 40 WVEC 1984 ABC 13 7 1* 18%
New Orleans . . . 41 WWL 1994 CBS 4 7 1 28%
Tulsa . . . . . . 59 KOTV 1984 CBS 6 7 2 19%
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* Tied with one or more other stations in the market.
(1) Market rank is based on the relative size of the television market or
Designated Market Area ("DMA") among the 211 generally recognized DMAs in
the United States, based on November 1995 Nielsen estimates.
(2) Represents the number of television stations (both VHF and UHF)
broadcasting in the market, excluding public stations and national cable
channels.
(3) Station rank is derived from the station's rating which is based on
November 1995 Nielsen estimates of the number of television households
tuned to the Company's station for the Sunday-Saturday, 7:00 a.m. to 1:00
a.m. period ("sign-on/sign-off") as a percentage of the number of
television households in the market.
(4) Station audience share is based on November 1995 Nielsen estimates of the
number of television households tuned to the Company's station as a
percentage of the number of television households with sets in use in the
market for the sign-on/sign-off period.
Generally, rates for national and local spot advertising sold by the
Company are determined by each station, which receives all of the revenues, net
of agency commissions, for that advertising. Rates are influenced both by the
demand for advertising time and the popularity of the station's programming.
Commercial television stations generally fall into one of three categories.
The first category of stations historically consisted of stations affiliated
with one of the three major national networks (ABC, CBS and NBC). In recent
years, Fox has effectively evolved into the fourth major network. The second
category is comprised of stations affiliated with newer national networks, such
as United Paramount Network ("UPN") and the WB (Warner Brothers) Television
Network. The third category includes independent stations that are not
affiliated with any network and that rely principally on local and syndicated
programming.
Three of the Company's stations are affiliated with ABC, three are
affiliated with CBS and one is affiliated with UPN. Each of the Company's
network affiliation agreements provides the affiliated station with the right
to broadcast all programs transmitted by the network with which the station is
affiliated. In return, the network has the right to sell most of the
advertising time during such broadcasts. Each station receives a specified
amount of network compensation for broadcasting network programming, with the
exception of the Company's UPN affiliate. To the extent a station's preemptions
of network programming exceed a designated amount, such compensation may be
reduced. Such payments are also subject to decreases by the network during the
term of an affiliation agreement under other circumstances with provisions for
advance notice and right of termination by the station in the event of a
reduction in such payments. The Company has renegotiated its affiliation
agreements with both CBS and ABC, resulting in an increase in the compensation
paid by each network to the Company in return for a long-term extension of each
of the agreements. Final documentation of the new ABC affiliation agreements
has not been completed although the Company is receiving its increased
compensation under the new agreements.
Affiliation with a television network can have a significant influence on
the revenues of a television station because the audience share drawn by a
network's programming can affect the rates at which a station can sell
advertising time. The television networks compete for affiliations with
licensed television stations through program commitments and local marketing
support. From time to time, local television stations also solicit network
affiliations on the basis of their ability to provide a network better access
to a particular market.
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NEWSPAPER PUBLISHING
The Company's principal newspaper, The Dallas Morning News, was established
in 1885. It is published seven days a week. In 1963, the Company acquired its
suburban newspaper operation. In late 1991, after years of intense competition,
The Dallas Morning News' principal newspaper competitor, the Dallas Times
Herald, ceased operations and the Company purchased its assets. In late 1995
and early 1996, the Company expanded its publishing division by acquiring two
daily newspapers serving Bryan-College Station, Texas and Owensboro, Kentucky.
The following table sets forth information concerning the Company's daily
newspaper operations:
CIRCULATION(1)
--------------
NEWSPAPER LOCATION DAILY SUNDAY
--------- -------- ----- ------
The Dallas Morning News . . . . . . . . . . Dallas, TX 534,197 800,147
Bryan-College Station Eagle . . . . . . . . Bryan-College Station, TX 20,381 26,326
Owensboro Messenger-Inquirer . . . . . . . Owensboro, KY 32,363 33,398
- ---------------
(1) Average paid circulation for the six months ended September 30, 1995,
according to the unaudited Publisher's Statement of the Audit Bureau of
Circulations, an independent agency (the "Audit Bureau").
The Dallas Morning News provides coverage of local, state, national and
international news. The Dallas Morning News is distributed throughout the
Southwest, though its circulation is concentrated primarily in the twelve
counties surrounding Dallas.
The Dallas Morning News strives to serve the public interest by maintaining
a strong and independent voice in matters of public concern. It is the policy
of the Company to allocate such resources as may be necessary to maintain
excellence in news reporting and editorial comment in The Dallas Morning News.
The Dallas Morning News serves a large readership in its primary market.
Average paid circulation for the six months ended September 30, 1995 was
534,197 daily, up 1.8 percent from the 1994 average daily circulation of
524,567. Sunday's average paid circulation was 800,147, up slightly from
the six months ended September 30, 1994 average of 797,206.
The basic material used in publishing The Dallas Morning News is newsprint.
The average unit cost of newsprint consumed during 1995 was sharply higher than
that of the prior year due to market-wide price increases throughout the year.
The Company expects the full-year effect of the 1995 newsprint price increases
to result in even higher newsprint expense in 1996. The Company cannot predict
at this time whether newsprint prices will increase further in 1996. At
present, newsprint is purchased from nine suppliers. During 1995, the
Company's three largest providers of newsprint supplied approximately one-half
of the newspaper's requirements, but the Company is not dependent on any one of
them. Management believes its sources of newsprint, along with alternate
sources that are available, are adequate for its current needs.
DFW Suburban Newspapers, Inc. publishes six paid and two free newspapers
for suburban communities in the Dallas-Fort Worth metropolitan area. These
publications are delivered either one or two days a week. Each of the
Company's community publications has its own sales, circulation, news and
editorial personnel, and several of the publications maintain separate offices.
All administrative functions are centralized and all of the newspapers are
printed at a plant in Arlington, Texas. This plant is owned and operated by
DFW Printing Company, Inc., which, in addition to printing the suburban
newspapers, is the site of the Company's commercial printing operations. The
Company also publishes a newspaper twice-a-week and a free weekly in Rockwall,
Texas.
COMPETITION
The success of broadcast operations depends on a number of factors,
including the general strength of the economy, the ability to provide
attractive programming, audience ratings, relative cost efficiency in reaching
audiences as compared to other advertising media, technical capabilities and
governmental regulations and policies. The Company's television broadcast
stations compete for advertising revenues directly with other media such as
newspapers (including those owned and operated by the Company), other
television stations, radio stations, cable
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television systems, outdoor advertising, magazines and direct mail advertising.
The four major national television networks are represented in each
television market in which the Company has a television broadcast station.
Competition for advertising sales and local viewers within each market is
intense, particularly among the network-affiliated television stations.
The entry of local telephone companies into the market for video
programming services, as permitted under the Telecommunications Act of 1996,
(the "1996 Act"), can be expected to have a significant impact on competition
in the television industry. The Company is unable to predict the effect that
these or other technological and related regulatory changes will have on the
broadcast television industry or the future results of the Company's
operations.
The Dallas Morning News competes for advertising with television and radio
stations (including a television station owned and operated by the Company),
magazines, direct mail, cable television, billboards and other newspapers
(including other newspapers owned and operated by the Company). Also competing
with The Dallas Morning News is the Fort Worth Star-Telegram, owned by The Walt
Disney Company.
REGULATION OF TELEVISION BROADCASTING
The Company's television broadcasting operations are subject to the
jurisdiction of the Federal Communications Commission ("FCC") under the
Communications Act of 1934, as amended (the "Act"). Among other things, the
Act empowers the FCC to assign frequency bands; determine stations'
frequencies, location and power; issue, renew, revoke and modify station
licenses; regulate equipment used by stations; impose penalties for violation
of the Act or of FCC regulations; impose fees for processing applications and
other administrative functions; and adopt regulations to carry out the Act's
provisions. The Act also prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without prior FCC approval.
Under the Act, the FCC also regulates certain aspects of the operation of cable
television systems and other electronic media that compete with broadcast
stations.
The Act would prohibit the Company's subsidiaries from continuing as
broadcast licensees if record ownership or power to vote more than one-fourth
of the Company's stock were to be held by aliens, foreign governments or their
representatives, or by corporations formed under the laws of foreign countries.
The Act previously would have prohibited the Company's subsidiaries from
continuing as broadcast licensees if any officer or more than one-fourth of the
directors of the Company were aliens. The 1996 Act, however, eliminated the
restriction on alien officers and directors.
Prior to the passage of the 1996 Act, television broadcast licenses were
granted for a period of five years. Renewal applications were granted without a
hearing if there were no competing applications or issues raised by petitioners
to deny such applications that would cause the FCC to order a hearing. If
competing applications were filed, a full comparative hearing was required.
Under the 1996 Act, the statutory restriction on the length of a broadcast term
was amended to allow the FCC to grant broadcast licenses for terms of up to
eight years. The 1996 Act also requires renewal of a broadcast license if the
FCC finds that (1) the station has served the public interest, convenience, and
necessity; (2) there have been no serious violations of either the Act or the
FCC's rules and regulations by the licensee; and (3) there have been no other
serious violations which taken together constitute a pattern of abuse. In
making its determination, the FCC cannot consider whether the public interest
would be better served by a person other than the renewal applicant. Under the
1996 Act competing applications for the same frequency may be accepted only
after the Commission has denied an incumbent's application for renewal of
license.
An application for renewal of the broadcast license for WFAA, which expired
August 1, 1993, is pending before the FCC. The station's license is, by
statute, continued pending action thereon. The current license expiration
dates for each of the Company's other television broadcast stations are as
follows: KHOU, August 1, 1998; KIRO, February 1, 1999; KXTV, December 1, 1998;
WVEC, October 1, 1996; WWL, June 1, 1997; and KOTV, June 1, 1998.
FCC ownership rules limit the total number of television broadcast stations
that may be under common ownership, operation and control, or in which a single
person or entity may hold office or have more than a specified interest or
percentage of voting power. FCC rules also place certain limits on common
ownership, operation and control of, or cognizable interests or voting power
in, (a) broadcast stations serving the same area, (b) broadcast
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stations and daily newspapers serving the same area and (c) television
broadcast stations and cable systems serving the same area. The 1996 Act
eliminated a statutory prohibition against common ownership of television
broadcast stations and cable systems serving the same area, but left the FCC
rule in place. The 1996 Act also stipulates that the FCC should not consider
the repeal of the statutory ban in any review of its applicable rules. The
Company's ownership of The Dallas Morning News and WFAA, which are both located
in the Dallas-Fort Worth area and serve the same market area, predates the
adoption of the FCC's rules regarding cross-ownership, and the Company's
ownership of The Dallas Morning News and WFAA has been "grandfathered" by the
FCC.
The FCC ownership rules affect the number, type and location of newspaper,
broadcast and cable television properties that the Company might acquire in the
future. For example, under current rules, the Company generally could not
acquire any daily newspaper, broadcast or cable television properties in a
market in which it now owns or has an interest deemed attributable under FCC
rules in a television station, except that the FCC's rules and policies (as
modified in the 1996 Act) provide that waivers of these restrictions would be
available to permit the Company's acquisition of radio stations in any of the
markets in which the Company currently owns television stations (other than
Tulsa) or of "satellite" television stations located within a parent station's
grade B service contour which rebroadcast all or most of the parent station's
programming.
The FCC has instituted proceedings looking toward possible relaxation of
certain of its rules regulating television station ownership and changes in the
standards used to determine what type of interests are considered to be
attributable under its rules. In addition, the 1996 Act directs the FCC to (a)
eliminate the restrictions on the number of television stations (nationwide)
that a person or entity may directly or indirectly own, operate or control or
have a cognizable interest in and raise the limitation on the aggregate
audience reach of commonly owned stations from 25 percent to 35 percent of the
total national audience, and (b) conduct a rule making proceeding to determine
whether to modify its limitations on the number of television stations that one
entity may own or have an interest in within the same television market.
The FCC has significantly reduced its past regulation of broadcast
stations, including elimination of formal ascertainment requirements and
guidelines concerning amounts of certain types of programming and commercial
matter that may be broadcast. There are, however, FCC rules and policies, and
rules and policies of other federal agencies, that regulate matters such as
network-affiliate relations, cable systems' carriage of syndicated and network
television programming on distant stations, political advertising practices,
obscene and indecent programming, equal employment opportunity, application
procedures and other areas affecting the business or operations of broadcast
stations. The FCC has eliminated its former rules which restricted network
participation in program production and syndication. The FCC also recently
eliminated the prime time access rule ("PTAR"), effective August 30, 1996. The
PTAR currently limits the ability of some stations within the fifty largest
television markets to broadcast network programming (including syndicated
programming previously broadcast over a network) during prime time hours. The
elimination of PTAR could increase the amount of network programming broadcast
over a station affiliated with ABC, NBC or CBS. The U.S. Supreme Court refused
to review a lower court decision that upheld FCC action invalidating most
aspects of the Fairness Doctrine, which had required broadcasters to present
contrasting views on controversial issues of public importance. The FCC may,
however, continue to regulate other aspects of fairness obligations in
connection with certain types of broadcasts.
The FCC has adopted rules to implement the Children's Television Act of
1990, which, among other provisions, limits the permissible amount of
commercial matter in children's television programs and requires each
television station to present educational and informational children's
programming. The Commission is currently considering proposals for stricter
children's programming requirements. Most significant among the FCC's
suggested new rules is a requirement that broadcasters provide a specific
hourly minimum amount of children's programming on a regular basis. Although
the FCC has not yet proposed an explicit quantitative requirement, it has
called for comment on various examples, such as a three to five hour-per-week
minimum obligation.
The FCC also has adopted various regulations to implement certain
provisions of the Cable Television Consumer Protection and Competition Act of
1992 ("1992 Cable Act") which, among other matters, includes provisions
respecting the carriage of television stations' signals by cable television
systems and requiring mid-license term review of television stations' equal
employment opportunity practices. Certain provisions of the 1992 Cable Act,
including the provisions respecting cable systems' carriage of local television
stations, are the subject of pending judicial review proceedings. Moreover,
the 1992 Cable Act was amended in certain important respects by the 1996 Act.
Most notably, the 1996 Act repeals the cross-ownership ban between cable and
telephone entities and
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the FCC's current video dial tone rules. These provisions, among others,
foreshadow significant future involvement in the provision of video services by
telephone companies.
The FCC recently proposed the adoption of rules for implementing digital
advanced television ("ATV") service in the United States. Implementation of
digital ATV would improve the technical quality of television signals
receivable by viewers and give television broadcasters the flexibility to
provide new services, including high-definition television ("HDTV")
simultaneously with multiple programs of standard definition television
("SDTV") and data transmission. Within the next few months, the FCC is
expected to release two additional proposals that address, respectively, the
ATV broadcasting standard and an ATV channel allotment and assignment plan. As
currently proposed, each existing broadcaster would be loaned, for a finite
transition period, a second channel on which to transmit ATV signals
simultaneously with the current analog television broadcast. At the end of the
transition, analog TV transmissions would cease and the ATV channels might be
reassigned to a smaller segment of the broadcasting spectrum, and the vacated
spectrum would be reallocated and auctioned for use by other radio services.
Recent debates in Congress, however, call into question whether the
transition to ATV will proceed as planned. Several senators favor giving the
FCC the authority -- or even requiring the Commission -- to auction the second
channels. Such authority or direction could be contained in budget legislation
or a stand-alone spectrum law. The Company cannot predict the effect of
existing and proposed federal regulations and policies on its broadcast
business.
The foregoing does not purport to be a complete summary of all the
provisions of the Act or the regulations and policies of the FCC thereunder.
Proposals for additional or revised regulations and requirements are pending
before and are being considered by Congress and federal regulatory agencies
from time to time. Also, various of the foregoing matters are now, or may
become, the subject of court litigation, and the Company cannot predict the
outcome of any such litigation or the impact on its broadcast business.
EMPLOYEES
As of December 31, 1995, the Company had 3,489 full-time employees. An
additional 173 employees were added on January 1, 1996 following the Owensboro
acquisition. Of the total workforce of 3,662, Belo has 234 employees, located
principally at its Dallas, Texas; Seattle, Washington; and New Orleans,
Louisiana television stations, that are represented by various employee unions.
The Company believes its relations with all of its employees are good.
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ITEM 2. PROPERTIES
The studios and offices of WFAA occupy Company-owned facilities in downtown
Dallas. The station's transmitting tower and antennas, which are located in
Cedar Hill, Texas, are jointly owned by the Company and the owner and operator
of the Fox television affiliate in Dallas.
KHOU operates from Company-owned facilities located in Houston. The
station's transmitter and tower are located near DeWalt, Texas.
KIRO operates from Company-owned facilities located in Seattle, Washington.
This property also includes a production facility and other office space. The
station's transmitting facility and tower are also located in Seattle.
KXTV operates from Company-owned facilities located in Sacramento,
California. The station's tower and transmitter building, which are located in
Sacramento County, California, are owned by a joint venture between the Company
and the owner and operator of the CBS television affiliate in West Sacramento.
KXTV leases the transmitter site from the joint venture.
WVEC operates from Company-owned facilities in Hampton and Norfolk,
Virginia. The transmitting facility in Driver, Virginia includes a tower and
antenna. WVEC also leases additional building space adjacent to the
Company-owned facilities that is used by the marketing and business
departments.
WWL operates from Company-owned facilities in New Orleans, Louisiana. The
transmitting facility and tower are located in Gretna, Louisiana. WWL also
leases space in New Orleans, which is used as an additional broadcast studio.
KOTV operates from Company-owned facilities located in Tulsa, Oklahoma.
The station's transmitting system is located near Tulsa. The transmitter site
and tower are owned by a joint venture between the Company and the owner and
operator of the NBC television affiliate in Tulsa.
The Company owns and operates a newspaper printing facility in Plano, Texas
(the "North Plant"), in which eight high-speed offset presses are housed to
print The Dallas Morning News. The remainder of The Dallas Morning News'
operations are housed in a Company-owned five-story building in downtown
Dallas. This facility is equipped with computerized input and photocomposition
facilities and other equipment that is used in the production of both news and
advertising copy.
The Bryan-College Station Eagle operates from Company-owned facilities in
Bryan, Texas and the Owensboro Messenger-Inquirer's Company-owned facilities
are in Owenbsoro, Kentucky.
DFW Suburban Newspapers, Inc. and DFW Printing Company, Inc. operations are
located at a Company-owned plant in Arlington, Texas. This facility is pledged
as security for certain industrial revenue bonds issued in 1985. The Company
also owns a small facility in Rockwall, Texas.
The Company's corporate operations, several departments of The Dallas
Morning News and certain broadcast administrative functions have offices that
are located in downtown Dallas in a portion of a 17-story office building owned
by the Company.
All of the foregoing operations utilize additional leasehold interests in
their respective activities.
The Company believes its properties are in good condition and well
maintained, and that such properties are adequate for present operations.
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ITEM 3. LEGAL PROCEEDINGS
There are legal proceedings pending against the Company, including a number
of actions for alleged libel. In the opinion of management, liabilities, if
any, arising from these actions would not have a material adverse effect on the
consolidated results of operations or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered
by this Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's authorized common equity consists of 150,000,000 shares of
Common Stock, par value $1.67 per share. The Company has two series of Common
Stock outstanding, Series A and Series B. Shares of the two series are
identical in all respects except that Series B shares are entitled to ten votes
per share on all matters submitted to a vote of shareholders, while the Series
A shares are entitled to one vote per share; transferability of the Series B
shares is limited to family members and affiliated entities of the holder; and
Series B shares are convertible at any time on a one-for-one basis into Series
A shares. Shares of the Company's Series A Common Stock are traded on the New
York Stock Exchange (NYSE symbol: BLC). There is no established public trading
market for shares of Series B Common Stock. The Company has also issued
certain Preferred Stock Purchase Rights that accompany the outstanding shares
of the Company's Common Stock. On February 28, 1996, the Company's Board of
Directors authorized the amendment and restatement of the Company's preferred
share purchase rights plan which was originally adopted in 1986 and was
scheduled to expire in March 1996. See Note 8 to the Consolidated Financial
Statements.
On June 9, 1995, the Company completed a two-for-one stock split in the
form of a stock dividend whereby one additional share of Series A and Series B
Common Stock was issued for each share of Series A and Series B Common Stock
outstanding on May 19, 1995, the record date for the split. The effect of the
stock split was to double the number of shares outstanding and reduce per
share amounts by one-half. Total shareholders' equity and the proportionate
ownership in the Company of individual shareholders was not affected by the
stock split. All earnings and dividends per share, weighted average shares
outstanding and share trading prices in this report have been restated to
reflect the stock split.
The following table lists the high and low trading prices and the closing
prices for Series A Common Stock as reported by the New York Stock Exchange for
the last two years.
-------------------------------------------------------------------------------------
CASH
DIVIDENDS
HIGH LOW CLOSE DECLARED
-------------------------------------------------------------------------------------
1995
Fourth Quarter $36 3/4 $32 1/2 $34 3/4 $.08
Third Quarter $36 3/4 $29 $34 3/8 $.08
Second Quarter $32 5/8 $28 3/16 $30 5/8 $.08
First Quarter $30 1/4 $27 13/16 $29 $.075
-------------------------------------------------------------------------------------
1994
Fourth Quarter $28 5/8 $23 3/4 $28 1/4 $.075
Third Quarter $26 1/8 $21 11/16 $25 3/8 $.075
Second Quarter $25 3/16 $21 9/16 $21 9/16 $.075
First Quarter $27 1/2 $23 7/8 $24 $.075
-------------------------------------------------------------------------------------
Effective for the second quarter of 1996, the Company will increase its
quarterly dividend to $.11 per share.
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On January 31, 1996, the closing price for the Company's Series A Common
Stock, as reported on the New York Stock Exchange, was $35 3/4. The
approximate number of shareholders of record of the Series A and Series B
Common Stock at the close of business on such date was 684 and 549,
respectively.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company for
each of the five years in the period ending December 31, 1995. For a more
complete understanding of this selected financial data, please see Management's
Discussion and Analysis of Financial Condition and Results of Operations and
the Consolidated Financial Statements, including the Notes thereto.
- -------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------
Broadcasting revenues (A) $ 322,642 $ 258,040 $ 209,083 $ 201,241 $ 181,848
Newspaper publishing revenues (B) 409,099 369,366 335,651 314,701 249,737
Other (C) 3,602 719 101 - -
- -------------------------------------------------------------------------------------------------------------
Net operating revenues $ 735,343 $ 628,125 $ 544,835 $ 515,942 $ 431,585
=============================================================
Net earnings (D) $ 66,576 $ 68,867 $ 51,077 $ 37,170 $ 12,392
=============================================================
Per share amounts (E):
Net earnings per common and
common equivalent share $ 1.68 $ 1.70 $ 1.26 $ .95 $ .32
Cash dividends declared $ .315 $ .30 $ .28 $ .27 $ .26
- -------------------------------------------------------------------------------------------------------------
Total assets $1,154,022 $ 913,791 $ 796,156 $ 758,527 $ 746,384
Long-term debt $ 557,400 $ 330,400 $ 277,400 $ 302,151 $ 337,100
- -------------------------------------------------------------------------------------------------------------
(A) Broadcasting revenues for 1995 include 11 months of KIRO, which was
purchased by the Company on February 1, 1995. Broadcasting revenues for
1994 include seven months of WWL, which was purchased by the Company on
June 1, 1994.
(B) In December 1991, the Company purchased substantially all of the operating
assets of the Dallas Times Herald newspaper.
(C) Other includes revenues associated with the Company's television production
subsidiary and programming distribution partnership. The Company sold its
interest in the partnership in February 1996.
(D) Net earnings for 1993 include an increase of $6,599,000 (16 cents per
share) representing the cumulative effect of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
effective January 1, 1993.
(E) Per share amounts have been adjusted to reflect the two-for-one common
stock split effected as a stock dividend on June 9, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is an owner and operator of seven network-affiliated television
stations and an established newspaper publisher. The Company's television
broadcast operations began in 1950 with the acquisition of WFAA in Dallas. In
1984, the Company expanded its broadcast operations through the acquisition of
four television stations in Houston, Sacramento, Hampton-Norfolk and Tulsa. In
June 1994 and February 1995, the Company acquired television stations in New
Orleans and Seattle, respectively. The Company's principal newspaper is The
Dallas Morning News. In December 1995, the Company purchased a daily newspaper
in Bryan-College Station, Texas. Comparability of year-to-year results and
financial condition are affected by these acquisitions. In the first quarter
of 1996, the Company acquired a daily newspaper in Owensboro, Kentucky and sold
its interest in its programming distribution partnership, Maxam Entertainment.
The Company depends on advertising as its principal source of revenues. As
a result, the Company's operations are sensitive to changes in the economy,
particularly in the Dallas-Fort Worth metropolitan area. The Company also
derives revenues, to a much lesser extent, from the circulation revenue of its
newspaper operations and from compensation paid by the networks to its
television stations for broadcasting network programming.
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CONSOLIDATED RESULTS OF OPERATIONS
1995 Compared to 1994
The Company recorded 1995 net earnings of $66,576,000 or $1.68 per share,
compared to $68,867,000 or $1.70 per share in 1994. Results for 1995 include a
non-recurring charge for early retirement costs of $1,254,000 (2 cents per
share) and a non-recurring gain of $2,406,000 ($1,564,000 after tax, or 4 cents
per share) on the sale of the Company's remaining investment in Stauffer
Communications, Inc. ("Stauffer") stock. Excluding these non-recurring items,
1995 adjusted net earnings were $1.66 per share. Net earnings for 1994
included the reversal of $631,000 of accrued music license fees (1 cent per
share) and a net after-tax charge of $1,567,000 (4 cents per share) for the
donation of Stauffer stock to a charitable foundation. The donation of
Stauffer stock included a $9,271,000 gain on the write-up of the shares to fair
market value, less a charge of $16,675,000 for the subsequent donation of the
shares, and a related income tax benefit of $5,837,000. Excluding these
non-recurring items, adjusted 1994 net earnings were $1.73 per share.
Interest expense in 1995 was $29,987,000 compared to $16,112,000 in 1994. A
significant portion of this increase resulted from the increase in average
interest rates in 1995 to approximately 6.3 percent from 4.8 percent in 1994.
Additionally, higher debt levels as a result of the two recent broadcast
acquisitions (KIRO in Seattle, Washington in February 1995 for $162,500,000 and
WWL in New Orleans, Louisiana in June 1994 for $110,000,000) contributed to the
increase in 1995 interest expense. Other, net for 1995 included the gain on
the sale of the Company's remaining investment in Stauffer stock while 1994
included the charge for the donation of Stauffer shares to a charitable
foundation. The effective tax rate for 1995 of 40 percent is higher than the
1994 effective tax rate of 36.2 percent due to the tax benefit associated with
the Stauffer stock donation in 1994.
1994 Compared to 1993
The Company recorded 1994 net earnings of $68,867,000 or $1.70 per share,
compared to $51,077,000 or $1.26 per share in 1993. Results for 1993 included
a $6,599,000 increase (16 cents per share) representing the cumulative effect
of adopting Statement of Financial Accounting Standards ("SFAS") No. 109 in
January 1993. This increase was partially offset in the third quarter, when
the Company recorded a $2,249,000 (6 cents per share) adjustment to deferred
taxes following an increase in the federal income tax rate. Earnings in 1993
also included a $5,822,000 (9 cents per share) non-recurring restructuring
charge related primarily to the write-off of goodwill and a reduction in the
carrying value of production assets associated with the Company's suburban
newspaper operations. The Company also recorded a reversal of accrued music
license fees in 1993 of $3,349,000 (5 cents per share). Excluding these items,
adjusted net earnings for 1993 were $1.20 per share.
Interest expense in 1994 was $16,112,000 compared to $15,015,000 in 1993.
The increase from 1993 to 1994 was due primarily to higher debt levels
associated with the purchase of the New Orleans station, offset by savings from
lower interest rates. Average interest rates on total debt were 4.8 percent
and 5.4 percent in 1994 and 1993, respectively. Other, net for 1994 included
the net charge for the Stauffer transaction while 1993 included a gain on the
sale of two parcels of non-operating real estate. The effective tax rate for
1994, including the tax benefit from the Stauffer stock donation, was 36.2
percent. The 1993 effective rate of 41.1 percent included the increase in
deferred tax expense associated with the increase in the federal income tax
rate, partially offset by the reversal of certain tax accruals due to other
aspects of the tax legislation. Excluding these unusual items, the comparable
effective tax rates for 1994 and 1993 were 38.9 percent and 39.5 percent,
respectively.
BROADCASTING
1995 Compared to 1994
Broadcast revenues in 1995, which include 11 months of revenue for the
Seattle station, were $322,642,000. These revenue totals represent an increase
of 25 percent (3.3 percent on a same-station basis) over 1994 revenues of
$258,040,000, which included seven months of revenue for the New Orleans
station. The Company's television broadcast subsidiaries contributed 43.9
percent of total 1995 revenues compared to 41.1 percent in 1994.
Revenues in all broadcast advertising categories, with the exception of
political advertising, were higher during 1995 compared to 1994, both as
reported and on a same-station basis. Political advertising revenues in 1994
were
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13
strong due to several active gubernatorial and senate races, while 1995
political activity was relatively slow. Local advertising revenues increased
by 28.5 percent overall (6.8 percent on a same-station basis), primarily due
to increases at the Dallas, Hampton-Norfolk and New Orleans stations. The
Company's Sacramento station, which changed its network affiliation during 1995
and experienced a sizable shift from local to national advertising, showed a
slight decline in local advertising revenues. Automobile advertising was a
significant factor in the stations' local market gains. National advertising
revenues increased in 1995 over 1994 as well, primarily during the first half
of the year. However, the majority of the 20.6 percent increase in national
advertising in 1995 was due to the addition of the Seattle station in February
and a full-year effect of the New Orleans station. On a same-station basis,
national revenues were up 2.1 percent year-to-year. The most significant
increases in national advertising occurred at the Sacramento and
Hampton-Norfolk stations, although all other Company stations demonstrated a
slight increase in national advertising revenues as well. Network compensation
payments increased in 1995 following the renegotiation of the Company's network
affiliation contracts in the latter part of 1994.
Broadcast earnings from operations were $83,921,000 in 1995 compared to
$81,319,000 in 1994, an increase of 3.2 percent (2.7 percent on a same-station
basis). Broadcast earnings from operations in 1995 included 11 months of the
Seattle station's operations while 1994 results included seven months of the
New Orleans station's operations. Operating margins in 1995 and 1994 were 26
percent and 31.5 percent, respectively. On a same-station basis, margins in
1995 and 1994 were 32.1 percent and 32.3 percent, respectively. Higher 1995
operating costs and lower margins were due in part to significant increases in
news and programming costs as the Seattle station began developing a new format
when its affiliation changed from CBS to UPN. Salaries, wages and employee
benefits increased 35.7 percent over 1994 due to the addition of the Seattle
station and the full-year effect of the New Orleans station. On a same-station
basis, these costs increased 4.7 percent due to merit increases and more
employees. Other production, distribution and operating costs for 1995
increased only marginally over 1994 on a same-station basis. Depreciation and
amortization expenses increased in 1995 due to the broadcast acquisitions in
mid-1994 and early 1995.
1994 Compared to 1993
Broadcast revenues in 1994, which included seven months of revenue for the
New Orleans station were $258,040,000, an increase of 23.4 percent over 1993
revenues of $209,083,000. The Company's television broadcast subsidiaries
contributed 41.1 percent of total 1994 revenues compared to 38.4 percent in
1993.
Each station contributed to the increase in revenues during 1994 with
improvement in every revenue category. Local advertising revenues, which
improved 25.5 percent overall (12.7 percent on a same-station basis), were up
most significantly at the Dallas, Houston and Tulsa stations. Automobile
advertising was a significant factor in each of the stations' local market
gains in 1994. National revenues benefited from the broadcast of the 1994
Winter Olympics on the Company's CBS-affiliated stations, but were offset
somewhat by revenue losses associated with the baseball strike and the move of
NFL Football from CBS to the Fox network. Political revenues were up
considerably in 1994 due to active gubernatorial and senate races in several
states. Network compensation increases from the renegotiation of the Company's
network affiliation agreements began in the third quarter of 1994.
Broadcast earnings from operations were $81,319,000 in 1994 compared to
$63,317,000 in 1993. Broadcast earnings from operations in 1994 included seven
months of the New Orleans station's operations. Also included in broadcast
earnings from operations in 1994 and 1993 were increases in earnings of
$631,000 and $3,349,000, respectively, for the reversal of certain music
license fee accruals from previous years. Excluding the music license fee
adjustments, broadcast earnings from operations for 1994 and 1993 were
$80,688,000 and $59,968,000, respectively. The increase was due to revenue
improvements, partially offset by higher operating costs. Salaries, wages and
employee benefits were higher in 1994 due to increases in sales commissions,
more employees, merit increases, higher performance-based bonuses and an
increase in benefit costs. Other production, distribution and operating costs
were higher in 1994 than in 1993 (excluding the music license fee adjustments)
due primarily to increased contract rates for several syndicated program
packages and costs to produce a new local morning show and weekly news show at
the Dallas station. Advertising and promotion costs, as well as repair and
maintenance expenses, were also higher in 1994. These increases were slightly
offset by lower bad debt and outside services expense. Depreciation and
amortization expenses increased as a result of the acquisition of the New
Orleans station.
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NEWSPAPER PUBLISHING
1995 Compared to 1994
In 1995, newspaper publishing revenues represented 55.6 percent of total
revenues, compared to 58.8 percent in 1994. Although publishing revenues
increased 10.8 percent in 1995 from 1994, they decreased as a percent of total
revenues due to broadcast acquisitions. Advertising revenues account for
approximately 88 percent of publishing revenues, while circulation revenues
represent approximately 10 percent. Other publishing revenues, primarily
commercial printing, contribute the remainder.
Newspaper advertising volume for The Dallas Morning News, the Company's
principal newspaper, is measured in column inches. Volume for the last three
years was as follows:
Years Ended December 31,
------------------------------------------------------------------------
In thousands 1995 1994 1993
------------------------------------------------------------------------
Full-run ROP inches (1):
Classified 2,125 2,189 2,069
Retail 1,429 1,524 1,661
General 254 271 262
------------------------------------------------------------------------
Total 3,808 3,984 3,992
------------------------------------------------------------------------
(1) Full-run ROP inches refers to the number of column inches of
display and classified advertising that is printed and distributed
in all editions of the newspaper.
Revenues from newspaper publishing in 1995 were $409,099,000, an increase
of 10.8 percent over 1994 revenues of $369,366,000. Due to dramatically higher
newsprint prices in 1995, a series of advertising rate increases were put into
effect during the year at The Dallas Morning News. These rate increases
resulted in higher revenues in the three major advertising categories despite
the volume declines that resulted from the higher rates. Classified
advertising linage was down 2.9 percent from 1994 while revenues were up 18.6
percent. Retail advertising revenues increased 4.2 percent due to higher
rates, while volumes were lower by 6.2 percent. General advertising revenues
improved 7.9 percent, although auto and bank advertising volumes decreased
significantly, contributing to the overall 6.3 percent decline in linage.
Preprint revenues increased 9.3 percent in 1995 from 1994 due to increased
activity from electronics retailers. The Dallas Morning News' circulation
revenues increased 8.8 percent over 1994 due to an increase in daily single
copy prices and the full-year effect of 1994 increases in home delivery and
Sunday single copy prices. Circulation volume increased slightly in 1995 over
1994.
Despite significant increases in newsprint prices, newspaper publishing
earnings from operations for 1995 were $69,999,000, up 5.2 percent over 1994
earnings of $66,568,000. Operating margins were 17.1 percent in 1995 compared
to 18 percent in 1994. Revenue increases were partially offset by total
operating costs that were 12 percent higher than 1994. Newsprint, ink and
other supplies expense in 1995 increased 29.2 percent over last year. Driving
this increase were market-wide newsprint price increases. The average cost per
ton in 1995 at The Dallas Morning News increased 44.2 percent over 1994. A
reduction in tons used during 1995 helped offset the effect of these price
increases to some extent. Reductions in newsprint usage came as a result of
better waste control, fewer news columns, lower ad linage and promotional space
and the elimination of a marginally profitable Sunday magazine. All other cost
categories for the newspaper publishing segment increased only slightly due to
efforts to control costs to offset the effect of the newsprint price increases.
The Company expects 1996 newsprint, ink and other supplies expense to
increase over 1995, due to the full-year effect of the 1995 newsprint price
increases. The Company anticipates that the higher expense will be offset by
advertising rate increases implemented in the second half of 1995 and at the
beginning of 1996. The Company cannot predict at this time the effect of
proposed newsprint price increases for 1996.
1994 Compared to 1993
Revenues from newspaper publishing in 1994 were $369,366,000, an increase
of 10 percent over 1993 revenues of $335,651,000. Classified and general
advertising revenues at The Dallas Morning News contributed the majority of
the increase in year-to-year revenue gains. Linage in these two categories
increased 5.8 percent and 3.3 percent,
12
15
respectively, which, combined with rate increases, resulted in an increase in
classified and general advertising revenues of $27,580,000. Strong demand for
employment advertising and a strong automotive market accounted for the
improvement in classified linage. The telecommunications industry was a
significant component of the general advertising increase. Retail ROP revenues
for 1994 decreased slightly when compared to 1993 due to volume declines of 8.3
percent, offset by a rate increase. The retail volume declines were primarily
attributable to a shift by certain department stores to preprints, revenues
from which increased 15.6 percent over 1993. Circulation revenues in 1994 were
up 2.1 percent from 1993 despite a slight decrease in the Sunday average
circulation due to price increases in April and July.
Newspaper publishing earnings from operations in 1994 were $66,568,000
compared to $44,293,000 in 1993. Earnings from operations in 1993 included the
$5,822,000 restructuring charge related to the Company's suburban newspaper
operations. Excluding this one-time charge, comparable 1993 earnings from
operations were $50,115,000. The 32.8 percent increase in 1994 from adjusted
1993 earnings from operations was due to the revenue increase, partially offset
by a 6 percent increase in operating expenses. Salaries, wages and employee
benefits increased in 1994 due to more employees, merit increases, higher
performance-based bonuses and an increase in related benefit costs. Other
production, distribution and operating costs were also higher due to increased
distribution and outside solicitation expenses associated with circulation
efforts and higher advertising and promotion expense. Rack conversion costs to
accommodate a Sunday single copy price increase also contributed to higher 1994
expense. Depreciation expense increased due to a full year's depreciation of
The Dallas Morning News' North Plant expansion project that was completed in
late 1993. Newsprint expense was only slightly higher in 1994 compared to 1993.
The increase was primarily due to slightly higher consumption, which was offset
somewhat by lower average prices.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations is the Company's primary source of
liquidity. During 1995, net cash provided by operations was $96,601,000,
compared to $138,785,000 in 1994. The decrease was due primarily to changes in
working capital. One of the most significant working capital changes was in
the value of on-hand inventory at the end of 1995, due to both higher newsprint
tonnage in inventory and substantially higher prices. The timing of accounts
payable and income tax payments also contributed significantly to the decrease
in 1995 net cash provided by operations. Net cash provided by operations was
sufficient to fund capital expenditures, common stock dividends and a portion
of current year stock repurchases.
On February 1, 1995, the Company acquired KIRO in Seattle, Washington. The
purchase price was $162,500,000 in cash, plus transaction costs. KIRO was
purchased using funds from the Company's revolving credit agreement described
below. On December 26, 1995, the Company again used the revolving credit
agreement to complete the acquisition of the Bryan-College Station Eagle. On
January 1, 1996, the Company acquired the Owensboro Messenger-Inquirer by
issuing notes payable to the seller. These notes are due in various
installments over the next four years.
At December 31, 1995, the Company had access to an $800,000,000 variable
rate revolving credit agreement, on which borrowings at that time were
$480,000,000. The agreement expires and the debt thereunder matures on July
28, 2000 with an extension to July 28, 2001 at the request of the Company and
with the consent of the participating banks. From time to time, short-term
unsecured notes are also used as a source of financing. Based on the Company's
intent and ability to renew short-term notes through the revolving credit
facility, short-term borrowings are classified as long-term. At December 31,
1995, $71,000,000 in short-term notes were outstanding. Total debt outstanding
increased by $227,000,000 from December 31, 1994, primarily due to acquisitions
and share repurchases.
Because substantially all of the Company's outstanding debt is currently at
floating interest rates, the Company is subject to interest rate volatility.
Weighted average interest rates at the end of 1995 were approximately 6.1
percent.
During 1995, the Company spent $63,400,000 to repurchase treasury stock at
an average price of $31.28 per share. The Company has in place a stock
repurchase program authorizing the purchase of up to $2,500,000 of Company
stock annually, and the Company has authority to purchase an additional
3,591,200 shares under another Board authorization.
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16
At December 31, 1995, the Company's ratio of long-term debt to total
capitalization was 58.9 percent, compared to 46.3 percent at the end of 1994.
The change during 1995 was due to additional borrowings to finance acquisitions
and the effect on debt and shareholders' equity of the share repurchases.
Capital expenditures in 1995 were $40,830,000. Capital projects included
additional production equipment and major building renovations at The Dallas
Morning News, the completion of a building and studio remodeling project at the
Company's Houston station and the purchase of broadcast equipment for other
stations. The Company expects to finance future capital expenditures using
cash generated from operations and, when necessary, borrowings under the
revolving credit agreement. Total capital expenditures in 1996 are expected to
be approximately $45,000,000 and relate primarily to additional newspaper
publishing equipment, the renovation of certain operating facilities and the
purchase of certain broadcast equipment. As of December 31, 1995, required
future payments for capital expenditures in 1996 were $7,881,000.
The Company paid dividends of $12,279,000 or 31 1/2 cents per share on
Series A and Series B Common Stock outstanding during 1995 compared to
$11,984,000 or 30 cents per share in 1994. The Company expects to pay higher
dividends in 1996 due to an increase in the quarterly dividend rate beginning
in the second quarter of 1996 and an increase in shares outstanding upon
consummation of an equity offering discussed below.
The Company believes its current financial condition and credit
relationships are adequate to fund current obligations and near-term growth.
The Company has filed a registration statement relating to a public offering of
5,000,000 shares of Series A Common Stock. It is expected that the net
proceeds from the offering will be used to repay existing debt to provide
liquidity for general corporate purposes, including possible future
acquisitions.
OTHER MATTERS
In early 1996, Congress passed the Telecommunications Act of 1996 (the
"1996 Act"), the most comprehensive overhaul of the country's
telecommunications laws in more than 60 years. The Company cannot predict the
effect on its business of the 1996 Act or of proposed or possible future
legislation, regulations and policies. During the debate prior to the passage
of the 1996 Act, Congress considered whether to grant the FCC authority to
auction the second channels necessary for the implementation of digital
advanced television. The 1996 Act did not grant the FCC such authority, but
such authority could be contained in future budget legislation or in a
stand-alone spectrum law. See "Regulation of Television Broadcasting".
NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". This Statement established accounting standards for
the impairment of long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. SFAS No. 121 will be
effective beginning in 1996. Management does not anticipate that the adoption
of SFAS No. 121 will have any effect on the consolidated financial position of
the Company.
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INFLATION
The net effect of inflation on the Company's revenues and earnings from
operations has not been material in the last few years.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements, together with the report of
independent auditors, are included elsewhere in this document. Financial
statement schedules have been omitted because the required information is
contained in the Consolidated Financial Statements or related notes, or because
such information is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the headings "Outstanding Capital Stock and
Stock Ownership of Directors, Certain Executive Officers and Principal
Shareholders," "Executive Officers of the Company" and "Election of Directors"
contained in the definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held on May 8, 1996, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the heading "Executive Compensation and
Other Matters" and "Election of Directors" contained in the definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on May 8,
1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the heading "Outstanding Capital Stock and
Stock Ownership of Directors, Certain Executive Officers and Principal
Shareholders" contained in the definitive Proxy Statement for the Company's
Annual Meeting of Shareholders to be held on May 8, 1996, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the headings "Executive Compensation and
Other Matters" and "Election of Directors" contained in the definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on May 8,
1996, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The financial statements listed in the Index to Financial Statements
included in the Table of Contents are filed as part of this report.
(2) The financial schedules required by Regulation S-X are either not
applicable or are included in the information provided in the Notes to
Consolidated Financial Statements, which are filed as part of this
report.
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(3) Exhibits
Exhibits marked with an asterisk (*) are incorporated by reference to
documents previously filed by A.H. Belo Corporation with the
Securities and Exchange Commission, as indicated. Exhibits marked
with a tilde (~) are management contracts or compensatory plan
contracts or arrangements filed pursuant to Item 601 (b)(10)(iii)(A)
of Regulation S-K. All other documents are filed with this report.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 * Certificate of Incorporation of the Company (Exhibit 3.1 to the
Company's Annual Report on Form 10-K dated March 19, 1992 (the
"1991 Form 10-K"))
3.2 * Certificate of Correction to Certificate of Incorporation dated
May 13, 1987 (Exhibit 3.2 to the Company's Annual Report on Form
10-K dated March 18, 1993 (the "1992 Form 10-K"))
3.3 * Certificate of Designation of Series A Junior Participating
Preferred Stock of the Company dated April 16, 1987 (Exhibit 3.3
to the 1991 Form 10-K)
3.4 * Certificate of Amendment of Certificate of Incorporation of the
Company dated May 4, 1988 (Exhibit 3.4 to the 1992 Form 10-K)
3.5 Certificate of Amendment of Certificate of Incorporation of the
Company dated May 3, 1995
3.6 * Amended Certificate of Designation of Series A Junior
Participating Preferred Stock of the Company dated May 4, 1988
(Exhibit 3.5 to the 1992 Form 10-K)
3.7 * Certificate of Designation of Series B Common Stock of the
Company dated May 4, 1988 (Exhibit 3.6 to the 1992 Form 10-K)
3.8 * Bylaws of the Company, effective February 22, 1995 (Exhibit 3.7
to the Company's Annual Report on Form 10-K dated March 8, 1995
(the "1994 Form 10-K"))
4.1 Certain rights of the holders of the Company's Common Stock are
set forth in Exhibits 3.1-3.8 above
4.2 * Specimen Form of Certificate representing shares of the
Company's Series A Common Stock (Exhibit 4.2 to the 1992 Form
10-K)
4.3 * Specimen Form of Certificate representing shares of the
Company's Series B Common Stock (Exhibit 4.3 to the Company's
Annual Report on Form 10-K dated March 20, 1989)
4.4 Form of Rights Agreement as Amended and Restated, as of February
28, 1996 between the Company and Chemical Mellon Shareholder
Services, L.L.C., a New York banking corporation
10.1 Contracts relating to television broadcasting:
(1) Form of Agreement for Affiliation between WFAA-TV in
Dallas, Texas and ABC
(2) Form of Agreement for Affiliation between KXTV in
Sacramento, California and ABC
(3) Contract for Affiliation between KHOU-TV in Houston, Texas
and CBS
(4) Contract for Affiliation between WWL-TV in New Orleans,
Louisiana and CBS
16
19
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.2 Financing agreements:
* (1) Loan Agreement dated October 1, 1985, between City of
Arlington Industrial Development Corporation and
Dallas-Fort Worth Suburban Newspapers, Inc. (Exhibit
10.5(2) to the 1991 Form 10-K)
* (2) Letter of Credit and Reimbursement Agreement dated as of
June 2, 1987, between Dallas-Fort Worth Suburban
Newspapers, Inc. and The Sanwa Bank, Limited, Dallas Agency
covering $6,400,000 City of Arlington Industrial
Development Corporation Industrial Development Revenue
Bonds (Exhibit 10.5(3) to the 1991 Form 10-K)
* (3) Credit Agreement dated as of August 5, 1994 among the
Company and Citicorp Securities, Inc., as Syndication
Agent, The First National Bank of Chicago, as
Administrative Agent, Texas Commerce Bank National
Association, as Documentation Agent and The Banks Listed
Therein, as Lenders (Exhibit 10.4(1) to the Second Quarter
1994 Form 10-Q)
* (4) First Amendment to Credit Agreement dated as of July 28,
1995 (Exhibit 10.4(1) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1995)
* (5) Amendment and Waiver Agreement dated as of August 5, 1994,
by and between the Company and The Sanwa Bank, Limited,
Dallas Agency (Exhibit 10.4(4) to the 1994 Form 10-K)
10.3 Compensatory plans:
*~(1) Management Security Plan (Exhibit 10.4(1) to the 1991 Form
10-K)
*~(2) 1986 Long-Term Incentive Plan (Exhibit 10.4(7) to the 1991
Form 10-K)
*~(3) Amendment No. 1 to 1986 Long-Term Incentive Plan (Exhibit
10.4(8) to the 1991 Form 10-K)
*~(4) Amendment No. 2 to 1986 Long-Term Incentive Plan (Exhibit
10.3(9) to the 1992 Form 10-K)
*~(5) Amendment No. 3 to 1986 Long-Term Incentive Plan (Exhibit
10.3(10) to the 1993 Form 10-K)
*~(6) Amendment No. 4 to 1986 Long-Term Incentive Plan (Exhibit
10.3(11) to the 1993 Form 10-K)
*~(7) Amendment No. 5 to 1986 Long-Term Incentive Plan (Exhibit
10.3(12) to the 1993 Form 10-K)
*~(8) Amendment No. 6 to 1986 Long-Term Incentive Plan (Exhibit
10.3(13) to the 1992 Form 10-K)
~(9) Amendment No. 7 to 1986 Long-Term Incentive Plan
~(10) The A. H. Belo Corporation Employee Savings and
Investment Plan Amended and Restated February 2, 1996
~(11) The G. B. Dealey Retirement Pension Plan (as Amended
and Restated Generally Effective January 1, 1989)
*~(12) Master Trust Agreement, effective as of July 1, 1992,
between A. H. Belo Corporation and Mellon Bank, N. A.
(Exhibit 10.3(26) to the 1993 Form 10-K)
17
20
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*~(13) A. H. Belo Corporation Supplemental Executive Retirement
Plan (Exhibit 10.3(27) to the 1993 Form 10-K)
*~(14) Trust Agreement dated February 28, 1994, between the
Company and Mellon Bank, N. A. (Exhibit 10.3(28) to the
1993 Form 10-K)
~(15) Summary of A. H. Belo Corporation Executive Compensation
Plan
~(16) A. H. Belo Corporation 1995 Executive Compensation Plan
~(17) A. H. Belo Corporation Employee Thrift Plan, effective
January 1, 1995
~(18) First Amendment to A.H. Belo Corporation Employee Thrift
Plan
~(19) Second Amendment to A. H. Belo Corporation Employee Thrift
Plan
~(20) Master Defined Contribution Trust Agreement by and between
A. H. Belo Corporation and Mellon Bank, N.A.
~(21) First Amendment to Master Defined Contribution Trust
Agreement
~(22) Second Amendment to Master Defined Contribution Trust
Agreement
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP
27 Financial Data Schedule (filed electronically with the
Securities and Exchange Commission)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
18
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
A. H. BELO CORPORATION
By: /s/ Robert W. Decherd
-----------------------------------
Robert W. Decherd
Chairman of the Board, President
& Chief Executive Officer
Dated: February 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Robert W. Decherd Chairman of the Board, President February 28, 1996
- ---------------------------------- & Chief Executive Officer
Robert W. Decherd
/s/ Ward L. Huey, Jr. Vice Chairman of the February 28, 1996
- ---------------------------------- Board and President,
Ward L. Huey, Jr. Broadcast Division
/s/ Burl Osborne Director, President, Publishing February 28, 1996
- ---------------------------------- Division and Publisher and Editor,
Burl Osborne The Dallas Morning News
/s/ John W. Bassett, Jr Director February 28, 1996
- ----------------------------------
John W. Bassett, Jr.
/s/ Judith L. Craven, M.D., M.P.H. Director February 28, 1996
- ----------------------------------
Judith L. Craven, M.D., M.P.H.
/s/ Roger A. Enrico Director February 28, 1996
- ----------------------------------
Roger A. Enrico
/s/ Dealey D. Herndon Director February 28, 1996
- ----------------------------------
Dealey D. Herndon
/s/ Lester A. Levy Director February 28, 1996
- ----------------------------------
Lester A. Levy
/s/ Arturo Madrid, Ph.D. Director February 28, 1996
- ----------------------------------
Arturo Madrid, Ph.D.
19
22
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James M. Moroney, Jr. Director and Former February 28, 1996
- ---------------------------------- Chairman of the Board
James M. Moroney, Jr.
/s/ Hugh G. Robinson Director February 28, 1996
- ----------------------------------
Hugh G. Robinson
/s/ William T. Solomon Director February 28, 1996
- ----------------------------------
William T. Solomon
/s/ Thomas B. Walker, Jr. Director February 28, 1996
- ----------------------------------
Thomas B. Walker, Jr.
/s/ J. McDonald Williams Director February 28, 1996
- ----------------------------------
J. McDonald Williams
/s/ Michael D. Perry Senior Vice President and February 28, 1996
- ---------------------------------- Chief Financial Officer
Michael D. Perry
/s/ Dunia A. Shive Vice President/Finance February 28, 1996
- ----------------------------------
Dunia A. Shive
20
23
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
A. H. Belo Corporation
We have audited the accompanying consolidated balance sheets of A. H. Belo
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of A. H. Belo
Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
/S/ERNST & YOUNG LLP
Dallas, Texas
January 24, 1996
21
24
CONSOLIDATED STATEMENTS OF EARNINGS
A. H. BELO CORPORATION AND SUBSIDIARIES
Years ended December 31,
============================================================================================================
In thousands, except per share amounts 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
NET OPERATING REVENUES
Broadcasting (Note 2) $322,642 $ 258,040 $209,083
Newspaper publishing 409,099 369,366 335,651
Other 3,602 719 101
- ------------------------------------------------------------------------------------------------------------
Total net operating revenues 735,343 628,125 544,835
- ------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Salaries, wages and employee benefits (Notes 5 and 6) 204,833 178,264 161,170
Other production, distribution and operating costs (Note 7) 196,506 166,187 145,310
Newsprint, ink and other supplies 137,994 106,270 105,395
Depreciation 42,270 32,854 25,281
Amortization 17,177 13,551 12,383
Restructuring charge (Note 9) - - 5,822
- ------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 598,780 497,126 455,361
- ------------------------------------------------------------------------------------------------------------
Earnings from operations 136,563 130,999 89,474
- ------------------------------------------------------------------------------------------------------------
OTHER INCOME AND EXPENSE
Interest expense (Note 3) (29,987) (16,112) (15,015)
Other, net (Note 10) 4,438 (6,990) 1,119
- ------------------------------------------------------------------------------------------------------------
Total other income and expense (25,549) (23,102) (13,896)
- ------------------------------------------------------------------------------------------------------------
EARNINGS
Earnings before income taxes and cumulative
effect of change in accounting 111,014 107,897 75,578
Income taxes (Note 4) 44,438 39,030 31,100
- ------------------------------------------------------------------------------------------------------------
Earnings before cumulative effect of change in accounting 66,576 68,867 44,478
Cumulative effect of change in accounting for
income taxes (Note 4) - - 6,599
- ------------------------------------------------------------------------------------------------------------
Net earnings $ 66,576 $ 68,867 $ 51,077
======================================
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings before cumulative effect of change in accounting $ 1.68 $ 1.70 $ 1.10
Cumulative effect of change in accounting $ - $ - $ .16
Net earnings $ 1.68 $ 1.70 $ 1.26
======================================
Weighted average common and common equivalent
shares outstanding 39,646 40,446 40,408
======================================
See accompanying Notes to Consolidated Financial Statements.
22
25
CONSOLIDATED BALANCE SHEETS
A. H. BELO CORPORATION AND SUBSIDIARIES
ASSETS December 31,
- -------------------------------------------------------------------------------------------------------------
In thousands 1995 1994
- -------------------------------------------------------------------------------------------------------------
Current assets:
Cash and temporary cash investments $ 12,846 $ 9,294
Accounts receivable (net of allowance of
$4,164 and $3,959 in 1995 and 1994, respectively) 120,541 99,825
Inventories 20,336 9,439
Deferred income taxes (Note 4) 5,223 7,641
Other current assets 6,360 4,138
- -------------------------------------------------------------------------------------------------------------
Total current assets 165,306 130,337
- -------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land 26,708 19,803
Buildings 155,877 126,632
Broadcast equipment 159,909 118,816
Newspaper publishing equipment 210,362 188,006
Other 51,156 40,369
Advance payments on plant and equipment
expenditures (Note 7) 6,479 28,352
- -------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 610,491 521,978
Less accumulated depreciation 248,650 209,824
- -------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net 361,841 312,154
- -------------------------------------------------------------------------------------------------------------
Intangible assets, net (Note 2) 571,060 422,217
Other assets, at cost (Note 5) 55,815 49,083
- -------------------------------------------------------------------------------------------------------------
Total assets $1,154,022 $913,791
- -------------------------------------------------------------------------------------------------------------
23
26
CONSOLIDATED BALANCE SHEETS (CONTINUED)
A. H. BELO CORPORATION AND SUBSIDIARIES
LIABILITIES AND SHAREHOLDERS' EQUITY December 31,
- ----------------------------------------------------------------------------------------------------------------
In thousands, except share data 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 28,569 $ 27,308
Accrued compensation and benefits 24,773 26,170
Advance subscription payments 9,392 7,935
Other accrued expenses 7,483 5,203
Income taxes payable (Note 4) 4,836 10,074
Property taxes payable 4,214 3,909
Accrued interest payable 2,401 3,138
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 81,668 83,737
- ----------------------------------------------------------------------------------------------------------------
Long-term debt (Note 3) 557,400 330,400
Deferred income taxes (Note 4) 114,729 110,324
Other liabilities 11,761 6,795
Commitments and contingent liabilities (Note 7)
Shareholders' equity (Notes 6 and 8):
Preferred stock, $1.00 par value. Authorized
5,000,000 shares; none issued.
Common stock, $1.67 par value. Authorized
150,000,000 shares;
Series A: Issued 28,961,753 and 14,238,888 shares
at December 31, 1995 and 1994, respectively; 48,366 23,779
Series B: Issued 9,280,179 and 5,621,988 shares
at December 31, 1995 and 1994, respectively. 15,498 9,389
Additional paid-in capital 97,930 124,431
Retained earnings 230,203 230,959
- ----------------------------------------------------------------------------------------------------------------
Total 391,997 388,558
Less deferred compensation -- restricted shares 3,533 6,023
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 388,464 382,535
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,154,022 $913,791
- ----------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
24
27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
A. H. BELO CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------
In thousands, except share and per share amounts Three years ended December 31, 1995
- --------------------------------------------------------------------------------------------------------------
COMMON STOCK
Additional
Shares Shares Paid-in Retained
Series A Series B Amount Capital Earnings
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 13,433,969 6,157,489 $32,718 $94,005 $161,297
Exercise of stock options 505,295 87,326 990 16,252
Restricted shares awarded 37,192 62 1,830
Change in restricted share valuation 746
Amortization of restricted
shares
Forfeiture of restricted shares (10,990) (18) (450)
Tax benefit from long-term
incentive plan 4,068
Net earnings 51,077
Cash dividends declared
($.28 per share) (11,128)
Conversion of Series B
to Series A 501,716 (501,716)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 14,467,182 5,743,099 $33,752 $116,451 $201,246
Exercise of stock options 234,545 12,500 412 7,240
Restricted shares awarded 48,360 81 2,576
Change in restricted share valuation 188
Amortization of restricted
shares
Forfeiture of restricted shares (810) (1) (25)
Tax benefit from long-term
incentive plan 1,828
Purchase of treasury stock
Retirement of treasury stock (644,000) (1,076) (3,827) (27,170)
Net earnings 68,867
Cash dividends declared
($.30 per share) (11,984)
Conversion of Series B
to Series A 133,611 (133,611)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 14,238,888 5,621,988 $33,168 $124,431 $230,959
Exercise of stock options 405,448 18,590 708 8,674
Amortization of restricted
shares
Forfeiture of restricted shares (27,905) (48) (917)
Change in restricted share valuation 698
Tax benefit from long-term
incentive plan 3,427
Two-for-one stock split 15,137,977 4,709,794 33,146 (32,618)
Purchase of treasury stock
Retirement of treasury stock (1,862,848) (3,110) (5,765) (55,053)
Net earnings 66,576
Cash dividends declared
($.315 per share) (12,279)
Conversion of Series B
to Series A 1,070,193 (1,070,193)
- --------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 28,961,753 9,280,179 $63,864 $97,930 $230,203
- --------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
In thousands, except share and per share amounts Three years ended December 31, 1995
- -----------------------------------------------------------------------------------------------
TREASURY STOCK Deferred
Compensation-
Shares Restricted
Series A Amount Shares Total
- -----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 - $ - $(6,778) $281,242
Exercise of stock options 17,242
Restricted shares awarded (1,892) -
Change in restricted share valuation (746) -
Amortization of restricted
shares 3,781 3,781
Forfeiture of restricted shares 285 (183)
Tax benefit from long-term
incentive plan 4,068
Net earnings 51,077
Cash dividends declared
($.28 per share) (11,128)
Conversion of Series B
to Series A -
- -----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 - $ - $(5,350) $346,099
Exercise of stock options 7,652
Restricted shares awarded (2,657) -
Change in restricted share valuation (188) -
Amortization of restricted
shares 2,166 2,166
Forfeiture of restricted shares 6 (20)
Tax benefit from long-term
incentive plan 1,828
Purchase of treasury stock (644,000) (32,073) (32,073)
Retirement of treasury stock 644,000 32,073 -
Net earnings 68,867
Cash dividends declared
($.30 per share) (11,984)
Conversion of Series B
to Series A -
- -----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 - $ - $(6,023) $382,535
Exercise of stock options 9,382
Amortization of restricted
shares 2,718 2,718
Forfeiture of restricted shares 470 (495)
Change in restricted share valuation (698) -
Tax benefit from long-term
incentive plan 3,427
Two-for-one stock split (316,000) (528) -
Purchase of treasury stock (1,546,848) (63,400) (63,400)
Retirement of treasury stock 1,862,848 63,928 -
Net earnings 66,576
Cash dividends declared
($.315 per share) (12,279)
Conversion of Series B
to Series A -
- -----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 - $ - $(3,533) $388,464
- -----------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
25
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
A. H. BELO CORPORATION AND SUBSIDIARIES
CASH PROVIDED (USED) Years ended December 31,
==============================================================================================================
In thousands 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
OPERATIONS
Net earnings $66,576 $68,867 $ 51,077
Adjustments to reconcile net earnings to net cash
provided by operations:
Depreciation and amortization 59,447 46,405 37,664
Deferred income taxes 6,823 1,428 10,969
Non-cash adjustments and allowances 205 1,842 209
Cumulative effect of change in accounting (Note 4) - - (6,599)
Restructuring charge (Note 9) - - 5,822
Other, net (4,012) 1,549 1,262
Net change in current assets and liabilities:
Accounts receivable (19,732) (20,067) (5,211)
Inventories and other current assets (12,918) 8,234 (6,685)
Accounts payable 1,270 10,187 (1,338)
Accrued compensation and benefits (2,043) 5,554 2,466
Other accrued liabilities 3,533 (2,815) (5,518)
Income taxes payable (1,811) 16,682 4,362
Accrued interest payable (737) 919 (3,662)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operations 96,601 138,785 84,818
- --------------------------------------------------------------------------------------------------------------
INVESTMENTS
Capital expenditures (40,830) (47,371) (62,130)
Acquisitions (Note 2) (217,428) (110,058) -
Asset dispositions 4,506 2,400 2,458
- --------------------------------------------------------------------------------------------------------------
Net cash used for investments (253,752) (155,029) (59,672)
- --------------------------------------------------------------------------------------------------------------
FINANCING
Borrowings for acquisitions 216,934 110,000 -
Net proceeds from (payments on) debt 10,066 (57,000) 175,000
Repayment of long-term notes - - (200,000)
Payments of dividends on stock (12,279) (11,984) (11,128)
Net proceeds from exercise of stock options 9,382 7,652 17,242
Purchase of treasury stock (63,400) (32,073) -
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing 160,703 16,595 (18,886)
- --------------------------------------------------------------------------------------------------------------
Net increase in cash and
temporary cash investments 3,552 351 6,260
- --------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at beginning of year 9,294 8,943 2,683
Cash and temporary cash investments at end of year $12,846 $ 9,294 $8,943
- --------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES (Note 11)
- --------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
26
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
A) Principles of Consolidation The consolidated financial statements
include the accounts of A. H. Belo Corporation (the "Company" or
"Belo") and its wholly-owned subsidiaries after the elimination of all
significant intercompany accounts and transactions.
Certain amounts for the prior years have been reclassified to conform
to the current year presentation.
B) Statements of Cash Flows For the purpose of the Consolidated
Statements of Cash Flows, the Company considers all highly liquid debt
instruments purchased with a remaining maturity of three months or
less to be temporary cash investments. Such temporary cash
investments are classified as available for sale and carried at fair
value.
C) Accounts Receivable Accounts receivable are net of a valuation
reserve that represents an estimation of amounts considered
uncollectible. Expense for such uncollectible amounts, which is
included in other production, distribution and operating costs, was
$5,888,000, $4,506,000 and $4,617,000 in 1995, 1994 and 1993,
respectively. Accounts written off during these years were
$5,683,000, $4,231,000 and $4,408,000, respectively.
D) Inventories Inventories, consisting primarily of newsprint, ink and
other supplies used in printing newspapers, are stated at the lower of
average cost or market value.
E) Property, Plant and Equipment Depreciation of property, plant and
equipment is provided principally on a straight-line basis over the
estimated useful lives of the assets as follows:
------------------------------------------------------------
ESTIMATED
USEFUL LIVES
------------------------------------------------------------
Buildings and improvements 5-20 years
Newspaper publishing equipment 5-20 years
Broadcast equipment 7-15 years
Other 3-10 years
------------------------------------------------------------
F) Intangible Assets, Net Intangible assets, net consists of excess cost
over values assigned to tangible assets of purchased subsidiaries and
is amortized primarily on a straight-line basis over 40 years. At
December 31, 1995 and 1994, approximately $27,683,000 and $18,949,000,
respectively, of intangible assets, net is attributable to subscriber
lists associated with certain newspaper transactions. These assets
are carried at their appraised values and are amortized on a
straight-line basis over estimated useful lives of 18 years. The
carrying value of intangible assets is periodically reviewed to
determine whether impairment exists. In 1993, the Company determined
that excess cost associated with its suburban newspaper operations was
not recoverable. (See Note 9). Accumulated amortization of intangible
assets was $143,503,000 and $126,326,000 at December 31, 1995 and
1994, respectively.
G) Stock options Stock options granted to employees are accounted for
using the intrinsic value of the options granted. Because it is the
Company's policy to grant stock options at market price on the date of
the grant, the intrinsic value is zero and therefore, no compensation
expense is recorded.
H) Earnings Per Common and Common Equivalent Share Earnings per common
and common equivalent share are based on the weighted average number
of shares outstanding during the period, including common equivalent
shares representing dilutive stock options. Earnings per share and
certain other share amounts have been restated to reflect a
two-for-one stock split. (See Note 8).
27
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
I) 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
results could differ from those estimates.
NOTE 2: ACQUISITIONS
- --------------------------------------------------------------------------------
On June 1, 1994, Belo acquired the assets of television station WWL-TV, the
CBS affiliate in New Orleans, Louisiana, for $110,000,000 in cash plus
transaction costs. On February 1, 1995, Belo acquired television station
KIRO-TV in Seattle, Washington. The purchase price was $162,500,000 in cash
plus transaction costs. These acquisitions have been accounted for as
purchases.
The costs of the acquisitions have been allocated on the basis of the
estimated fair market value of the assets acquired. These allocations resulted
in intangibles of $81,673,000 for WWL-TV and $122,753,000 for KIRO-TV. These
amounts are being amortized on a straight-line basis over 40 years.
The pro forma financial results of operations below assume the transactions
were financed with the revolving credit facility at the average rates paid in
each of these periods, and include certain other purchase price adjustments
regarding depreciation, amortization and income taxes. The pro forma financial
results further assume the transactions were completed at the beginning of
January 1994:
-----------------------------------------------------------------------------
In thousands, except per share amounts 1995 1994
-----------------------------------------------------------------------------
Net operating revenues $ 738,338 $ 689,023
Net earnings $ 65,812 $ 68,453
Net earnings per common and
common equivalent share $ 1.66 $ 1.69
-----------------------------------------------------------------------------
A change of .125 percent in revolving debt rates would affect the pro forma
net earnings by $215,000. The pro forma financial information is provided for
informational purposes only and is not necessarily representative of the
operating results that would have occurred had the acquisitions been completed
as of the indicated date, nor are they indicative of future operating results.
On December 26, 1995, Belo completed the acquisition of the Bryan-College
Station Eagle, a daily newspaper serving Bryan-College Station, Texas. The
acquisition, which was financed with the revolving credit facility, has been
accounted for as a purchase. The pro forma financial information above does
not include the operations of this acquisition due to immateriality.
NOTE 3: LONG TERM DEBT
- --------------------------------------------------------------------------------
Long-term debt consists of the following:
--------------------------------------------------------------------------------
In thousands 1995 1994
--------------------------------------------------------------------------------
Revolving credit agreement $480,000 $305,000
Short-term unsecured notes classified
as long-term debt 71,000 19,000
Industrial Revenue Bonds 6,400 6,400
--------------------------------------------------------------------------------
Total $557,400 $330,400
--------------------------------------------------------------------------------
At the end of 1995, the Company had a revolving credit facility for
$800,000,000. Borrowings of revolving debt were $480,000,000 and $305,000,000
at December 31, 1995 and 1994, respectively. Loans under the revolving credit
agreement bear interest at a rate based, at the option of the Company, on the
bank's alternate base rate, LIBOR or competitive bid. The rate obtained
through competitive bid is either a Eurodollar rate or a rate agreed to by the
Company and the bank. At December 31, 1995, the weighted average borrowing
rate was 6.1 percent. The agreement also provides for a facility fee of .125
percent on the total commitment. Borrowings
28
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
under the agreement mature upon expiration of the agreement on July 28, 2000,
with an extension to July 28, 2001, at the request of the Company and with the
consent of the participating banks.
The revolving credit agreement contains certain covenants, including the
maintenance of cash flow in relation to both the Company's leverage and its
fixed charges and a limitation on repurchases of the Company's stock. The
Company is in compliance with these covenants at December 31, 1995.
During 1995, the Company used various short-term unsecured notes as an
additional source of financing. For the years ended December 31, 1995 and
1994, the average interest rate on this debt was slightly lower than the
revolving debt rate. Due to the Company's intent to renew the short-term notes
and its continued ability to refinance this debt on a long-term basis through
its revolving credit agreement, $71,000,000 and $19,000,000 of short-term notes
outstanding at December 31, 1995 and 1994, respectively, have been classified
as long-term.
In 1995, 1994 and 1993, the Company incurred interest costs of $30,944,000,
$16,250,000 and $16,976,000, respectively, of which $957,000, $138,000 and
$1,961,000, respectively, were capitalized as components of construction cost.
Average interest rates on total debt were approximately 6.3 percent, 4.8
percent and 5.4 percent during 1995, 1994 and 1993, respectively.
At December 31, 1995, the Company had outstanding letters of credit of
$7,708,000 issued in the ordinary course of business.
Because substantially all of the Company's debt is due under the variable
rate revolving credit agreement, no significant differences exist between the
carrying value and fair value.
NOTE 4: INCOME TAXES
- --------------------------------------------------------------------------------
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes" changing to the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. As permitted by SFAS
No. 109, prior years' financial statements were not restated to reflect the
change. The cumulative effect of adopting SFAS No. 109 as of January 1, 1993
increased 1993 net earnings by $6,599,000 or 16 cents per share.
Income tax expense for the years ended December 31, 1995, 1994 and 1993
consists of the following:
---------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
---------------------------------------------------------------------------------------------
Current
Federal $ 32,094 $32,548 $17,385
State 5,521 5,054 2,746
---------------------------------------------------------------------------------------------
Total current 37,615 37,602 20,131
Deferred 6,823 1,428 10,969
---------------------------------------------------------------------------------------------
Total $ 44,438 $39,030 $31,100
---------------------------------------------------------------------------------------------
Effective tax rate 40.0% 36.2% 41.1%
---------------------------------------------------------------------------------------------
29
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
Income tax provisions for the years ended December 31, 1995, 1994 and 1993
differ from amounts computed by applying the applicable U.S. federal income tax
rate as follows:
--------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
--------------------------------------------------------------------------------------------
Computed expected income tax expense $ 38,855 $37,764 $26,452
Amortization of excess cost 2,235 2,235 2,235
State income taxes 3,692 3,494 2,601
Stock donation (Note 10) - (3,245) -
Effect of 1% rate increase on deferred taxes - - 2,249
Reduction for change in law regarding
amortization of acquired intangible asset - - (1,000)
Other (344) (1,218) (1,437)
--------------------------------------------------------------------------------------------
$ 44,438 $39,030 $31,100
--------------------------------------------------------------------------------------------
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1995 and 1994, are as follows:
------------------------------------------------------------------------------------
In thousands 1995 1994
------------------------------------------------------------------------------------
Deferred tax liabilities:
Excess tax depreciation and amortization $ 105,035 $ 103,621
Deferred gain on sale of assets 4,294 4,751
Loss on investment 10,867 7,730
Expenses deductible for tax purposes in a year
different from the year accrued 6,211 5,053
Other 463 464
------------------------------------------------------------------------------------
Total deferred tax liabilities $ 126,870 $ 121,619
------------------------------------------------------------------------------------
Deferred tax assets:
State taxes $ 4,620 $ 4,541
Deferred compensation 5,126 4,490
Expenses deductible for tax purposes in a year
different from the year accrued 3,200 5,887
Other 4,418 4,018
------------------------------------------------------------------------------------
Total deferred tax assets $ 17,364 $ 18,936
------------------------------------------------------------------------------------
Net deferred tax liability $ 109,506 $ 102,683
------------------------------------------------------------------------------------
NOTE 5: EMPLOYEE RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Company sponsors a noncontributory defined benefit pension plan
covering substantially all employees. The benefits are based on years of
service and the average of the employee's five consecutive years of highest
annual compensation earned during the most recently completed ten years of
employment.
The funding policy is to contribute annually to the plan an amount at least
equal to the minimum required contribution for a qualified retirement plan, but
not in excess of the maximum tax deductible contribution.
30
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
The following table sets forth the plan's funded status and prepaid pension
costs (included in other assets on the Consolidated Balance Sheets) at December
31, 1995 and 1994:
------------------------------------------------------------------------------------
In thousands 1995 1994
------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefit obligation $ (82,119) $ (64,476)
Accumulated benefit obligation $ (84,597) $ (66,378)
Projected benefit obligation for service
rendered to date $ (107,817) $( 86,462)
Plan assets at fair value, invested primarily
in equity securities 95,291 75,709
------------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (12,526) (10,753)
Unrecognized net loss 34,350 30,285
Unrecognized net transition asset being recognized
over 12.3 years (2,837) (4,069)
Unrecognized prior service cost (2,866) (2,241)
------------------------------------------------------------------------------------
Prepaid pension cost $ 16,121 $ 13,222
------------------------------------------------------------------------------------
The net periodic pension cost (benefit) for the years ended December 31,
1995, 1994 and 1993 includes the following components:
---------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
---------------------------------------------------------------------------------------------
Service cost - benefits earned during the period $ 3,697 $3,666 $ 2,284
Interest cost on projected benefit obligation 7,331 6,461 5,782
Actual return on plan assets (17,035) (604) (9,294)
Net amortization and deferral 9,498 (6,563) 1,784
---------------------------------------------------------------------------------------------
Net periodic pension cost $ 3,491 $2,960 $ 556
---------------------------------------------------------------------------------------------
Assumptions used in the accounting for the defined benefit plan are as
follows:
---------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------------------------------------------------------------------------
Discount rate in determining benefit obligation 7.25% 8.50% 7.50%
Discount rate in determining net periodic pension
cost 8.50% 7.50% 9.00%
Expected long-term rate of return on assets 10.25% 10.25% 10.25%
Rate of increase in future compensation 5.50% 6.00% 5.00%
---------------------------------------------------------------------------------------------
The Company sponsors a defined contribution plan that covers substantially
all of its employees. Subject to certain dollar limits, employees may
contribute a percentage of their salaries to this plan, and the Company will
match a portion of the employee's contributions. The Company's contributions
totaled $3,170,000, $2,568,000 and $1,825,000 in 1995, 1994 and 1993,
respectively.
The Company also sponsors non-qualified retirement plans for key employees.
Expense for the plans recognized in 1995, 1994 and 1993 was $1,089,000,
$1,232,000 and $1,412,000, respectively.
31
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 6: LONG TERM INCENTIVE PLANS
- --------------------------------------------------------------------------------
The Company has long-term incentive plans under which awards may be granted
to employees in the form of incentive stock options, non-qualified stock
options, restricted shares or performance units, the values of which are based
on the long-term performance of the Company. In addition, options may be
accompanied by stock appreciation rights and limited stock appreciation rights.
Rights and limited rights may also be issued without accompanying options.
Cash-based bonus awards are also available under one of the plans. The plans
also provide for grants of non-qualified stock options to non-employee
directors.
Stock-based activity in the long-term incentive plans is summarized in the
following table:
LONG TERM INCENTIVE PLANS
=============================================================================================================
NON-QUALIFIED STOCK OPTIONS RESTRICTED SHARES
OPTION
SHARES SHARES PRICE SHARES PRICE
SERIES A SERIES B PER SHARE SERIES A PER SHARE
- -------------------------------------------------------------------------------------------------------------
Outstanding at Jan. 1, 1993 1,618,517 145,436 $20-40 291,815 $29-42
Granted 317,955 - 40-49 37,192 49-53
Exercised (505,295) (87,326) 20-40 - -
Vested - - - (106,225) 29-53
Canceled (61,285) - 29-40 (10,990) 29-49
- -------------------------------------------------------------------------------------------------------------
Outstanding at Dec. 31, 1993 1,369,892 58,110 $22-49 211,792 $29-53
Granted 322,795 - 50-53 48,360 53-57
Exercised (234,545) (12,500) 22-49 - -
Vested - - - (46,971) 30-57
Canceled (7,002) - 29-49 (810) 29-43
- -------------------------------------------------------------------------------------------------------------
Outstanding at Dec. 31, 1994 1,451,140 45,610 $24-53 212,371 $29-57
Two-for-one stock split 1,310,337 41,570 12-30 211,891 15-31
Granted 474,300 225,000 30-35 - -
Exercised (405,448) (18,590) 12-27 - -
Vested - - - (117,261) 15-35
Canceled (26,142) - 15-27 (27,905) 15-35
- -------------------------------------------------------------------------------------------------------------
Outstanding at Dec. 31, 1995 2,804,187 293,590 $12-35 279,096 $15-35
- -------------------------------------------------------------------------------------------------------------
The non-qualified options granted to employees under the Company's
long-term incentive plans become exercisable in cumulative installments over a
period of three years. On December 31, 1995, of the 3,097,777 options
outstanding, 1,827,884 were exercisable at prices ranging from $12 to $27.
Shares of Common Stock reserved for grants under the plans were 3,849,727 and
250,531 at December 31, 1995 and 1994 respectively.
A provision for the restricted shares is made ratably over the restriction
period. Expense recognized under the plans for restricted shares was
$2,223,000, $2,146,000 and $3,598,000 in 1995, 1994 and 1993, respectively.
NOTE 7: COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
The Company is involved in certain claims and litigation related to its
operations. In the opinion of Management, liabilities, if any, arising from
these claims and litigation would not have a material adverse effect on the
consolidated financial position or results of operations of the Company.
Commitments for the purchase of broadcast film contract rights totaled
approximately $131,383,000 at December 31, 1995 for broadcasts scheduled
through August 2000.
Advance payments on plant and equipment expenditures at December 31, 1995
primarily relate to newspaper production equipment, broadcast equipment and
building renovations and improvements. Required future payments for capital
expenditures for 1996 and 1997 are $7,881,000 and $2,275,000, respectively.
32
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
Total lease expense for property and equipment was $3,435,000, $3,131,000
and $5,447,000 in 1995, 1994 and 1993, respectively. Lease expense was lower
in 1994 following the Company's 1993 purchase of the building in which it had
been leasing office space.
Future minimum rental payments for operating leases are not material.
NOTE 8: COMMON AND PREFERRED STOCK
- --------------------------------------------------------------------------------
The Company has two series of common stock authorized, issued and
outstanding, Series A and Series B. The shares are identical except that
Series B shares are entitled to ten votes per share on all matters submitted to
a vote of shareholders, while the Series A shares are entitled to one vote per
share. Transferability of the Series B shares is limited to family members and
affiliated entities of the holder. Series B shares are convertible at any time
on a one-for-one basis into Series A shares.
Each outstanding share of common stock is accompanied by one preferred
share purchase right, which entitles shareholders to purchase 1/100 of a share
of Series A Junior Participating Preferred Stock. The rights will not be
exercisable until a party either acquires beneficial ownership of 30 percent of
the Company's common stock or makes a tender offer for at least 30 percent of
its common stock. At such time, each holder of a right (other than the
acquiring person or group) will have the right to purchase common stock of the
Company with a value equal to two times the exercise price of the right, which
is initially $150 (subject to adjustment). In addition, if the Company is
acquired in a merger or business combination, each right can be used to
purchase the common stock of the surviving company having a market value of
twice the exercise price of each right. Once a person or group has acquired 30
percent of the common stock but before 50 percent of the voting power of the
common stock has been acquired, the Company may exchange each right (other than
those held by the acquiring person or group) for one share of Company common
stock (subject to adjustment). The Company may reduce the 30 percent threshold
or may redeem the rights. The number of shares of Series A Junior Participating
Preferred Stock reserved for possible conversion of these rights is equivalent
to 1/100 of the number of shares of common stock issued and outstanding plus
the number of shares reserved for options outstanding and for grant under the
1995 Executive Compensation Plan. The rights will expire in 2006, unless
extended.
On June 9, 1995, the Company completed a two-for-one stock split in the form
of a dividend, issuing one additional share of Series A and Series B common
stock for each corresponding share outstanding, as of the May 19, 1995 record
date. The effect of the stock split was to double the number of shares
outstanding and reduce per share amounts by one-half. All earnings and
dividends per share, weighted average shares outstanding and share trading
prices in this report have been restated to reflect the stock split.
The Company has in place a stock repurchase program authorizing the purchase
of up to $2,500,000 of Company stock annually, and the Company has authority to
purchase an additional 3,591,200 shares under another Board authorization.
NOTE 9: RESTRUCTURING CHARGE
- --------------------------------------------------------------------------------
The Consolidated Statement of Earnings for 1993 includes a $5,822,000 (9
cents per share) charge related to Dallas-Fort Worth Suburban Newspapers, Inc.
("DFWSN"), that consists primarily of the write-off of goodwill and a reduction
in the carrying value of production assets to their fair value. The production
assets adjusted include building and improvements and publishing equipment.
The charge was recognized in conjunction with the decision to restructure DFWSN
upon the determination that the carrying value of these assets was not
recoverable. Fair value of production assets was determined principally by
market value. The restructuring was substantially completed in January 1994.
NOTE 10: OTHER INCOME AND EXPENSE
- --------------------------------------------------------------------------------
In 1994, Belo donated 58,835 shares of Stauffer Communications, Inc. stock
to The A. H. Belo Corporation Foundation. The fair market value of the shares
at the time of the transfer, as determined by an outstanding tender offer from
a third party, exceeded the carrying value of the stock, resulting in a gain of
$9,271,000, which was offset by a charge for the charitable contribution of the
shares in the amount of $16,675,000. The transaction, net of a $5,837,000
income tax benefit, resulted in a decrease in 1994 net earnings of $1,567,000
(4 cents per share). In 1995, Belo sold its remaining investment in Stauffer
Communications, Inc., resulting in a gain of $2,406,000 ($1,546,000 after-tax
or 4 cents per share).
33
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
NOTE 11: SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------------------------------------------
Net cash provided by operations reflects cash payments for interest and
income taxes during the years ended December 31, 1995, 1994 and 1993 as
follows:
-------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
-------------------------------------------------------------------------------------------
Interest paid, net of amounts capitalized $30,724 $14,564 $18,677
Income taxes paid, net of refunds $39,427 $26,618 $15,679
-------------------------------------------------------------------------------------------
NOTE 12: SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
Effective January 1, 1996, the Company acquired the Owensboro
Messenger-Inquirer, a daily newspaper serving Owensboro, Kentucky. Notes
payable, which are due in various installments over the next four years and are
backed by letters of credit, were issued to complete the transaction. The
acquisition was accounted for as a purchase.
Subsequent to year-end, Belo completed the sale of its interest in its
programming distribution partnership, Maxam Entertainment. The Company will
record a gain on the transaction in the first quarter of 1996.
NOTE 13: INDUSTRY SEGMENT INFORMATION
- --------------------------------------------------------------------------------
The Company operates in two primary industries: television broadcasting and
newspaper publishing. Operations in the broadcast industry involve the sale of
air time for advertising and the broadcast of entertainment, news and other
programming. The Company's television stations are located in Dallas and
Houston, Texas; Seattle, Washington; Sacramento, California; Norfolk, Virginia;
New Orleans, Louisiana; and Tulsa, Oklahoma. Operations in the newspaper
publishing industry, which are located primarily in the Dallas-Fort Worth
metropolitan area, involve the sale of advertising space in published issues,
the sale of newspapers to distributors and individual subscribers and
commercial printing. The Company's other industry segment is comprised of
miscellaneous operating ventures associated primarily with television
production and distribution. Prior to 1995, these operations were grouped with
the broadcasting segment. Information for periods prior to 1995 has been
reclassified to conform to the current year presentation.
34
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. BELO CORPORATION AND SUBSIDIARIES
Selected segment data for the years ended December 31, 1995, 1994 and 1993
is as follows:
-----------------------------------------------------------------------------------------------
In thousands 1995 1994 1993
-----------------------------------------------------------------------------------------------
Net operating revenues
Broadcasting (A) $ 322,642 $ 258,040 $ 209,083
Newspaper publishing 409,099 369,366 335,651
Other 3,602 719 101
-----------------------------------------------------------------------------------------------
$ 735,343 $ 628,125 $ 544,835
-----------------------------------------------------------------------------------------------
Earnings from operations
Broadcasting (A) $ 83,921 $ 81,319(C) $ 63,317(B)
Newspaper publishing 69,999 66,568 44,293(C)
Other (3,972) (874) (77)
Corporate expenses (13,385) (16,014) (18,059)
-----------------------------------------------------------------------------------------------
$ 136,563 $ 130,999 $ 89,474
-----------------------------------------------------------------------------------------------
Identifiable assets
Broadcasting (A) $ 726,766 $ 566,766 $ 444,940
Newspaper publishing (D) 341,025 271,179 263,855
Other 8,126 1,381 1,235
Corporate 78,105 74,465 86,126
-----------------------------------------------------------------------------------------------
$1,154,022 $ 913,791 $ 796,156
-----------------------------------------------------------------------------------------------
Depreciation and amortization
Broadcasting (A) $ 37,795 $ 25,077 $ 20,039
Newspaper publishing 20,916 20,716 17,374
Other 31 2 -
Corporate 705 610 251
-----------------------------------------------------------------------------------------------
$ 59,447 $ 46,405 $ 37,664
-----------------------------------------------------------------------------------------------
Capital expenditures
Broadcasting (A) $ 19,605 $ 24,561 $ 16,996
Newspaper publishing 19,217 22,227 36,765
Other 154 62 -
Corporate 1,854 521 8,369
-----------------------------------------------------------------------------------------------
$ 40,830 $ 47,371 $ 62,130
-----------------------------------------------------------------------------------------------
(A) In 1995, Broadcasting segment data includes the operations of
KIRO-TV, which Belo purchased on February 1, 1995. Results for
1994 include the operations of WWL-TV, which Belo purchased on
June 1, 1994. (See Note 2).
(B) Broadcasting earnings from operations include the reversal of
certain music license fee accruals of $631,000 (1 cent per share)
in 1994 and $3,349,000 (5 cents per share) in 1993.
(C) Included in Newspaper publishing earnings from operations in 1993
is a $5,822,000 (9 cents per share) restructuring charge
consisting primarily of the write-off of goodwill and a reduction
in the carrying value of production assets related to the
restructuring of DFWSN. (See Note 9).
(D) Publishing assets at December 31, 1995 include the assets of the
Bryan-College Station Eagle, which was purchased by the Company on
December 26, 1995.
35
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. H. Belo Corporation and Subsidiaries
NOTE 14: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
Following is a summary of the unaudited quarterly results of operations for
1995 and 1994:
- -------------------------------------------------------------------------------------------------------------
In thousands, except per share amounts 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- -------------------------------------------------------------------------------------------------------------
1995
Net operating revenues
Broadcasting (A) $ 69,689 $ 88,276 $ 78,678 $ 85,999
Newspaper publishing 93,300 101,166 102,433 112,200
Other 50 327 1,340 1,885
- -------------------------------------------------------------------------------------------------------------
$163,039 $ 189,769 $ 182,451 $ 200,084
- -------------------------------------------------------------------------------------------------------------
Earnings from operations
Broadcasting (A) $ 15,234 $ 26,526 $ 17,311 $ 24,850
Newspaper publishing 15,468 17,919 15,767 20,845
Other (1,094) (922) (1,025) (931)
Corporate expenses (4,097) (3,879) (3,928) (1,481)
- -------------------------------------------------------------------------------------------------------------
$ 25,511 $ 39,644 $ 28,125 $ 43,283
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 11,443 $ 21,198(B) $ 12,792 $ 21,143
- -------------------------------------------------------------------------------------------------------------
Net earnings per common and
common equivalent share $ .28 $ .53 $ .33 $ .54
- -------------------------------------------------------------------------------------------------------------
1994
Net operating revenues
Broadcasting (A) $ 49,101 $ 63,208 $ 66,265 $ 79,466
Newspaper publishing 82,921 91,107 93,262 102,076
Other 25 622 55 17
- -------------------------------------------------------------------------------------------------------------
$132,047 $ 154,937 $ 159,582 $ 181,559
- -------------------------------------------------------------------------------------------------------------
Earnings from operations
Broadcasting (A) $ 11,712 $ 21,052 $ 19,257 $ 29,298
Newspaper publishing 10,908 17,716 18,220 19,724
Other (214) (3) (174) (483)
Corporate expenses (3,222) (3,361) (4,618) (4,813)
- -------------------------------------------------------------------------------------------------------------
$ 19,184 $ 35,404 $ 32,685 $ 43,726
- -------------------------------------------------------------------------------------------------------------
Net earnings $ 10,038 $ 19,511 $ 15,748(B) $ 23,570
- -------------------------------------------------------------------------------------------------------------
Net earnings per common
and common equivalent share: $ .24 $ .48 $ .39 $ .59
- -------------------------------------------------------------------------------------------------------------
(A) Broadcasting results include the operations of KIRO-TV since February 1,
1995 and WWL-TV since June 1, 1994. (See Note 2.)
(B) Net earnings for the third quarter of 1994 include the net charge of
$1,567,000 related to the Stauffer Communications, Inc. stock donation (see
Note 10). A corresponding after-tax gain of $1,564,000 related to the sale
of Belo's remaining investment in Stauffer Communications, Inc. is
reflected in second quarter 1995 net earnings.
36
39
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Management of A. H. Belo Corporation is responsible for the preparation of
the Company's consolidated financial statements, as well as for their integrity
and objectivity. Those statements are prepared using generally accepted
accounting principles, they include amounts that are based on our best
estimates and judgments, and we believe they are not misstated due to material
fraud or error. Management has also prepared the other information in the
Annual Report and is responsible for its accuracy and its consistency with the
financial statements.
Management maintains a system of internal control that is designed to provide
reasonable assurance of the integrity and reliability of the financial
statements, the protection of assets from unauthorized use or disposition, and
the prevention and detection of fraudulent financial reporting. This system of
internal control provides for appropriate division of responsibility, and is
documented in written policies and procedures. These policies and procedures
are updated as necessary and communicated to those employees having a
significant role in the financial reporting process. Management continually
monitors the system of internal control for compliance.
Management believes that as of December 31, 1995, the Company's system of
internal control is adequate to accomplish the objectives described above.
Management recognizes, however, that no system of internal control can ensure
the elimination of all errors and irregularities, and it recognizes that the
cost of the internal controls should not exceed the value of the benefits
derived.
Finally, Management recognizes its responsibility for fostering a strong
ethical climate within the Company according to the highest standards of
personal and professional conduct, and this responsibility is delineated in the
Company's written statement of business conduct. This statement of business
conduct addresses, among other things, the necessity for due diligence and
integrity, avoidance of potential conflicts of interest, compliance with all
applicable laws and regulations, and the confidentiality of proprietary
information.
/s/ Robert W. Decherd
Robert W. Decherd
Chairman of the Board, President and Chief Executive Officer
/s/ Michael D. Perry
Michael D. Perry
Senior Vice President and Chief Financial Officer
37
40
EXHIBIT SEQ.
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
3.1 Certificate of Incorporation of the Company (Exhibit 3.1 to the Company's Annual Report on Form 10-K dated
March 19, 1992 (the "1991 Form 10-K")) N/A
3.2 Certificate of Correction to Certificate of Incorporation dated May 13, 1987 (Exhibit 3.2 to the Company's
Annual Report on Form 10-K dated March 18, 1993 (the "1992 Form 10-K")) N/A
3.3 Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated April 16, 1987
(Exhibit 3.3 to the 1991 Form 10-K) N/A
3.4 Certificate of Amendment of Certificate of Incorporation of the Company dated May 4, 1988 (Exhibit 3.4 to the
1992 Form 10-K) N/A
3.5 Certificate of Amendment of Certificate of Incorporation of the Company dated May 3, 1995
---
3.6 Amended Certificate of Designation of Series A Junior Participating Preferred Stock of the Company dated May 4,
1988 (Exhibit 3.5 to the 1992 Form 10-K) N/A
3.7 Certificate of Designation of Series B Common Stock of the Company dated May 4, 1988 (Exhibit 3.6 to the 1992
Form 10-K) N/A
3.8 Bylaws of the Company, effective February 22, 1995 (Exhibit 3.7 to the Company's Annual Report on Form 10-K
dated March 8, 1995 (the "1994 Form 10-K")) N/A
4.1 Certain rights of the holders of the Company's Common Stock are set forth in Exhibits 3.1-3.6 above
4.2 Specimen Form of Certificate representing shares of the Company's Series A Common Stock (Exhibit 4.2 to the
1992 Form 10-K) N/A
4.3 Specimen Form of Certificate representing shares of the Company's Series B Common Stock (Exhibit 4.3 to the
Company's Annual Report on Form 10-K dated March 20, 1989) N/A
4.4 Form of Rights Agreement as Amended and Restated, as of February 28, 1996 between the Company and Chemical
Mellon Shareholder Services, L.L.C, a New York banking corporation
---
10.1 Contracts relating to television broadcasting:
(1) Form of Agreement for Affiliation between WFAA-TV in Dallas, Texas and ABC
---
(2) Form of Agreement for Affiliation between KXTV in Sacramento, California and ABC
(3) Contract for Affiliation between KHOU-TV in Houston, Texas and CBS
---
41
EXHIBIT SEQ.
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
(4) Contract for Affiliation between WWL-TV in New Orleans, Louisiana and CBS
---
10.2 Financing agreements:
(1) Loan Agreement dated October 1, 1985, between City of Arlington Industrial Development Corporation and
Dallas-Fort Worth Suburban Newspapers, Inc. (Exhibit 10.5(2) to the 1991 Form 10-K) N/A
(2) Letter of Credit and Reimbursement Agreement dated as of June 2, 1987, between Dallas-Fort Worth Suburban
Newspapers, Inc. and The Sanwa Bank, Limited, Dallas Agency covering $6,400,000 City of Arlington
Industrial Development Corporation Industrial Development Revenue Bonds (Exhibit 10.5(3) to the 1991 Form
10-K) N/A
(3) Credit Agreement dated as of August 5, 1994 among the Company and Citicorp Securities, Inc., as
Syndication Agent, The First National Bank of Chicago, as Administrative Agent, Texas Commerce Bank
National Association, as Documentation Agent and The Banks Listed Therein, as Lenders (Exhibit 10.4(1) to
the Second Quarter 1994 Form 10-Q) N/A
(4) First Amendment to Credit Agreement dated as of July 28, 1995 (Exhibit 10.4(1) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995) N/A
(5) Amendment and Waiver Agreement dated as of August 5, 1994, by and between the Company and The Sanwa Bank,
Limited, Dallas Agency (Exhibit 10.4(4) to the 1994 Form 10-K) N/A
10.3 Compensatory plans:
(1) Management Security Plan (Exhibit 10.4(1) to the 1991 Form 10-K) N/A
(2) 1986 Long-Term Incentive Plan (Exhibit 10.4(7) to the 1991 Form 10-K) N/A
(3) Amendment No. 1 to 1986 Long-Term Incentive Plan (Exhibit 10.4(8) to the 1991 Form 10-K) N/A
(4) Amendment No. 2 to 1986 Long-Term Incentive Plan (Exhibit 10.3(9) to the 1992 Form 10-K) N/A
(5) Amendment No. 3 to 1986 Long-Term Incentive Plan (Exhibit 10.3(10) to the 1993 Form 10-K) N/A
(6) Amendment No. 4 to 1986 Long-Term Incentive Plan (Exhibit 10.3(11) to the 1993 Form 10-K) N/A
42
EXHIBIT SEQ.
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
(7) Amendment No. 5 to 1986 Long-Term Incentive Plan (Exhibit 10.3(12) to the 1993 Form 10-K) N/A
(8) Amendment No. 6 to 1986 Long-Term Incentive Plan (Exhibit 10.3(13) to the 1992 Form 10-K) N/A
(9) Amendment No. 7 to 1986 Long-Term Incentive Plan
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(10) The A. H. Belo Corporation Employee Savings and Investment Plan Amended and Restated February 2, 1996
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(11) The G. B. Dealey Retirement Pension Plan (as Amended and Restated Generally Effective January 1,
1989)
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(12) Master Trust Agreement, effective as of July 1, 1992, between A. H. Belo Corporation and Mellon Bank,
N.A. (Exhibit 10.3(26) to the 1993 Form 10-K) N/A
(13) A. H. Belo Corporation Supplemental Executive Retirement Plan (Exhibit 10.3(27) to the 1993 Form 10-K) N/A
(14) Trust Agreement dated February 28, 1994, between the Company and Mellon Bank, N.A. (Exhibit 10.3(28) to
the 1993 Form 10-K) N/A
(15) Summary of A. H. Belo Corporation Executive Compensation Plan
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(16) A. H. Belo Corporation 1995 Executive Compensation Plan
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(17) A. H. Belo Corporation Employee Thrift Plan, effective January 1, 1995
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(18) First Amendment to A.H. Belo Corporation Employee Thrift Plan
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(19) Second Amendment to A. H. Belo Corporation Employee Thrift Plan
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(20) Master Defined Contribution Trust Agreement by and between A. H. Belo Corporation and Mellon, Bank,
N.A.
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(21) First Amendment to Master Defined Contribution Trust Agreement
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(22) Second Amendment to Master Defined Contribution Trust Agreement
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21 Subsidiaries of the Company
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23 Consent of Ernst & Young LLP
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27 Financial Data Schedule (filed electronically with the Securities and Exchange Commission) N/A