-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fBS20Jx6BfRDzIUKNO2CM3YhEVZSVJ39tSUMGt/vKmFpAkHTspI9Smd1COLhD/CB oLOmmKq50FiO+kDyC0RllA== 0000068813-94-000016.txt : 19940331 0000068813-94-000016.hdr.sgml : 19940331 ACCESSION NUMBER: 0000068813-94-000016 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MULTIMEDIA INC CENTRAL INDEX KEY: 0000068813 STANDARD INDUSTRIAL CLASSIFICATION: 4833 IRS NUMBER: 570173540 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-06265 FILM NUMBER: 94518307 BUSINESS ADDRESS: STREET 1: 305 SOUTH MAIN ST STREET 2: P O BOX 1688 CITY: GREENVILLE STATE: SC ZIP: 29601 BUSINESS PHONE: 8032984373 MAIL ADDRESS: STREET 1: PO BOX 1688 CITY: GREENVILLE STATE: SC ZIP: 29602 10-K 1 FORM 10-K FOR MULTIMEDIA, INC. 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 (FEE REQUIRED) [ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the fiscal year ended December 31, 1993 For the transition period from to Commission file number 0-6265 MULTIMEDIA, INC. (Exact name of registrant as specified in its charter) South Carolina 57-0173540 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 305 South Main Street, Greenville, South Carolina 29601 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 298-4373 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value (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 _____ 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 voting stock held by nonaffiliates (shareholders holding as of December 31, 1993, less than 5% of the outstanding common stock, excluding directors and officers), computed by reference to the average bid and asked prices of such stock, as of March 3, 1994, was $733,165,000. The number of shares outstanding of the Registrant's common stock, $.10 par value, was 37,274,978 at March 3, 1994. DOCUMENTS INCORPORATED BY REFERENCE Incorporated Documents Location in Form 10-K Portions of 1993 Annual Report to Shareholders Parts I and II Portions of Proxy Statement dated March 15, 1994 Part III PART I. Item 1. Business. Multimedia, Inc. (the "Company") is a diversified media company with corporate headquarters in Greenville, South Carolina. The Company is a South Carolina corporation which began using its current name in 1968; however, its predecessor newspaper and broadcasting companies date back as early as 1888. The Company publishes 11 daily and approximately 50 non-daily newspaper publications; owns and operates five television and five radio stations; serves approximately 417,000 cable television subscribers in five states; monitors approximately 52,000 security alarm customers; and produces and syndicates television programming. The Company's industry segments are newspaper publishing, broadcasting, cable television, entertainment and security alarms. Financial information for these segments is presented in Note 14 of the Notes to Consolidated Financial Statements in the 1993 Annual Report, which material is incorporated herein by reference. Further information relating to the development of the business since the beginning of the fiscal year covered by this report is included in Management's Discussion and Analysis of Financial Condition and Results of Operations set forth on pages 16 through 23 in the 1993 Annual Report and in the Notes to Consolidated Financial Statements in the 1993 Annual Report, which material is incorporated herein by reference. RECAPITALIZATION MERGER On September 20, 1985, the Company's shareholders approved a Recapitalization Agreement and Plan of Merger providing for the merger of MM Acquiring Corp., a new corporation which had been organized for purposes of the merger, with and into the Company (the "Recapitalization Merger"). The purpose of the Recapitalization Merger was to recapitalize the Company and thereby provide the Company's shareholders with an opportunity to receive a premium over historical prices for a significant portion of their shares while retaining an ongoing equity interest in the Company and to provide performance incentives to members of senior management of the Company by providing them with increased equity participation in the Company. The Recapitalization Merger was consummated on October 1, 1985. Further information relating to the Recapitalization Merger is included in Note 2 of the Notes to Consolidated Financial Statements in the 1993 Annual Report, which material is incorporated herein by reference. NEWSPAPER OPERATIONS The Company publishes the only daily newspapers in Greenville, South Carolina; Asheville, North Carolina; Montgomery, Alabama; Clarksville, Tennessee; Gallipolis and Pomeroy, Ohio; Point Pleasant, West Virginia; Staunton, Virginia; Moultrie, Georgia; and Mountain Home, Arkansas. It also publishes Sunday newspapers in each market except Moultrie, Point Pleasant and Mountain Home. The Company also publishes approximately 50 non-daily publications in Alabama, Arkansas, Georgia, North Carolina, Ohio, South Carolina, Virginia and Tennessee, including the monthly MUSIC CITY NEWS and THE GOSPEL VOICE. 1 In April 1993, the Company's Montgomery newspaper merged its morning and afternoon newspapers. Prior year linage comparisons have not been restated. However, if restated, billed advertising linage would have increased 2.2% from 1992 to 1993. The increase is primarily due to a strong rebound in classified advertising. Substantially all of the Company's newspaper revenues are obtained from advertising and circulation. Advertising rates and rate structures vary depending upon circulation and type of advertising (local, classified, national, etc.). The following table indicates billed newspaper advertising linage and advertising revenues for 1993, 1992 and 1991. 1993 1992 1991 Advertising linage 144,928,000 146,172,000 155,199,000 Advertising revenues $99,173,000 $98,254,000 $98,127,000 The Company's newspapers are primarily home-delivered and are generally sold by independent carriers and circulation dealers. Certain non-daily publications are distributed free of charge, using both mail and carrier delivery. The following table indicates total paid newspaper circulation at year-end and circulation revenues for 1993, 1992 and 1991. 1993 1992 1991 Circulation: Daily 323,000 325,000 318,000 Sunday 352,000 351,000 344,000 Non-daily 202,000 159,000 159,000 Circulation revenues $30,233,000 $28,491,000 $26,024,000 The percentages of the Company's newspaper revenues contributed by advertising, circulation and other operating revenues for the five years ended December 31, 1993, were: 1993 1992 1991 1990 1989 Advertising revenues 73% 74% 76% 78% 79% Circulation revenues 22 22 20 19 19 Other operating revenues 5 4 4 3 2 100% 100% 100% 100% 100% Newsprint represents approximately 20% of the newspaper division's operating expenses. The basis weight of newsprint used by the Company is 30 pound paper. The price of newsprint remains volatile, and it is difficult to predict any significant price increase or decrease. The average cost per ton may vary depending upon the competitive discount allowance throughout the year. Two newsprint suppliers provide the majority of the Company's newsprint. The Company believes that its newsprint supply sources under existing arrangements are adequate. The Company's newspapers compete for advertising principally on the basis of readership and compete for circulation principally on the basis of content. The Company's daily newspapers do not compete directly with any other general circulation daily newspaper published in that 2 community. Most of the Company's newspapers compete with other newspapers published in nearby cities and towns, or with free distribution advertising weeklies. Further, all of the Company's newspapers compete with newspapers having national or regional circulation, as well as with magazines, radio, television, outdoor and other advertising media. BROADCASTING OPERATIONS The Company wholly owns and operates four VHF television stations located in St. Louis, Missouri (KSDK, an NBC affiliate); Cincinnati, Ohio (WLWT, an NBC affiliate); Knoxville, Tennessee (WBIR-TV, an NBC affiliate); and Macon, Georgia (WMAZ-TV, a CBS affiliate). In addition, the Company owns a 51% majority interest in WKYC-TV (an NBC affiliate) Cleveland, Ohio, and has operating control of the station. Television stations operate under network affiliation contracts running from two to five years. The network provides programs to its affiliated stations and sells commercial time in the programs to national advertisers. The stations also sell commercial time in the programs to national and local advertisers. Generally, a network affiliation agreement can be cancelled prior to the expiration of the contract by either party with 180 days notice. The Company has experienced no difficulties in the past with such affiliation renewals. The Company's television stations' affiliation renewal dates follow: Television Station Network Affiliation Renewal KSDK May 1, 1994 WLWT September 1, 1994 WBIR September 10, 1994 WKYC December 26, 1994 WMAZ February 1, 1995 Each television station transmits live, filmed or taped programs purchased from others or produced by the station. For both television and radio, the Company endeavors to present a balanced schedule of programs, including entertainment, news, public affairs, sports and other programs of public service and public interest. The Company owns and operates AM and FM radio broadcasting stations in Greenville, South Carolina, and Macon, Georgia, and an AM station in Spartanburg, South Carolina. Each of these stations is authorized to operate 24 hours per day, and each maintains a daily operating schedule of at least 18 hours. The principal sources of the Company's television and radio revenues consist of payments from national, regional and local advertisers or agencies for program time or advertising announcements, payments from the networks for broadcasting network programming and payments by advertisers and other broadcasters for services such as the production of films or the taping of advertising material. 3 The percentages of the Company's broadcasting revenues contributed by television and radio and other for the five years ended December 31, 1993, were: 1993 1992 1991 1990 1989 Television revenues 94% 91% 91% 89% 89% Radio and other revenues 6 9 9 11 11 100% 100% 100% 100% 100% In January 1993, the Company sold its mobile video production business for $4.5 million, which resulted in a gain of approximately $2.3 million before taxes. Revenues from the mobile video production business are included in the above table under other revenues. During the first quarter of 1994, the Company sold its radio stations in Milwaukee, Wisconsin, and Shreveport, Louisiana, for a total of $7.2 million, which resulted in a gain of approximately $3.6 million before taxes. Excluding the results of the properties sold during 1993 and the first quarter of 1994, broadcasting revenues would have decreased approximately 1% and operating profit would have increased approximately 5% from 1992 to 1993. The market size, rank and share for the Company's television stations are presented below: Rank Share WKYC (Market #12) 1993 2 17 1992 3 17 1991 3 17 KSDK (Market #18) 1993 1 26 1992 1 24 1991 1 24 WLWT (Market #31) 1993 2 19 1992 3 17 1991 2 21 WBIR (Market #62) 1993 1 28 1992 1 27 1991 1 27 WMAZ (Market #120) 1993 1 42 1992 1 43 1991 1 44 Note: Information represents station ADI TV Household share sign-on/sign-off for the November Arbitron or Nielsen of the respective period. Source for market size: "Arbitron Television - 1993" 4 The Company's television and radio stations compete for revenues principally on the basis of ratings. The Company's television and radio stations compete for revenues with other advertising media such as newspapers, magazines and other television and radio stations. Other sources of present and potential competition include cable television ("CATV"), pay cable and subscription TV operations. CATV systems currently operate in most of the market areas served by the Company's communications media. In addition, franchises for CATV systems have been granted by various communities in these market areas, and additional CATV franchises may be considered and granted from time to time. The future of broadcasting depends on a number of factors, including the general strength of the economy, population growth, overall advertising revenues, relative efficiency compared to other competing advertising media and existing and future governmental regulations and policies. The business strategy of the Company's broadcasting division focuses on providing quality local programming and service to each of its respective communities. The most important local programming segment to the Company's broadcasting division is local news programming. Local news programming typically has the highest rating of any local programming segment, and television stations usually receive a significant portion of their advertising revenues from the local news segments. Quality local news coverage is also important in establishing a local station's public service reputation. Further information regarding the Company's broadcasting operations is presented under "Federal Regulation of Broadcasting". CABLE OPERATIONS The Company operates cable television systems serving subscribers in Kansas, Oklahoma, Illinois, Indiana and North Carolina. The following table shows homes passed, basic and pay subscribers, basic penetration, pay-to-basic ratio and average monthly revenue per cable subscriber at the end of 1993, 1992 and 1991. 1993 1992 1991 Homes passed 694,000 688,000 623,000 Basic subscribers 417,000 410,000 365,000 Pay subscribers 323,000 333,000 312,000 Basic penetration 60.1% 59.6% 58.6% Pay-to-basic ratio 77.5% 81.2% 85.5% Average monthly revenue per cable subscriber $33.29 $32.13 $30.36 The majority of the increase in basic subscribers from 1991 to 1992 was due to the purchase of 33,000 cable television subscribers in Indiana and Illinois. Cable television is the distribution of television signals and special information programs to subscribers within the community by means of a coaxial cable system. A cable system may also offer pay television services which provide, for an extra charge, special programs such as recently released movies, entertainment programs or selected sports events. Subscribers receive these 5 programs on a designated channel of the cable system which is restricted with electronic security devices to isolate the pay television signal so that only subscribers to the service can receive it. The Company holds approximately 140 franchises from local governing authorities which permit the Company to operate a CATV system in the granting community (see Federal Regulation of Cable Television). These franchises, which expire at varying dates ranging from one to 20 years, are generally non-exclusive and may be terminated for failure to comply with specified conditions. In most cases, the Company is required to pay fees generally ranging from three to five percent of the system's revenues to the particular local governing authority granting the franchise. At the end of 1993, approximately 52 systems, which account for more than 68% of the Company's subscribers, have franchise agreements expiring in the year 2000 and beyond. During 1993, the Company began a five-year $150 million investment in the technological upgrade of its cable television operations. The investment includes approximately $45 million in each of the next two years to replace the coaxial wire in our cable systems with fiber. The majority of the remaining portion of the $150 million program will include the integration of digital compression and the installation of interactive converter boxes in the homes of approximately 50% of our customers, being the percent of the existing customers that we expect will want the new interactive services. The Company believes the technological upgrade will prepare it for new competitors and potential revenue opportunities. The Company may compete with other companies and individuals in the submission of applications for additional franchises, the renewal of existing franchises and in seeking to acquire operating CATV systems and under-developed franchises. Since most franchises are granted on a non-exclusive basis, other applicants may obtain franchises in areas where the Company presently operates systems or holds franchises. The Company's cable television division competes for revenues principally on the basis of quality of service, a variety of programming options and pricing. The Company's strategy is to develop clusters of cable television systems in suburban communities of major metropolitan markets and other areas with favorable demographics. Management believes that the clustering of cable systems produces operating, marketing and servicing efficiencies. On February 22, 1994, the Federal Communications Commission ("FCC" or "Commission") announced several decisions relating to cable rates (see Federal Regulation of Cable Television). Wireless Cable Service The Company operates wireless cable systems in the Oklahoma City, Oklahoma, and Wichita, Kansas, metropolitan areas. Wireless cable is over-the-air distribution to consumers' residences of video programming by means of microwave radio channels. It combines standard broadcast television reception equipment with microwave reception equipment and uses a combination downconverter and channel selector to provide a composite of broadcast and non- broadcast signals to subscribers. In this regard, wireless cable may provide an alternative programming delivery service to that offered by a traditional cable television system. The frequencies allocated by the FCC for this use are those in the multichannel multipoint distribution service ("MMDS"), Private Operational Fixed Microwave Service ("OFS") and, on a part-time basis, the Instructional 6 Television Fixed Service ("ITFS"). The Company holds several licenses issued by the FCC for use of frequencies in its Oklahoma City systems. For both the Oklahoma City and Wichita systems, the Company has entered into lease agreements with the FCC license-holders for various MMDS and ITFS frequencies. Terms of these agreements vary from one year to five years with provision for renewal. In 1990 and 1991, the Commission simplified its regulations and procedures applicable to the wireless cable business in order to allow wireless cable systems to compete more effectively with traditional cable systems. Among other things, the Commission eliminated its rules restricting the number of wireless cable channels a single entity can control in a market and modified interference requirements and processing practices to accelerate the application process. The Commission also limited the future ownership or lease of wireless cable channels by cable television operators within their local franchise areas, while grandfathering existing wireless cable operations owned by cable television operators. Further, the Commission modified restrictions on lease terms for MMDS use of ITFS frequencies and increased power limitations and channel assignment standards. The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Act") prohibits common ownership of cable television and wireless cable operations in a franchise area. However, existing operations, such as those of the Company, are grandfathered, and the FCC is authorized to grant waivers of the cross-ownership restriction in other situations. Wireless cable operators that include local or distant television stations in their service offerings traditionally have relied upon the compulsory broadcast retransmission license established by the Copyright Act to cover their use of copyrighted material contained in such signals. The Copyright Office has ruled that the compulsory license does not cover wireless cable operations. The wireless cable industry is expected to seek legislation to clarify that wireless cable operators are eligible for the license. The provisions of the 1992 Act governing mandatory carriage of television broadcast signals (see Federal Regulation of Broadcasting) do not apply to wireless cable operations. However, those provisions dealing with retransmission consent are applicable. Consequently, wireless cable operators are required to obtain the consent of local broadcast stations prior to utilizing microwave frequencies to distribute such stations. The Company does not use microwave frequencies to distribute local over-the-air television stations in its Oklahoma City operations, but it does in Wichita, and it has obtained the requisite consents for distribution of those local stations. SECURITY ALARM OPERATIONS The Company sells or leases and installs residential and commercial alarm equipment and provides monitoring services for the alarm owner or lessee. These accounts are monitored through a central computer located in Wichita, Kansas. At year-end, the Company provided security monitoring services for approximately 52,000 customers (both residential and commercial) primarily located in the midwest and western United States. These accounts were obtained through acquisitions and through in-house sales efforts. 7 The following table shows the number of subscribers and the average recurring monthly revenue per security subscriber at the end of 1993, 1992 and 1991. 1993 1992 1991 Number of subscribers 52,000 35,000 26,000 Average recurring monthly revenue per subscriber $25.13 $23.09 $21.94 The Company's security alarm division generates revenues from the installation, monitoring and servicing of security alarm systems. Monitoring fees, which represent approximately 80% of the division's revenues, consist of payments from customers for the surveillance of the security devices in their home or business. These devices transmit a signal through telephone lines or radio waves to the monitoring station whenever the customer's alarm is triggered. Generally, monitoring contracts between the Company and alarm customers are for at least three years. There are many security companies competing in the same markets with the Company. The Company may also compete with other companies in the acquisition of existing security accounts. The Company's security division competes for revenues with many other security companies on the basis of quality of service, ability to monitor and service security systems and price. ENTERTAINMENT OPERATIONS The Company's entertainment division produces television programming for broadcast both in the U.S. and internationally. The division derives virtually all of its operating profits and approximately 50% and 25%, respectively, of its revenues from the production and syndication of two daytime television talk shows, the "DONAHUE" and "SALLY JESSY RAPHAEL" shows. Both of these shows are primarily distributed via satellite to the stations for showing. A significant portion of operating profit for the division is contributed by the "DONAHUE" show. The Company's syndication activities continue to be an important source of revenues, particularly the "DONAHUE" show. The Company contracts with television stations for exclusive rights to air these programs in their respective markets. The length of these contracts generally range from one to three years. Fees from these sales to stations and the sale of advertising in these shows are the principal sources of revenue for the Company's entertainment division. In addition, the Company produces other talk shows, and special dramas, movies and docudramas for first-run syndication, the networks, cable, PBS and the international marketplace. The "DONAHUE" show, hosted by Phil Donahue, is in its twenty-sixth year of production and syndication. The show is currently seen in 189 U.S. markets and in 50 foreign countries. Phil Donahue is currently under contract with the Company through August 31, 1995. The "SALLY JESSY RAPHAEL" show is currently in its eleventh season of production and syndication and is broadcast in 186 U.S. markets and in 30 foreign countries. The show's revenues have grown significantly over the last five years, due to increased ratings and clearances. Sally Jessy Raphael is currently under contract with the Company through September 1998. 8 In September 1991, the Company purchased certain television and first-run syndicated television assets from Carolco Pictures, Inc.'s wholly owned subsidiary, Orbis Communications, now named Multimedia Motion Pictures, Inc. ("MMP"). MMP's primary objective is to produce made-for-television movies or miniseries for the networks, syndication and cable marketplace. The number of hours of programming produced and sold to various networks increased from six hours in 1992 to 16 hours in 1993. The Company expects to curtail this activity in the future to concentrate its resources on more profitable programming opportunities. The Company introduced a talk show, "JERRY SPRINGER", in September 1991 on four stations and began nationwide syndication in September 1992. The "Jerry Springer" show is currently seen in 145 U.S. markets. Jerry Springer is currently under contract with the Company through September 1997. "RUSH LIMBAUGH, THE TELEVISION SHOW", a late-night talk show, premiered in September 1992 and is currently seen in 223 U.S. markets. "RUSH LIMBAUGH, THE TELEVISION SHOW" is a joint venture between Ailes Communications, Rush Limbaugh and the Company. Rush Limbaugh is currently under contract with the Company through August 1995. The Company plans to launch a news-oriented all talk channel for cable in the fall of 1994. The Company's entertainment division competes for revenues with numerous other syndicated programming principally on the basis of ratings. EMPLOYEE RELATIONS The Company employs approximately 3,500 full-time employees and has contracts with local collective bargaining agents representing approximately 5% of its employees. Employees of the Company receive various supplemental benefits including group life and health insurance, pension and salary deferral thrift plans. The Company considers its relationship with employees excellent. REGULATION OF BROADCASTING AND CABLE OPERATIONS Federal Regulation of Broadcasting The Company's television and radio broadcasting operations are subject to the jurisdiction of the FCC under the Communications Act of 1934 as amended (the "Act"). The Act empowers the FCC, among other things, to issue, revoke or modify broadcasting licenses, to assign frequency bands, to determine the location of stations, to regulate the apparatus used by stations, to establish areas to be served, to adopt such regulations as may be necessary to carry out the provisions of the Act and to impose certain penalties for violation of its regulations. Under the Act, radio and television broadcast licenses may be granted for maximum periods of seven and five years, respectively. Upon application, and in the absence of conflicting applications or adverse findings as to the licensee's qualifications, existing radio and television licenses will be renewed without hearing by the FCC for additional seven and five year terms, 9 respectively. If a competing application is filed against a licensee's renewal application, the Act requires a full comparative hearing. The U.S. Court of Appeals for the District of Columbia Circuit affirmed a significant FCC decision in a comparative television renewal proceeding which recognized an incumbent licensee's "renewal expectancy" based on substantial service to its community. The Court's decision indicated that a renewal expectancy, if proven by sound past performance, should be considered by the FCC along with other standard comparative factors applicable to both the incumbent and the competing applicants such as (i) the applicants' other media holdings (in this context, FCC policy disfavors owners of multiple properties); (ii) the applicants' plans for management of the facility by their respective owners (which is normally not required in the case of a publicly owned broadcasting company); and (iii) other factors, including local residency, civic involvement and provision of signals to under-served populations. The FCC has established procedures placing strict limitation on settlement payments made to competing applicants in return for dismissal of their applications. These rules were intended to reduce the potential for abuse of the FCC's renewal procedures. The FCC currently has pending a rulemaking and inquiry proceeding to develop specific standards for determining whether an incumbent is entitled to a renewal expectancy and for comparing incumbent licensees with competing applicants as well as to establish procedures regarding the order of proof for determining entitlement to renewal expectancy. Petitions to deny broadcast station license renewal applications (as well as other types of broadcast applications) have been filed in recent years by various parties asserting programming, employment and other complaints. Most such petitions have been denied by the FCC on the basis of pleadings and without formal hearings. The Company's applications for the renewal of its broadcast licenses for the regular term have heretofore been granted without hearing; however, there is no assurance that this experience will be repeated in the future. The Company's television stations' FCC license renewal dates follow: Television Station FCC License Renewal WMAZ April 1, 1997 WBIR August 1, 1997 WKYC October 1, 1997 WLWT October 1, 1997 KSDK February 1, 1998 The Act also prohibits the assignment of a license or the transfer of control of a license or significant modification of broadcast transmission facilities without prior approval of the FCC. Moreover, FCC multiple ownership regulations prohibit the common ownership or control of most communications media (i.e., television and radio, television and daily newspapers, radio and daily newspapers or television and cable television operations ("Cable")) serving common or overlapping market areas. The Company owns daily newspapers and AM and FM radio stations in Greenville, South Carolina; and AM and FM radio stations and a television station in Macon, Georgia. These ownership interests pre-dated the FCC's multiple ownership rules and thus are "grandfathered", and divestiture by the Company is not required. In the case of a sale or transfer of control (other than a "pro forma" or non-substantial transfer of control), however, the buyer 10 or transferee would not be able to continue the common ownership of the relevant properties absent a waiver of the FCC's rules. In addition, FCC multiple ownership regulations generally limit the number of cognizable broadcast interests which may be owned by an entity or individual. Cognizable interests under FCC multiple ownership rules include 5% or greater voting stockholder interests (10% or more for investment companies, bank trust departments and insurance companies), general (and some types of limited) partnership interests and official positions as officers or directors. FCC multiple ownership regulations generally permit the common ownership of up to 12 television stations (without regard to whether they are in the UHF or VHF band), provided the total audience reach of commonly owned television stations is less than 25% of the nation's television households. (For purposes of calculating the total percentage of national television households, only 50% of each UHF station's audience reach is counted.) A rulemaking proceeding currently pending before the FCC proposes to liberalize both the local and national limits on television ownership. It is unlikely that this rulemaking will be concluded before the end of 1994, and there can be no assurance that any of these rules will be changed. In any event, the Company's broadcast operations will continue to be subject to the FCC's ownership rules and any changes the agency may adopt. The Company does not believe that the FCC multiple ownership regulations for television stations will restrict its growth except in areas with overlapping coverage to its existing properties. In 1992 the FCC relaxed its "duopoly" rule governing ownership by a single entity of multiple radio stations in the same market. In local markets with 15 or more stations, one entity is permitted to own two AM and two FM stations, so long as the combined audience share of these stations does not exceed 25% of the market at the time of acquisition. In markets with fewer than 15 stations, ownership of up to three radio stations is permitted, no more than two of which may be in the same service (AM or FM), provided that the total number of stations owned comprises less than 50% of the total number of stations in the market. The FCC also increased the number of stations which may be owned by a single entity on a national basis to 18 AM and 18 FM stations; in 1994 this will increase to 20 AM and 20 FM stations. The 1992 Act contains two provisions that fundamentally alter the relationship that has existed in recent years between cable television systems and television broadcast stations whose signals are distributed to cable subscribers. The first deals with the rights of "local" commercial and non-commercial television broadcasters to mandatory carriage of their signals on cable systems ("must-carry"). The second, in certain defined circumstances, prohibits cable operators from carrying the signals of television stations without first obtaining their consent ("retransmission consent"). The two provisions are related in that, with respect to local cable carriage, broadcasters must make a choice once every three years on a system by system basis whether to proceed under the must-carry rules or whether to insist upon retransmission consent in order for their signal to be carried. The FCC's implementing regulations required broadcasters to elect between must-carry and retransmission consent by June 17, 1993, with the choice binding for three years. A broadcast station has the right to choose must-carry, assuming it can deliver a signal of specified strength, with regard to cable systems in its Area of Dominant Influence as defined by the audience measurement service Arbitron. Stations electing to grant retransmission authority were expected to conclude their consent agreements with cable systems by October 6, 1993, the date on which system's authority to carry broadcast signals without consent expired. In June 1993, the Company elected retransmission consent on the majority of cable systems that carry the signals of the stations in the stations' markets. Must-carry was elected on a small percentage of systems. Pending negotiation of long-term retransmission agreements, the stations 11 have entered into interim agreements (currently scheduled to expire June 30, 1994) with all of the affected cable system operators. The must-carry provisions of the 1992 Act have been challenged as unconstitutional. A special three-judge district court rejected the challenge. That decision has been appealed, and the Supreme Court of the United States heard oral arguments in the case on January 12, 1994. Its decision is expected later this year. The Company cannot predict the outcome of the case. A separate challenge to the retransmission consent provision of the 1992 Act was rejected by a Federal district court. An appeal of that decision is pending. The FCC's syndicated exclusivity and network non-duplication rules enable television broadcast stations, that have obtained exclusive distribution rights for programming in their market, to require cable systems (with more than 1,000 subscribers) to delete or "black-out" such programming from other television stations which are carried by the cable system. The FCC is studying whether to relax or abolish the geographic limitations on program exclusivity contained in its rules so as to allow parties to set by contract the geographic scope of exclusive distribution rights. In addition to full service television broadcast stations, the FCC, under its rules, provides for authorization of low power television stations ("LPTV"), subscription television stations ("STV"), multipoint distribution services ("MDS"), multichannel multipoint distribution services ("MMDS") and direct satellite-to-home broadcast services ("DBS"). These services have the technical capability to distribute television programming to viewers' homes and, thus, to compete with conventional full service television stations. Technological developments in broadcasting and related fields, such as High Definition Television ("HDTV"), Digital Audio Broadcasting ("DAB") as well as changes in FCC regulations, may affect the competitiveness of new and existing alternatives to conventional radio and television services or otherwise affect the market for radio and television broadcast services. For example, the FCC favors relaxation of the cross-ownership ban on telephone companies providing cable television services in their telephone service area and has authorized telephone companies to provide cable service on a "video dial tone" basis. (See Federal Regulation of Cable Television.) In this regard, the United States District Court for the Eastern District of Virginia recently held that the provision of the Communications Act that prohibits telephone companies from providing video programming to subscribers within their service area is unconstitutional. Although the court's ruling only applied to the operations of Bell Atlantic (the regional Bell Operating Company ["RBOC"] that brought the suit) and its subscribers, other RBOCs have brought suit in other courts seeking to have the provision declared unconstitutional. Congressional legislation to eliminate or modify this cross- ownership ban has also been proposed. The FCC also has proposed the establishment of a local multipoint distribution service ("LMDS") that could offer multiple channels of video programming using very high-frequency microwave signals in the 28 GHz band. Under the proposal, two service providers in each of 489 markets across the country would be licensed to distribute video, data and other telecommunications services. In January 1994, the FCC announced that it would issue a Second Notice of Proposed Rulemaking in this proceeding designed to determine whether it should implement a Negotiated Rulemaking Proceeding to allow participants to determine whether the 28 GHz band could be shared by terrestrial LMDS and satellite users. The Company cannot predict the outcome of the FCC's proceeding, nor can the Company assess the effect which future technological developments or changes in FCC regulations or policies may have on the Company's operations. 12 There are additional FCC regulations and policies, and regulations and policies of other federal agencies, regulating network- affiliate relations, political broadcasts, advertising practices, program content, equal employment opportunities, application procedures and other areas affecting the business or operation of broadcast stations. Proposals for additional or revised regulations or legislation are pending and considered by federal regulatory agencies and Congress from time to time. The Company cannot predict the effect of existing and proposed federal regulations, legislation and policies on its broadcasting 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. Federal Regulation of Cable Television The cable television industry is subject to extensive government regulation at the federal and local levels and, in some cases, at the state level. The relationship of various levels of government in regulating cable television and the extent of such regulation is established by the Cable Communications Policy Act of 1984 (the "1984 Act") and the recent amendment thereto, the 1992 Act. The FCC has had and will continue to have principal federal responsibility for regulating cable television. The 1992 Act has greatly expanded the regulatory framework of the FCC within which cable operators must operate. Under this new framework, the FCC was required to adopt new regulations implementing Congressional policies for such aspects of cable operations as rates, customer service obligations, carriage of television broadcast signals and other types of programming, technical matters, leased access, franchise issues, consumer electronics equipment standards, ownership and employment practices. During the past year, the FCC completed initial rulemaking proceedings in accordance with timetables imposed by the 1992 Act; however, many of the new rules remain under reconsideration by the FCC. In addition, provisions of the 1992 Act and some of the FCC's implementing regulations have been challenged in court. Thus, there remains an element of uncertainty as to the ultimate nature and scope of the new requirements. A. Television Signal Carriage and Programming. The 1992 Act contains two elements that fundamentally alter the relationship between cable systems and television broadcast stations. The first reinstates the mandatory carriage of certain local over-the-air television stations ("must-carry" rules). Such rules have previously been held unconstitutional as violative of cable operators' First Amendment Rights. The second element provides that in certain circumstances television stations may prohibit the carriage by cable systems absent consent ("retransmission consent"). The two provisions are related in that broadcast stations must elect either must-carry or retransmission consent on local cable systems. Election must be made every three years. For the current three-year election period, the Company's cable systems have succeeded in maintaining desirable channel line-ups by accommodating those stations electing mandatory carriage and entering into retransmission consent agreements with others. The U.S. Supreme Court recently heard arguments on an appeal of the 1992 Act's must-carry provisions and is expected to rule on their constitutionality later this year. In addition, the FCC is reconsidering certain aspects of its recently-adopted regulations governing must-carry and retransmission consent. (See also, Federal Regulation of Broadcasting, above.) The FCC's syndicated exclusivity and network non-duplication rules enable television broadcast 13 stations, that have obtained exclusive distribution rights for programming in their market, to require cable systems (with more than 1,000 subscribers) to delete or "black-out" such programming from other television stations which are carried by the cable system. The extent of such deletions varies from market to market but generally makes distant broadcast signals less attractive sources of programming. The FCC also is studying whether to relax or abolish the geographic limitations on program exclusivity contained in its rules so as to allow parties to set by contract the geographic scope of exclusive distribution rights. This could result in even more extensive program black- outs. The FCC has recommended to Congress that it repeal at least part of the cable industry's compulsory copyright license which Congress established in 1976 to serve as a means of compensating program suppliers for cable retransmission of broadcast signals. (See Copyright discussion, below.) The FCC determined that the statutory compulsory copyright license for distant broadcast signals no longer served the public interest and that private negotiations between the applicable parties would better serve the public. The FCC has deferred a decision on whether to recommend the repeal of the statutory compulsory copyright license for retransmission of local broadcast signals. Legislation has been proposed to repeal the compulsory copyright license law. Without the compulsory license, cable operators might need to negotiate rights from the copyright owners for each program carried on each broadcast station in the channel lineup. Such negotiated agreements could increase the cost to cable operators of carrying broadcast signals. The exact relationship between the compulsory license and the 1992 Act's retransmission consent provision is unclear, and it is expected that additional legislation will be introduced to address this issue. The FCC requires that non-broadcast cable origination programming comply with FCC standards similar to those imposed on broadcasters. These standards include regulations governing political advertising and programming, advertising during children's programming, prohibition of lottery information and sponsorship identification requirements. The 1992 Act imposes certain restrictions on cable operators which have an attributable ownership interest in satellite programming services. Vertically-integrated companies are prohibited from unreasonably refusing to deal with a multichannel distributor and from discriminating in price, terms and conditions in the sale of programming to multichannel distributors if the effect is to hinder or prevent competition. As required by the 1992 Act, the FCC issued rules governing distribution practices and contractual relationships between vertically-integrated programmers and cable systems in an effort to promote competition and diversity in the programming market and to increase its availability to consumers. However, the rules allow programmers to: establish credit, financial or technical qualifications; establish different prices, terms and conditions based on actual and reasonable differences; and enter into exclusive arrangements if in the public interest. This provision has withstood judicial challenge, but an appeal of the court's decision is pending. In addition, the FCC is reconsidering the rules it adopted to implement statutory policy. B. Cable Television Ownership. As a result of the 1984 Act, the FCC is, with a few exceptions, the only governmental agency authorized to prescribe rules relating to cable system ownership or control by persons with interest in other mass media communications. The 1984 Act prohibits common ownership or control of a television station and a cable system in the station's Grade B signal coverage area (typically an area approximately 15-75 miles from the 14 station's transmitting antenna). The 1992 Act imposes restrictions on common ownership or control of MMDS and Satellite Master Antenna Television ("SMATV") operations in a cable service area. (SMATV is a video delivery system that receives programming through a satellite earth station for distribution to viewers (without using public rights of way) in multiple dwelling complexes such as apartment buildings and hotels.) Existing ownership interests of MMDS or SMATV services are unaffected. The 1992 Act directed the FCC to implement horizontal and vertical ownership limitations on cable operators. With regard to horizontal ownership, the FCC adopted rules limiting the number of subscribers a cable operator is authorized to reach to no more than 30 percent of all homes passed by cable nationwide. The horizontal ownership limits were invalidated by a federal court, and the FCC has stayed its rule pending further judicial appeal. The FCC's new vertical integration rules limit to 40 percent of a system's capacity the number of channels that can be occupied by a commonly-owned programmer. These rules are undergoing FCC reconsideration. The 1992 Act grants local franchising authorities certain rights to deny franchise awards or transfer approvals upon a finding of common ownership by the applicant of another system in the same service area or that competition would be reduced or eliminated by such award or transfer. Except for rural telephone companies as defined by the FCC, federal law restricts the ability of telephone companies to engage in cable television operations within their local service areas. Specifically, local telephone companies may not provide video programming, channels of communication, pole or conduit space or other rental arrangements to an affiliate. The FCC favors relaxation of this ban and authorizes telephone companies to provide cable service on a "video dial tone" basis by furnishing transmission facilities to customers who would distribute programming. In the FCC's view, neither the phone company nor its programmer/customer would be subject to local franchise requirements that would apply to a conventional cable operator. Legislation which would eliminate or modify this ownership ban has also been proposed. If the restrictions are relaxed or removed, cable television companies could face increased competition. Recently, Bell Atlantic was successful in overturning the 1984 Cable Act cable-telco cross-ownership restrictions on constitutional grounds. The decision, which is limited in applications to Bell Atlantic and its subsidiaries, has been appealed, but other regional Bell Operating Companies have brought similar challenges in other jurisdictions. (See also Federal Regulation of Broadcasting, above.) Other measures that would eliminate barriers to telephone companies' entry into the cable television business are being considered by Congress. In 1992 the FCC modified its regulations governing common ownership or control of cable systems with national television networks. The new rules allow national television networks to own cable systems if such a system (when aggregated with all other cable systems in which the network holds such an interest) does not pass (i) more than 10 percent of homes passed on a nationwide basis, and (ii) 50 percent of the homes passed within any one Arbitron area of dominant influence (ADI). The 1992 Act prohibits, with some exceptions, cable operators from selling a system within 36 months of acquisition or construction. Franchise authorities must act within a certain time period to act on a request for transfer by a cable operator. The FCC has adopted rules dealing with both of these matters and has them under consideration. C. Leased Access. Cable systems with more than 36 activated channels are required by the 1984 Act to make a certain number of those channels available for commercial leased access 15 by third parties unaffiliated with the system operator. (This provision does not, however, require a system in operation on or before December 29, 1984, to delete existing programming that was on the system before July 1, 1984, to accommodate potential lessees.) Under the 1992 Act, the FCC must determine maximum reasonable rates for commercial use of designated channel capacity and establish reasonable terms and conditions for such use. Parties who believe they have been denied access wrongfully may petition the FCC for relief or seek relief in Federal Court. Under the 1992 Act, Cable operators may prohibit the carriage of any material deemed to be obscene or otherwise patently offensive on commercial access channels. Alternatively, cable operators may place all "indecent" leased access programming on a single channel and must block the channel unless otherwise requested by a subscriber. FCC implementing rules allowing cable operators to ban such programming from access channels were struck down by the court, which remanded to the FCC regulations dealing with operators' rights and obligations to sequester certain programming on a separate channel. The FCC has asked the court for a rehearing and has stayed enforcement of its rules in the meanwhile. D. Other Non-Programming Requirements. The 1992 Act mandates that the FCC modify and adopt new rules regarding frequency utilization standards for cable systems. The FCC has preempted, except upon a FCC-granted waiver, state and local authorities from enforcing technical standards which are more stringent than the FCC's guidelines. The 1992 Act requires the FCC to issue regulations to ensure compatibility between cable systems and television receivers and video cassette recorders ("VCR"). Regulations shall include, among other things, requirements that cable operators notify subscribers if certain functions of television receivers and VCRs are not compatible with converter boxes. Regulations must also be adopted to promote the commercial availability of converter boxes and remote control devices. The FCC will also determine whether, and under what circumstances, to permit cable operators to scramble signals. The FCC issues licenses for microwave relay stations, mobile radios and receive-only earth stations, all of which are commonly used in the operation of cable systems. A cable system's failure to comply with any FCC requirements may result in a variety of sanctions including monetary fines or revocation or suspension of licenses for stations used in connection with the system. A cable system's inability to use a microwave relay station or a mobile radio due to license revocation could adversely affect system operations, particularly if the relay microwave is used to provide service to distant communities or to relay distant television signals to the system. The FCC rules contain signal leakage monitoring standards which must be complied with by all cable systems annually. These requirements pertain to cable operators' use of certain frequencies at specified power levels and involve specific testing which must be completed each year to test for signal leakage. The FCC currently regulates the rates and conditions imposed by public utilities for use of their poles, unless under the Federal Pole Attachments Act state public service commissions are able to demonstrate that they regulate the cable television pole attachment rates. Nineteen states (including Illinois among those served by the Company) have certified to the FCC that they 16 regulate the rates, terms and conditions for pole attachments. In the absence of state regulation, the FCC administers such pole attachment rates through use of a formula which it has devised. The validity of this FCC function was upheld by the U.S. Supreme Court. The 1992 Act and FCC implementing rules expand the cable industry's Equal Employment Opportunity obligations by requiring cable companies to provide additional information on race, sex, hiring, promotion and recruitment practices for six employment positions that the FCC has identified as performing key management functions. E. Rate Regulation. The 1992 Act establishes a mechanism for regulation of the rates charged by a cable operator for its service. Local regulation of basic (that level of service which includes broadcast signals) cable rates will be permitted for those cable systems not subject to "effective competition". The definition of "effective competition" (fewer than 30 percent of the households in the service area subscribe; or at least 50 percent of the households in the service area are served by two multichannel video programming distributors and at least 15 percent subscribe to the smaller operator; or a franchising authority serves as a multichannel video programming distributor and offers service to at least 50 percent of the households) ensures that virtually all cable systems are now subject to rate regulation. In order to regulate rates for the basic tier of service and related equipment, local officials must request FCC certification and must follow detailed FCC guidelines and procedures to determine whether the rates in question conform to a highly complex, FCC-approved "benchmark" or, if rates exceed the benchmark, whether the operator can justify them with a cost-of-service showing. FCC rules also limit related rates, including those for set-top converters, additional outlets and home wiring, to cost, plus a modest element of profit. Rates for expanded tiers of service (other than pay channels or pay-per-view) are subject to the same benchmark or cost-of-service standards as basic rates, but compliance is enforced by the FCC in response to complaints by subscribers or the local franchising authority. Although the new rules eventually will permit cable companies periodic rate increases for inflation and certain external costs, a rate freeze imposed by the FCC in May 1993 has been extended several times and continues in effect. On February 22, 1994, the FCC announced several decisions relating to cable rates including revisions to its "benchmark" approach. New benchmark formulas will be issued to reflect a new competitive differential -- that is, the average amount by which rates charged by cable operators not subject to effective competition exceeds "reasonable" rates - of 17 percent, rather than the 10 percent previously found by the FCC. In addition, the FCC altered its treatment of packages of a la carte channels. New rules will be issued setting forth factors that will be used, on a case-by-case basis, to determine whether an a la carte package "enhances subscriber choice" or "evades" rate regulation. Procedures for adding channels were adopted to permit operators to recover their programming costs, a markup of 7.5 percent on the programming, and some portion of the benchmark per channel rate. The FCC also adopted "interim" rules to govern cable operator cost-of-service showings, based on principles similar to those used in the telephone regulatory context. It set an interim industry-wide rate of return of 11.25 percent. The new rules also will include "streamlined" cost-of-service showings for upgrades and an experimental incentive upgrade plan. Taken as a whole, the new regulations have compelled significant changes in the Company's operations including restructuring of the Company's service offerings and reduced rates for the reconstituted basic service. Additional changes are likely as a result of the February 1994 decisions. The ultimate impact of these regulations cannot be predicted at this time because many aspects of the regulatory scheme are under reconsideration by the FCC, are under judicial 17 challenge, or have yet to be adopted by the FCC. F. Franchise Fees and Access. Although franchising authorities may impose franchise fees under the 1984 Act, such payments cannot exceed five percent of system revenues per year. Franchising authorities are also empowered to require that the operator provide certain cable-related facilities, equipment and services to the public and to enforce operator compliance with franchise requirements and voluntary commitments. The 1992 Act permits cable operators to itemize on its subscriber bills amounts assessed as a franchise fee or dedicated to certain franchisor- imposed requirements. When changed circumstances render compliance with such requirements commercially impracticable, the 1984 Act requires franchising authorities to renegotiate performance standards and, under certain conditions, permits the operator to make changes in program commitments without local approval. Although franchising authorities are permitted to require and enforce the dedication of system channels for non-commercial public, educational and governmental access use, they must permit the operator to make other use of such channels until the demand for use of designated access purposes is sufficient to occupy the dedicated capacity. In addition, if the franchising authority requires or the operator volunteers to provide free services or financial support for non-commercial access users, the value of such commitments must be credited toward the franchise fee payment. G. Local Franchising. Because a cable distribution system uses local streets and rights-of-way, cable television systems have been subject to state and local regulation, typically imposed through the franchising process. State and local officials have been involved in franchisee selection, system design and construction, safety, service rates, consumer relations and billing practices and community-related programming and services. Except for cable systems lawfully operating without a franchise on or before July 1, 1984, the 1984 Act requires that a cable operator obtain a franchise prior to instituting service. Under the 1992 Act, franchising authorities may not award an exclusive franchise or unreasonably deny a competitive franchise. Local authorities may, without obtaining a franchise, operate their own cable system, notwithstanding the granting of one or more franchises by a local authority. The FCC has adopted rules which establish minimum customer service requirements. However, the 1992 Act permits local franchising authorities to establish, in excess of or in addition to those of the FCC, certain customer service requirements regarding such matters as office hours, telephone availability and service calls. H. Renewal. The 1992 Act did not significantly alter the procedures for the renewal of cable television franchises which provide an incumbent franchisee certain protections against having its franchise renewal application denied. These procedures are designed to provide the incumbent franchisee with a fair hearing on past performance, an opportunity to present a renewal proposal and to have it fairly and carefully considered, and a right of appeal if the franchising authority either fails to follow the procedures or denies renewal unfairly. Nevertheless, renewal is not assured, as the franchisee must meet certain statutory and franchise standards. Moreover, even if a franchise is renewed, the franchising authority may attempt to impose new and more onerous requirements such as significant upgrading of facilities and services or higher franchise fees as a condition of renewal. 18 I. Theft of Cable Service and Unauthorized Reception of Satellite Programming. The 1984 Act addresses the problem of unauthorized connections to cable systems and the use of private earth stations capable of receiving many of the attractive satellite-delivered program services offered by cable systems without payment to or authorization of the program owner. Both of these practices are potential sources of significant revenue loss for cable systems. The 1992 Act has raised the penalties for engaging in theft of service and the manufacturing or sale of devices used to assist theft of service. However, it is not a violation to receive satellite-delivered programming by private earth stations without permission, if the program signal in question is not scrambled (transmitted in an encoded form which cannot be received without special decoding equipment), and the program owner has no specific marketing arrangement in place for granting such user permission. J. Copyright. Cable television systems are subject to a federal copyright licensing scheme covering carriage of television broadcast signals. In exchange for contributing a percentage of their revenues to a federal copyright royalty pool, cable operators receive blanket permission (a "compulsory license") to retransmit copyrighted material in broadcast signals. The amount of this royalty payment varies depending on the amount of system revenues from certain sources, the number of distant signals carried and the location of the cable system with respect to over-the-air television markets. Royalty rates paid by operators are subject to periodic adjustment by a copyright arbitration royalty panel, which can be convened by the Librarian of Congress when necessary in order to compensate for the effects of national monetary inflation and for FCC rule changes that increase the amount of television broadcast signals that cable systems carry. Legislative proposals have been and continue to be made to simplify or eliminate the compulsory license. The FCC has recommended to Congress that the compulsory license for the carriage of distant broadcast signals be eliminated. In addition, the full impact of the 1992 Act's retransmission consent provision is unclear. Therefore, the nature or amount of future payments for broadcast signal carriage cannot be predicted at this time. For the copyrighted materials they use in carriage or origination of non-broadcast programming, cable systems, like broadcasters, must have the permission of each copyright holder. System compliance with both the statutory copyright license and provisions of the Copyright Act of 1976 requiring private clearance is enforced through copyright infringement litigation brought by either the copyright holder or its representative or, in the case of violations of the statutory copyright license, by a local broadcaster or the copyright holder. K. Regulatory Change. Since its adoption in 1984, the Cable Act has been shaped by FCC regulations and by judicial interpretation. The 1992 Act has resulted in significant changes in the operation of cable television systems. As discussed above, the FCC has been charged with adopting rules and regulations and implementing the new provisions, although at present it is difficult to predict the ultimate course of such rules and regulations. Additionally, major provisions of the 1992 Act have been challenged in the courts, most significantly, the must-carry, retransmission consent and rate regulation provisions. It is likely that FCC regulations will also be challenged in court. Until the FCC has concluded its rule-making proceedings and the courts have adjudicated the issues presented to them, it would be premature to assess the full impact of the 1992 Act on the Company. The foregoing does not purport to be a complete summary of all present and proposed federal, state and local regulations relating to the cable industry. 19 Item 2. Properties. The Company owns all of its newspaper publishing plants and properties; 222,000 square feet in Greenville, South Carolina; 124,000 square feet in Montgomery, Alabama; 91,000 square feet in Asheville, North Carolina; 65,000 square feet in Clarksville, Tennessee; 27,000 square feet in Staunton, Virginia; 19,000 square feet in Gallipolis, Ohio; 11,000 square feet in Moultrie, Georgia; and 14,000 square feet in Mountain Home, Arkansas. In addition, the Company leases approximately 30,000 square feet of newspaper production and office space in Alabama, North Carolina, South Carolina and Tennessee. The Company's Montgomery, Alabama, newspaper has begun a $15 million capital project to purchase a new press and upgrade its production plant with $4 million to be invested in 1994. In its broadcasting operations, the Company owns buildings with approximately 68,000 square feet in St. Louis, Missouri; 12,000 square feet in Cincinnati, Ohio; 39,000 square feet in Knoxville, Tennessee; 10,000 square feet in Greenville, South Carolina; and 28,000 square feet in Macon, Georgia. The Company leases its studio buildings in Cincinnati and Cleveland. The Company owns all of its cable television systems and equipment. The Company leases certain offices and tower sites. The Company owns the offices in Wichita, Great Bend and McPherson, Kansas; Edmond and Bixby, Oklahoma; Oak Lawn and Harvey, Illinois; Rocky Mount, New Bern, Greenville, Washington and Kinston, North Carolina; and Laporte, Indiana. In its entertainment operations, the Company leases approximately 16,000 square feet in New York, New York, and 13,000 square feet in Los Angeles, California. In its security operations, the Company leases office space in Oklahoma City, Oklahoma; Dallas and Houston, Texas; Miami, Florida; Chicago, Illinois; and St. Louis, Missouri. The central monitoring station is located in the Company's cable television headquarters in Wichita, Kansas. Except as noted above, the Company generally owns the equipment used in its newspaper, broadcasting, cable, entertainment and security operations. The Company believes that all of its properties are in good condition, well maintained and adequate for its current operations. Item 3. Legal Proceedings. The Company from time to time becomes involved in litigation incidental to its business, including libel actions. In the opinion of management, the Company carries adequate insurance against any judgments of material amounts which are likely to be recovered in such actions. At the present time, the Company is not a party to any litigation in which it is anticipated that the amount of any likely recovery would have a material adverse effect on its financial position. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. 20 PART II. Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The Company's Common Stock is traded in the National Market System over-the-counter market and appears on The National Association of Securities Dealers Automated Quotation ("NASDAQ") under the symbol MMEDC. The following table sets forth the range of closing high and low bid prices for the Company's Common Stock in the over-the-counter market by quarter since January 1, 1992. The prices were reported by The NASDAQ Information Exchange System. These prices represent prices between dealers in securities and, as such, do not include retail mark-ups, mark-downs, or commissions and do not necessarily represent actual transactions. Low Bid High Bid 1993: First Quarter $32.00 $36.25 Second Quarter $32.00 $38.00 Third Quarter $30.75 $36.75 Fourth Quarter $33.50 $39.00 1992: First Quarter $23.00 $28.00 Second Quarter $26.00 $29.00 Third Quarter $23.50 $28.75 Fourth Quarter $24.00 $32.00 The Company's Credit and Note Agreements limit the payment of dividends on any capital stock of the Company. Currently the most restrictive of these limits the annual payment of dividends to 25% of annualized net income. No dividends were declared or paid during 1993 or 1992. The Company has no intention of paying any cash dividends in the foreseeable future. (See Note 6 to the Consolidated Financial Statements included in the 1993 Annual Report, which material is incorporated herein by reference.) As of March 3, 1994, there were approximately 1,200 record holders of the Company's Common Stock. Item 6. Selected Financial Data. The required information is set forth on pages 18 and 19 of the accompanying 1993 Annual Report, which material is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The required information is set forth on pages 16 through 23 of the accompanying 1993 Annual Report, which material is incorporated herein by reference. 21 Item 8. Financial Statements and Supplementary Data. The following information is set forth in the accompanying 1993 Annual Report, which material is incorporated herein by reference: All Consolidated Financial Statements of Multimedia, Inc. and Subsidiaries (pages 24 through 27); all Notes to Consolidated Financial Statements (pages 28 through 41); and the "Independent Auditors' Report" (page 42). With the exception of the information herein expressly incorporated by reference, the 1993 Annual Report of the Registrant is not deemed filed as part of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III. Item 10. Directors and Executive Officers of the Registrant. The required information is incorporated herein by reference from the information in the Company's definitive proxy statement dated March 15, 1994, for the Annual Meeting of Shareholders to be held April 20, 1994, under the headings "Election of Directors" and "Executive Officers". Item 11. Executive Compensation. The required information is incorporated herein by reference from the information in the Company's definitive proxy statement dated March 15, 1994, for the Annual Meeting of Shareholders to be held April 20, 1994, under the headings "Management Compensation" and "Compensation Committee Interlocks and Insider Participation". Item 12. Security Ownership of Certain Beneficial Owners and Management. The required information is incorporated herein by reference from the information in the Company's definitive proxy statement dated March 15, 1994, for the Annual Meeting of Shareholders to be held April 20, 1994, under the headings "Election of Directors", "Principal Shareholders of the Company" and "Executive Officers". Item 13. Certain Relationships and Related Transactions. The required information is incorporated herein by reference from the information in the Company's definitive proxy statement dated March 15, 1994, for the Annual Meeting of Shareholders to be held April 20, 1994, under the headings "Election of Directors", "Management Compensation" and "Compensation Committee Interlocks and Insider Participation". 22 PART IV. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) The following consolidated financial statements are incorporated by reference from the 1993 Annual Report attached hereto: Consolidated Statements of Earnings, years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Stockholders' Equity (Deficit), years ended December 31, 1993, 1992 and 1991 Consolidated Statements of Cash Flows, years ended December 31, 1993, 1992 and 1991 Consolidated Balance Sheets, December 31, 1993 and 1992 Notes to Consolidated Financial Statements Independent Auditors' Report (a) (2) The following auditors' report and financial schedules for years ended December 31, 1993, 1992 and 1991 are submitted herewith: Independent Auditors' Report on 10-K Schedules Schedule V - Property, Plant and Equipment Schedule VI - Accumulated Depreciation - Property, Plant and Equipment Schedule VIII - Valuation and Qualifying Accounts Schedule X - Supplementary Income Statement Information All other schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. (a) (3) Exhibits: (2) See Exhibit 10.8. (3.1) Restated Articles of Incorporation of the Company filed on December 22, 1967, in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-3, No. 33-9622. 23 (3.2) Amendments to the Company's Restated Articles of Incorporation filed on June 27, 1969; April 20, 1972; April 25, 1978; May 1, 1980; and May 13, 1983, in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-3, No. 33-9622. (3.3) Amendment to the Company's Restated Articles of Incorporation attached as Annex B to Articles of Merger filed on October 1, 1985, in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 4.6 to the Company's Registration Statement on Form S-3, No. 33-9622. (3.4) Articles of Amendment filed February 8, 1990, in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989 ("1989 Form 10-K") (File No. 0-6265). (3.5) Articles of Amendment to the Company's Restated Articles of Incorporation filed April 18, 1991, in the office of the Secretary of State of South Carolina: Incorporated by reference to Exhibit 4.1.4 to the Company's Registration Statement on Form S-8, File No. 33-40050 ("S-8 No. 33-40050"). (3.6) By-laws of the Company: Incorporated by reference to Exhibit 3.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1985 ("1985 Form 10-K") (File No. 0-6265). (3.6.1) Amendment to By-laws of the Company, effective April 23, 1992: Incorporated by reference to Exhibit 4.2.1 to the Company's Registration Statement on Form S-3, File No. 33-46557. (3.6.2) Amendment to By-laws of the Company, effective December 10, 1993. (4.1) See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.6.1, 3.6.2, 10.5 and 10.7. (4.2) Form of Certificates for Common Stock: Incorporated by reference to Exhibit 4.2 to the Company's Form 10-K for the year ended December 31, 1992 ("1992 Form 10-K") (File No. 0-6265). (4.3) Rights agreement, dated as of September 6, 1989, by and between the Company and South Carolina National Bank, Rights agent: Incorporated by reference to Exhibit 1 to Form 8-K of the Company dated September 6, 1989. (4.4) The Company hereby agrees to furnish to the Securities and Exchange Commission, upon request of the Commission, a copy of any instrument with respect to long-term debt not being registered in a principal amount less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis. (10.1)* Restricted Option Plan of the Company: Incorporated by reference to Exhibit 10.1 to the Company's 1985 Form 10-K. 24 (10.2)* Performance Stock Option Plan of the Company: Incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the year ended December 31, 1987 (File No. 0-6265). (10.2.1)* Amendment of Performance Stock Option Plan: Incorporated by reference to Exhibit 10.2.1 to the Company's Form 10-K for the year ended December 31, 1988 ("1988 Form 10-K") (File No. 0-6265). (10.3)* Key Executive Stock Option Plan of the Company: Incorporated by reference to Exhibit 28.1 to the Company's Registration Statement on Form S-8, No. 33-17234. (10.4)* Director Stock Option Plan: Incorporated by reference to Exhibit 10.20 to 1992 Form 10-K. (10.5) Credit Agreement between the Company and the Chase Manhattan Bank (National Association) and Citibank, N.A. as Lead Agents, the First National Bank of Chicago, First Union National Bank of North Carolina and the Toronto- Dominion Bank, Cayman Islands Branch, as Co-Agents and the Chase Manhattan Bank (National Association), as Administrative Agent, and various banks (excluding schedules and certain exhibits); the Registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted Schedule or Exhibit upon request of the Commission: Incorporated by reference to Exhibit 4.1 of the Company's 1990 second quarter Form 10-Q (File No. 0-6265). (10.5.1) List of Lenders under Credit Agreement as of March 3, 1994. (10.6) Contract for Services between Multimedia Entertainment, Inc. and Phillip J. Donahue, dated as of April 15, 1982, as amended by letter agreements dated April 15, 1982, February 10, 1984, and August 6, 1985: Incorporated by reference to Exhibit 10.6 to the Company's 1985 Form 10-K. Portions of this exhibit have been omitted and are the subject of an order of the United States Securities and Exchange Commission granting the Company's request for confidential treatment. (10.6.1) Amendment to Contract for Services: Incorporated by reference to Exhibit 10.6.1 to the Company's 1988 Form 10-K. Portions of this exhibit have been omitted and are the subject of an order of the United States Securities and Exchange Commission granting the Company's request for confidential treatment. (10.6.2) Amendment to Contract for Services: Incorporated by reference to Exhibit 10.6.2 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1991. Portions of this exhibit have been omitted and are the subject of an order of the United States Securities and Exchange Commission granting the Company's request for confidential treatment. 25 (10.6.3) 1993 Amendment to Contract for services: Incorporated by reference to Exhibit 10.6.3 to the Company's quarterly report on Form 10-Q for the quarter ended June 30, 1993. Portions of this exhibit have been omitted and are the subject of an order of the United States Securities and Exchange Commission granting the Company's request for confidential treatment. (10.7) Form of Note Agreement between the Company and various institutional holders (excluding schedules and certain exhibits); the Registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request of the Commission: Incorporated by reference to Exhibit 4.2 of the Company's 1990 second quarter Form 10-Q. (10.8) Recapitalization Agreement and Plan of Merger, dated May 1, 1985, as amended and restated between MM Acquiring Corp. and the Company: Incorporated by reference to Exhibit 2 to the Company's Registration Statement on Form S-14 dated August 20, 1985 (Registration No. 2-99786). (10.9)* Executive Salary Protection Plan: Incorporated by reference to Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1986. (10.10)* Executive Salary Protection Agreement - First Amendment: Incorporated by reference to Exhibit 10.10 to the Company's Form 10-K for the year ended December 31, 1991 ("1991 Form 10-K"). (10.11) Purchase Agreement by and between Multimedia, Inc. and National Broadcasting Company, Inc.: Incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended September 30, 1990. (10.12) Exchange Agreement between National Broadcasting Company, Inc. and Multimedia, Inc.: Incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended September 30, 1990 (File No. 0-6265). (10.13)* 1991 Stock Option Plan: Incorporated by reference to Exhibit 10.15 to the Company's Form 10-K for the year ended December 31, 1990 (File No. 0-6265). (10.13.1)* Amendment to 1991 Stock Option Plan: Incorporated by reference to Exhibit 28.2 to S-8 No. 33-40050. (10.13.2)* Amendments to 1991 Stock Option Plan, dated as of February 24, 1993: Incorporated by reference to Exhibit 10.13.2 to the 1992 Form 10-K. (10.14)* Management Committee Incentive Plan: Incorporated by reference to Exhibit 10.14 to 1991 Form 10-K. (10.15)* Executive Incentive Plan: Incorporated by reference to Exhibit 10.15 to 1991 Form 10-K. 26 (10.16)* Summary of Supplemental Retirement Program for Messrs. Bartlett and Sbarra: Incorporated by reference to Exhibit 10.16 to 1991 Form 10-K. (10.17)* Agreements between Multimedia, Inc. and J. William Grimes dated August 6 and September 20, 1991: Incorporated by reference to Exhibit 10.16 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1991 (File No. 0-6265). (10.17.1)* Resolution of Board of Directors relating to J. William Grimes, adopted April 23, 1992: Incorporated by reference to Exhibit 10.7.1 to the Company's Form 10-Q for the quarter ended March 31, 1992. (10.17.2)* Resolution of Board of Directors relating to J. William Grimes, adopted December 18, 1992: Incorporated by reference to Exhibit 10.17.2 to 1992 Form 10-K. (10.17.3)* Resignation and release agreement between Multimedia, Inc. and J. William Grimes dated December 9, 1993. (10.18)* Agreement with Robert L. Turner, dated January 29, 1991: Incorporated by reference to Exhibit 10.18 to 1991 Form 10-K. (10.19) Contract for Services between Multimedia Entertainment, Inc. and Rabbit Ears Enterprises, f/s/o Sally Jessy Raphael, dated as of April 26, 1989, as amended by letter dated December 4, 1990: Incorporated by reference to Exhibit 10.19 to 1991 Form 10-K. Portions of this exhibit have been omitted and are the subject of an order of the United States Securities and Exchange Commission granting the Company's request for confidential treatment. (10.19.1) Agreement between Multimedia Entertainment, Inc. and Wonderland Entertainment, f/s/o Sally Jessy Raphael, dated as of August 17, 1993: Incorporated by reference to Exhibit 10.19.1 to the Company's Form 10-Q for the quarter ended September 30, 1993. Portions of this exhibit have been omitted and are the subject of an order of the United States Securities and Exchange Commission granting the Company's request for confidential treatment. (10.20) Asset Purchase and Sale Agreement by and between Prime Cable Income Partners, L.P., as seller and Tar River Communications, Inc., as buyer, relating to Valparaiso and Laporte, Indiana systems dated as of July 30, 1992, as amended by letter supplement dated as of December 3, 1992: Incorporated by reference to Exhibits to Form 8-K dated December 16, 1992. (11) Computation of Primary and Fully Diluted Earnings per Share. (13) 1993 Annual Report. (21) Subsidiaries of the Registrant. 27 (23) Accountants' Consent to incorporate by reference in Registration Statements No. 2-68069, 33-17234, 33-40050, 33-40253, 33-61574 and 33-61462, on Form S-8, and in Registration Statements No. 33-42179 and 33-46557 on Form S-3. (99) Proxy Statement dated March 15, 1994. ________________________ * This is a management contract or compensatory plan or arrangement. 28 (b) Reports on Form 8-K. Items reported on Form 8-K dated December 10, 1993: (5) Other Events (7) Exhibits 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MULTIMEDIA, INC. By: Signature Title Date /s/ Walter E. Bartlett Chairman, Chief March 28, 1994 Walter E. Bartlett Executive Officer and President /s/ Robert E. Hamby, Jr. Senior Vice President March 28, 1994 Robert E. Hamby, Jr. Finance and Administration and Chief Financial Officer /s/ Thomas L. Magaha Vice President March 28, 1994 Thomas L. Magaha Finance and Development/ Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities as of the dates indicated. By: /s/ Walter E. Bartlett Director March 28, 1994 Walter E. Bartlett /s/ Rhea T. Eskew Director March 28, 1994 Rhea T. Eskew /s/ David L. Freeman Director March 28, 1994 David L. Freeman /s/ Robert E. Hamby, Jr. Director March 28, 1994 Robert E. Hamby, Jr. /s/ Donald D. Sbarra Director March 28, 1994 Donald D. Sbarra /s/ Elizabeth P. Stall Director March 28, 1994 Elizabeth P. Stall INDEPENDENT AUDITORS' REPORT ON 10-K SCHEDULES The Board of Directors and Stockholders Multimedia, Inc.: Under the date of February 11, 1994, we reported on the consolidated balance sheets of Multimedia, Inc. and subsidiaries as of December 31, 1993 and 1992 and the related consolidated statements of earnings, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1993, as contained in the 1993 annual reports to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1993. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedules as listed in Item 4(a)(2). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statement taken as a whole, present fairly, in all material respects, the information set forth therein. (signature of KPMG Peat Marwick appears here) Greenville, South Carolina February 11, 1994 Schedule V MULTIMEDIA, INC. AND SUBSIDIARIES Property, Plant and Equipment Years ended December 31, 1993, 1992 and 1991
Other Balance at Additions Retirements Changes Beginning During Year or Sales During Balance at of Year At Cost During Year Year (A) End of Year Year ended December 31, 1993: Land and land improvements $ 5,222,000 96,000 20,000 15,000 5,313,000 Buildings 38,713,000 466,000 219,000 195,000 39,155,000 Broadcasting equipment 63,100,000 3,466,000 13,478,000 810,000 53,898,000 Publishing equipment 57,566,000 2,075,000 922,000 (120,000) 58,599,000 Cablevision equipment 243,240,000 30,533,000 7,913,000 7,039,000 272,899,000 Other equipment and fixtures 55,171,000 9,468,000 2,538,000 6,458,000 68,559,000 Construction in progress 436,000 1,274,000 --- --- 1,710,000 ----------- ----------- ----------- ----------- ----------- $463,448,000 47,378,000 25,090,000 14,397,000 500,133,000 =========== =========== =========== =========== =========== Year ended December 31, 1992: Land and land improvements $ 5,166,000 18,000 4,000 42,000 5,222,000 Buildings 37,465,000 1,102,000 138,000 284,000 38,713,000 Broadcasting equipment 60,880,000 3,695,000 1,288,000 (187,000) 63,100,000 Publishing equipment 53,367,000 6,269,000 2,070,000 --- 57,566,000 Cablevision equipment 205,656,000 20,532,000 1,838,000 18,890,000 243,240,000 Other equipment and fixtures 43,282,000 6,632,000 1,743,000 7,000,000 55,171,000 Construction in progress 1,221,000 (755,000) --- (30,000) 436,000 ----------- ----------- ----------- ----------- ----------- $407,037,000 37,493,000 7,081,000 25,999,000 463,448,000 =========== =========== =========== =========== =========== Year ended December 31, 1991: Land and land improvements $ 5,021,000 102,000 --- 43,000 5,166,000 Buildings 37,150,000 1,556,000 201,000 (1,040,000) 37,465,000 Broadcasting equipment 58,321,000 3,042,000 1,156,000 673,000 60,880,000 Publishing equipment 52,109,000 2,879,000 1,621,000 --- 53,367,000 Cablevision equipment 188,517,000 18,543,000 1,404,000 --- 205,656,000 Other equipment and fixtures 35,548,000 6,796,000 1,681,000 2,619,000 43,282,000 Construction in progress 1,951,000 (731,000) --- 1,000 1,221,000 ----------- ----------- ----------- ----------- ----------- $378,617,000 32,187,000 6,063,000 2,296,000 407,037,000 =========== =========== =========== =========== =========== Note: (A) Other changes include reclassifications from other asset accounts, reclassifications between categories and property, plant and equipment of acquired companies, recorded principally at fair market values.
Schedule VI MULTIMEDIA, INC. AND SUBSIDIARIES Accumulated Depreciation - Property, Plant and Equipment Years ended December 31, 1993, 1992 and 1991
Other Balance At Charged To Retirements Changes Beginning Costs and or Sales During Balance At of Year Expenses (A) During Year Year (B) End of Year Year ended December 31, 1993: Land improvements $ 331,000 39,000 10,000 -- 360,000 Buildings 17,452,000 1,346,000 177,000 19,000 18,640,000 Broadcasting equipment 47,460,000 3,838,000 11,265,000 324,000 40,357,000 Publishing equipment 29,214,000 3,881,000 900,000 (1,000) 32,194,000 Cablevision equipment 123,840,000 20,218,000 6,710,000 -- 137,348,000 Other equipment and fixtures 26,641,000 6,100,000 2,346,000 77,000 30,472,000 ----------- ----------- ----------- ----------- ----------- $244,938,000 35,422,000 21,408,000 419,000 259,371,000 =========== =========== =========== =========== =========== Year ended December 31, 1992: Land improvements $ 295,000 40,000 4,000 -- 331,000 Buildings 16,249,000 1,340,000 137,000 -- 17,452,000 Broadcasting equipment 44,248,000 4,583,000 1,231,000 (140,000) 47,460,000 Publishing equipment 27,407,000 3,694,000 1,888,000 1,000 29,214,000 Cablevision equipment 108,439,000 16,989,000 1,589,000 1,000 123,840,000 Other equipment and fixtures 22,923,000 5,064,000 1,568,000 222,000 26,641,000 ----------- ----------- ----------- ----------- ----------- $219,561,000 31,710,000 6,417,000 84,000 244,938,000 =========== =========== =========== =========== =========== Year ended December 31, 1991: Land improvements $ 230,000 36,000 -- 29,000 295,000 Buildings 15,695,000 1,270,000 181,000 (535,000) 16,249,000 Broadcasting equipment 41,274,000 5,085,000 1,145,000 (966,000) 44,248,000 Publishing equipment 25,646,000 3,321,000 1,560,000 -- 27,407,000 Cablevision equipment 94,252,000 15,346,000 1,159,000 -- 108,439,000 Other equipment and fixtures 18,868,000 4,082,000 1,499,000 1,472,000 22,923,000 ----------- ----------- ----------- ----------- ----------- $195,965,000 29,140,000 5,544,000 -- 219,561,000 =========== =========== =========== =========== =========== Notes: (A) Depreciation for financial reporting purposes is calculated principally on the straight-line basis over the estimated useful lives of the respective assets. The useful lives of the assets range from 10 to 15 years for land improvements; 15-40 years for buildings; 3-25 years for broadcasting equipment; 3-20 years for publishing equipment; 5-20 years for cablevision equipment and 3-15 years for other equipment and fixtures. (B) Other changes represent accumulated depreciation from reclassifications between categories and accumulated depreciation on property, plant and equipment of acquired companies.
Schedule VIII MULTIMEDIA, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Years ended December 31, 1993, 1992 and 1991
Additions Balance at Charged to Collection Deductions Balance at Beginning Costs and of from End of of Year Expenses Writeoffs Reserves Year Year ended December 31, 1993: Allowance for discounts $ 54,000 850,000 -- 786,000 118,000 Allowance for doubtful accounts 3,891,000 3,875,000 620,000 4,791,000 3,595,000 --------- --------- --------- --------- --------- $3,945,000 4,725,000 620,000 5,577,000 3,713,000 ========= ========= ========= ========= ========= Year ended December 31, 1992: Allowance for discounts $ 14,000 902,000 -- 862,000 54,000 Allowance for doubtful accounts 3,371,000 4,112,000 584,000 4,176,000 3,891,000 --------- --------- --------- --------- --------- $3,385,000 5,014,000 584,000 5,038,000 3,945,000 ========= ========= ========= ========= ========= Year ended December 31, 1991: Allowance for discounts $ 52,000 964,000 -- 1,002,000 14,000 Allowance for doubtful accounts 3,454,000 4,493,000 494,000 5,070,000 3,371,000 --------- --------- --------- --------- --------- $3,506,000 5,457,000 494,000 6,072,000 3,385,000 ========= ========= ========= ========= =========
Schedule X MULTIMEDIA, INC. AND SUBSIDIARIES Supplementary Income Statement Information Years ended December 31, 1993, 1992 and 1991 Charged directly to Costs and Expenses 1993 1992 1991 Amortization of intangible assets $14,778,000 11,272,000 9,308,000 ========== ========== ========= Advertising costs $11,099,000 9,669,000 8,785,000 ========== ========== ========= All other information is inapplicable or less than one percent of total revenue. EX-3.6.2 2 EXHIBIT 3.6.2 AMENDMENT TO BYLAWS Exhibit 3.6.2 MULTIMEDIA, INC. Board of Directors' Resolution RESOLVED, that the bylaws of the corporation are amended to provide, in lieu of the language presently contained in Article III Section 2(d), the following: With the exception of the members of the board who are elected officers of the corporation, no person shall be elected, appointed or serve as a director until he reaches the age of twenty-five years or after the annual meeting of the shareholders' next succeeding the earlier of his seventy-second birthday or the twenty-fifth anniversary of his service as a member of the board of directors. Adopted December 10, 1993. EX-10.5.1 3 EXHIBIT 10.5.1 LIST OF LENDERS Exhibit 10.5.1 LIST OF LENDERS UNDER CREDIT AGREEMENT AS OF MARCH 3, 1994 Commitments Bank Current % Bank of America $ 17,430,000 3.00% Bank of California, N.A. 12,450,000 2.14% Bank of Hawaii 12,450,000 2.14% Bank of Montreal 17,430,000 3.00% Bank of New York 17,430,000 3.00% Bank of Nova Scotia 17,430,000 3.00% Bankers Trust Company 12,450,000 2.14% Banque Paribas 12,450,000 2.14% Chase Manhattan Bank, N.A. 16,600,000 2.86% Citibank, N.A. 12,450,000 2.14% Credit Lyonnais 24,900,000 4.29% Crestar Bank 12,450,000 2.14% First National Bank of Chicago 16,600,000 2.86% First Union National Bank of NC 29,050,000 5.00% Industrial Bank of Japan 25,730,000 4.43% LTCB Trust Company 12,450,000 2.14% Mellon Bank 12,450,000 2.14% Mitsubishi Trust & Banking Corp. 16,600,000 2.86% National Westminster Bank USA 12,450,000 2.14% NationsBank of Georgia, N.A. 12,450,000 2.14% NationsBank of Texas, N.A. 17,430,000 3.00% Nippon Credit Bank, Ltd. 14,940,000 2.57% Philadelphia National Bank 12,450,000 2.14% PNC Bank, N.A. 12,450,000 2.14% Royal Bank of Canada 12,450,000 2.14% Sakura Bank, Ltd. 12,450,000 2.14% Shawmut Bank Connecticut, N.A. 29,050,000 5.00% South Carolina National Bank 12,450,000 2.14% Sumitomo Bank, Ltd. 16,600,000 2.86% Tokai Bank, Ltd. 12,450,000 2.14% Toronto-Dominion Bank 45,650,000 7.86% Union Bank 12,450,000 2.14% Wachovia Bank of NC 46,480,000 8.00% ----------- ------ $581,000,000 100.00% =========== ====== EX-10.17.3 4 EXHIBIT 10.17.3 GRIMES RESIGNATION AND RELEASE AGREEMENT OF RESIGNATION AND RELEASE Whereas, the undersigned, J. William Grimes (hereinafter called "Employee"), is resigning all of his positions with Multimedia, Inc., and its subsidiaries and other affiliates (hereinafter called "Employer"); and Whereas, Employer wishes to provide some assistance to said Employee in the transition period following his resignation; NOW THEREFORE, in consideration of the mutual covenants set forth herein, it is agreed by and between Employer and Employee as follows: 1. Employee does hereby tender to Employer and Employer does hereby accept his resignation, effective as of the date hereof, as officer, director, committee member and employee of Multimedia, Inc. and its subsidiaries and any foundation or any other affiliates of the company; and, Employee shall not be eligible for any executive employee benefits or other employee benefits including, but not limited to, the executive salary protection plan and the executive medical reimbursement plan, after the date hereof, except as may be provided by law. 2. Employer and Employee do hereby warrant and affirm that this Agreement of Resignation and Release (hereinafter the "Agreement") has been mutually agreed upon by the parties. 3. Subject to the performance by Employee of the terms and provisions hereof, Employer will pay Employee, as severance pay, twelve (12) months' salary at Employee's current annual base pay of four hundred seventy-five thousand dollars ($475,000), together with the sum of two hundred thirteen thousand dollars ($213,000) in lieu of a year-end bonus and a lump sum payment of twelve thousand dollars ($12,000) for application toward COBRA payments in the event Employee elects to maintain medical insurance following his resignation. Such base salary for the twelve (12) month period shall be paid one-fourth on December 31, 1993, one- fourth on March 31, 1994, one-fourth on June 30, 1994 and one-fourth on September 30, 1994. The two hundred thirteen thousand dollar ($213,000) payment in lieu of any bonus, shall be paid one-half on December 31, 1993 and one-half on March 31, 1994. The twelve thousand dollars ($12,000) lump sum payment shall be made on December 31, 1993. All such payments shall be subject to normal, lawful payroll deductions. 4. In addition to the foregoing payments, Employee shall be entitled to use Employer's apartment in New York from and after the date hereof until such time as Employee shall move his primary residence from Greenville, South Carolina, to another location; the period of such use, however, shall not extend beyond June 30, 1994. Employee will personally be responsible for all expenses, including utilities, incurred in the use of the apartment, which are not covered by the actual rental. 5. Employer shall not be liable to reimburse Employee for expenses of any type which are incurred on or after the date hereof. 6. In consideration of the additional payments and benefits as set forth above, which Employee acknowledges to be beyond anything to which he is otherwise entitled, Employee agrees that the payments and other considerations set forth herein are in full settlement of all claims or rights he has or may have arising from or in connection with his employment with Employer or his separation from employment, and does hereby release, remise and forever discharge Multimedia, Inc., its agents, employees, representatives, attorneys, directors, officers, stockholders, affiliated or subsidiary corporations, predecessors, successors and assigns, and the successors and assigns of any of the foregoing, from any and all claims, complaints, or causes of action, known or unknown, of any kind or type he may have or claim to have, whether arising under federal, state, or local statute, ordinance, common law, regulation, equity or other source including, but not limited to, claims under the Employee Retirement Income Security Act (ERISA), Title VII of the Civil Rights Act of 1964, Section 1981 of Title 42 of the U.S. Code, the Americans with Disabilities Act, and the South Carolina Wage Payment Act (S.C. Code Ann. (section symbol) 41-10-10 et seq.) and claims asserting breach of contract, defama- tion, invasion of privacy, harassment, outrage, or other common law causes of action, or claims for workers' compen- sation or other compensation for bodily injury. In other words, Employee agrees he will not sue or otherwise complain against Employer or anyone connected with Employer for discrimination, failure to pay wages, breach of contract, injury to reputation, or any other complaint or grievance Employee may have. In addition, Employee waives any right he may have to re-employment with Employer or any related company and agrees not to apply for re-employment to Employ- er. 7. In consideration of the payments hereunder, Employee shall not institute any suit or action at law, in equity or otherwise in any court of the United States or any state thereof, or any proceeding or charge before any administrative agency of either the United States or any state thereof or before any public or private tribunal, against Employer or any of the other entities released in this Agreement, arising in any way from Employee's employment by Employer or his termination of employment therefrom. 8. Employee covenants and agrees to keep confidential the terms of this Agreement and the terms of his separation from Employer, and not to discuss or disclose the terms of this Agreement or the terms of his separation from Employer with or to anyone other than his attorney or members of his immediate family. Employee shall instruct his attorney and family members to keep any such information confidential and warrants that they will do so. In addition, Employee agrees to keep confidential, and not disclose to any person, any and all confidential information learned by him or to which he was exposed while employed by Employer. For purposes of this Agreement, confidential information shall include all information (whether in written form, on electronic media, or oral) about Employer, its research, its financial information, its operations, plans, marketing and business strategy, and all other business information not readily available, absent breach hereof, involving or related to the businesses in which it is engaged, specifically including but not limited to the newspaper, radio and television, cablevision, entertainment and security alarm industries. Employee shall promptly return to Employer any property of Employer including, but not limited to, any confidential information, which may be in his possession, custody or control as of the date hereof. Notwithstanding this preceding paragraph 8, however, Employee and his attorney may disclose such information regarding this Agreement or Employer as they are required to disclose by way of a court order or directive of a state or federal regulatory agency. 9. Employee further covenants and agrees not to criticize, disparage or otherwise speak or write unfavorably either in public or private, of or concerning Employer, its officers, directors or employees or any of its businesses. Such covenant and agreement specifically includes, but is not limited to, any comments to the press, industry publications, television or radio news or discussion programs or personal conversations with other individuals. 10. In the event Employee shall violate any of his warranties, covenants or agreements hereunder, Employee shall forfeit, at the option of the Employer, any remaining payments due Employee under the terms of this agreement, such forfeiture to be in addition to injunctive relief and such other remedies as Employer may be entitled to under the law or in equity. 11. This Agreement shall be governed in all respects as to validity, construction, performance, or otherwise by the laws of the State of South Carolina and federal law as applicable, without regard to choice of law principles. Executed and agreed on this 9th day of December, 1993. THIS RELEASE ENDS ALL CLAIMS. READ CAREFULLY BEFORE SIGNING. WITNESS: MULTIMEDIA, INC. (signature of David Freeman) (signature of Robert E. Hamby, Jr.) _________________________ ______________________________ By: Its duly authorized officer WITNESS: (signature of David Freeman) (signature of J. William Grimes) _________________________ ______________________________ J. William Grimes EX-11 5 EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE Exhibit 11 MULTIMEDIA, INC. Computation of Primary and Fully Diluted Earnings per Share Twelve Months Ended 12/31/93 12/31/92 12/31/91 Primary Net earnings applicable to common and common equivalent shares $99,850,000 60,504,000 48,397,000 Shares: Weighted average number of common and common equivalent shares outstanding 38,374,000 37,593,000 37,253,000 Primary earnings per common and common equivalent shares $ 2.60 1.61 1.30 Fully Diluted Net earnings applicable to common and common equivalent shares $99,850,000 60,504,000 48,397,000 Shares: Weighted average number of common and common equivalent shares assuming ending market price 38,422,000 37,673,000 37,281,000 Fully diluted earnings per share $ 2.60 1.61 1.30 Prior years' shares and per share amounts have been retroactively adjusted to reflect the 3-for-1 stock split effected April 1991. EX-13 6 EXHIBIT 13 - 1993 ANNUAL REPORT (Multimedia, Inc. logo appears here) Multimedia, inc. annual report 1993 Newspapers Broadcasting Entertainment Cable Television Security Multimedia's Mission is to build shareholder value by effectively managing and growing current businesses... capitalizing on new investment opportunities... producing and distributing the best news and entertainment programming... being the preferred supplier for our advertising customers... and providing a workplace where our employees' contributions are fully recognized and rewarded. Contents Financial Highlights 1 Operating Results, 2 Media Industry Glossary Letter to Shareholders 3 Newspapers 6 Broadcasting 8 Entertainment 10 Cable 12 Security 14 Management's Discussion 16 Eleven-Year Review 18 Financial Statements 24 Notes to Consolidated 28 Financial Statements Independent Auditors' 42 Report Report of Management 43 Officers and Board of Directors 44 Multimedia, Inc. Divisions 45 Shareholder Information 46 Multimedia, Inc. is a diversified media company with corporate headquarters in Greenville, South Carolina. Founded in 1968, Multimedia, Inc. is comprised of five operating divisions. Multimedia Newspaper Company publishes 11 daily and 49 non-daily newspapers; Multimedia Broadcasting Company owns and operates five network-affiliated television stations and five radio stations; Multimedia Cablevision Company operates more than 125 cable television franchises in Kansas, Oklahoma, Illinois, Indiana and North Carolina; Multimedia Security Service monitors approximately 52,000 security alarm customers; and Multimedia Entertainment produces and syndicates quality television programming, including Donahue, Sally Jessy Raphael, Jerry Springer, and Rush Limbaugh, The Television Show. Financial Highlights (In thousands except per-share data) 1993 1992 1991 Earnings Per Share $ 2.60 1.61 1.30 Revenues 634,574 576,781 524,326 Operating Profit 184,403 173,105 155,806 Net Earnings 99,850 60,504 48,397 Total Assets 655,174 627,945 556,285 Long-Term Debt 664,997 745,995 757,125 Capital Expenditures 47,378 37,493 32,187 Depreciation 35,422 31,710 29,140 Shares Outstanding 37,210 36,803 35,065 Operating Profit Margin 29.1% 30.0% 29.7% Stock Performance 1993 1992 QUARTER 1 High $36.25 28.00 Low 32.00 23.00 QUARTER 2 High $38.00 29.00 Low 32.00 26.00 QUARTER 3 High $36.75 28.75 Low 30.75 23.50 QUARTER 4 High $39.00 32.00 Low 33.50 24.00 Multimedia, Inc. stock is traded in the NASDAQ National Market System under the symbol MMEDC. Listed above are the high and low bids by quarter for 1993 and 1992. No dividends were declared or paid during 1993 or 1992. (Operating Revenues bar graph appears here--see appendix) (Net Earnings bar graph appears here--see appendix) (Earnings Per Share bar graph appears here--see appendix) *1993 earnings from ongoing operations excluding accounting changes, income tax adjustments and the sale of a property were $72,172 and $1.88 per share. 1 Media Industry Glossary Convergence: Refers to the blurring of boundaries between the television, cable, telephone and computer industries as companies and technologies join to provide increasingly sophisticated communications methods and services. Information Superhighway: A catch-all term, somewhat abstract at this point, used to describe the technical platform that will allow the eventual linkage of many different communications (television / cable / phone / computer) systems. Coaxial Cable: The first generation of wire used for cable television, which uses a copper conductor to transport electrical impulses. Will probably continue to be used for the wire leading directly into homes, even in fiber optic cable systems. Fiber Optic Cable: A state-of-the art cable, it carries more information at much higher speeds, is more reliable and delivers a higher-quality picture than coaxial cable can. Cable systems are being rebuilt using fiber optic cable for everything but the wire leading into the home. Digital Compression: Digital technology is replacing "analog" technology for many applications. "Digitizing" information -- such as a musical recording or a television signal -- means to translate electrical impulses into a series of numbers like computers use, allowing exponentially more information to fit into the same space or be transmitted over a given wire. Digital compression further increases the number of signals that can be carried over fiber optic cable by 10 times or more -- making possible a "500-channel universe." 500-Channel Universe: Made possible by the combination of high- capacity fiber cable with digital compression technology, which expands the capacity of most cable systems from the current average of 35-50 channels to as many as 500. Interactive: Refers to services that offer viewers two-way communications, such as "video on demand," electronic advertising databases that viewers can use as personal reference resources, and more sophisticated forms of home shopping. Although some interactive cable channels were being tested at the end of 1993, they are not expected to gain wide exposure until 1995 -- when interactive television-set converter boxes using industry standards still being developed become readily available. Video on Demand (VOD): Expected to be the most widely used interactive cable service made possible by new technology. Will enable people to order and watch movies, sports, news and other programming on their own schedules, on a pay-per-view basis. Other VOD services may include video game libraries containing hundreds of titles, which viewers would be able to access for a flat fee per month. Multiplexing: Refers to multiple channels offered by a service such as Home Box Office, giving viewers a wider selection of movie titles and starting times. This service is already available, but is generally not offered on systems that have not yet been rebuilt with the higher- capacity fiber cable. 1992 Cable Act: The Cable Television Consumer Protection and Competition Act of 1992 imposed federal regulation on many aspects of the cable business, and set the parameters for regulation of other aspects at the option of local cable franchising authorities. Among other things, the Act set benchmarks for what cable companies can charge for basic cable service and certain other services, such as remote controls, multiple converter boxes etc. The Act also established a procedure by which broadcast television stations and cable operators negotiate formal consent agreements providing for the transmission of the broadcast signal over cable, i.e. "retransmission." A "Must Carry" provision in the Act in essence gives most commercial broadcast stations the right to require their signals to be carried by the local cable operator(s). Headend/Node: A headend is the originating point in a cable system; there may be several headends within a given system. Replacing coaxial wire with fiber cable reduces the number of required headends, which lowers operating and ongoing capital expense. Fiber carries audio and video signals from the headends to "nodes," which usually serve 500 to 2,000 homes. MSOs: Refers to "Multiple (cable) System Operators" such as Multimedia, who serve cable subscribers through many different (Operating Profit bar chart appears here--see appendix) systems, each of which is established through a local franchise agreement. Multimedia serves 417,300 subscribers through more than 125 franchises, making it the 30th largest MSO in the U.S. DBS: Direct broadcast satellites are a new competitor of traditional cable systems. The two DBS systems being launched in 1994 require an 18-inch dish currently costing approximately $700 in each subscriber household. While DBS has some advantages over cable systems, the primary disadvantages are the upfront cost to consumers and its inability to transmit local broadcast stations. RBOCs, Telcos: Synonyms short for "Regional Bell Operating Companies" and "Telephone Companies," respectively. They have become major new players in the media industry by forming alliances with movie studios, syndicators and large cable companies. Syndication: Generally refers to the sale of programming to television stations for use during non-primetime periods. Many programs, such as Multimedia's talk shows, are produced originally for syndication. In addition, the syndication market includes packages of reruns of series originally produced for primetime network broadcast. Barter: "Barter" is one way syndicators are compensated by television stations for the 2 Operating Results (In thousands) 1993 1992 1991 Operating revenues: Newspapers $135,920 132,485 128,954 Broadcasting 155,718 160,529 150,643 Cable 164,598 144,383 129,855 Entertainment 161,588 129,122 109,205 Security 16,750 10,262 5,669 $634,574 576,781 524,326 Operating profit: Newspapers $ 37,667 37,698 34,554 Broadcasting 38,816 38,191 34,693 Cable 56,645 50,692 45,581 Entertainment 63,285 55,841 50,931 Security 1,838 1,818 1,056 Corporate (13,848) (11,135) (11,009) $184,403 173,105 155,806 use of a given program. Under barter agreements, the syndicator retains the right to sell a specified number of commercials during each program, for which it keeps the revenues. (The rest of the commercials are sold by the individual stations to local or national advertisers.) Syndicated shows are often sold under 100% barter arrangements until they become well- established, at which time they may also earn revenues through weekly license fees established by contract with the television stations. Rating/Share: A national rating point represents 1% of the American television audience, or 942,000 households. A share refers to the percentage of households using television (also call "HUT") at a given time that watches a program. For example, a Nielsen score of 3/9 means that a program was watched by about 2.8 million (3 x 942,000) households, or 9% of the audience watching television during that timeframe. ROP/Preprints: Two different kinds of newspaper advertising. "ROP" refers to ads that are printed on the pages of a newspaper and which appear in all editions, i.e. "run of press." "Preprints" refer to the advertising inserts found inside newspapers, but also sent by direct mail to nonsubscribers. These can be targeted or "zoned" to certain parts of a city according to demographics. (Operating Revenues pie chart appears here--see appendix) (Operating Profit pie chart appears here--see appendix) 2 To Our Shareholders Multimedia, Inc. completed its seventh consecutive year of earnings increases in 1993, posting net income of $99.9 million on revenues of $634.6 million. Earnings excluding two accounting changes, income tax adjustments and a gain from the sale of a property (more fully discussed in the Management's Discussion & Analysis) were $72.2 million or $1.88 per share, compared to $60.5 million or $1.61 per share in 1992. We're very proud that Multimedia's earnings per share have increased at a 21% compound annual growth rate over the last five years -- one of the best track records in the media and cable industries. That the Company was able to accomplish this during one of the most prolonged economic downturns in recent history partly reflects our diversification but more importantly is a tribute to our employees' creativity, foresight and just plain hard work -- including strict attention to cost management. We're drawing on all of those strengths within Multimedia as we continue to seek opportunities for our individual businesses and our company as a whole in the increasingly exciting but also more competitive media world. What is the best role for the over-the-air broadcaster in a universe that may one day include hundreds of cable channels? How do newspapers ensure that they remain the primary information and advertising resources in their communities? Where do mid-sized cable companies belong in this era of mega-mergers between regional telephone companies and large cable operators? How do you capture and hold the interest of a viewing audience that has proliferating choices at the touch of a remote control? How can you increase the value of the services and counsel you offer your advertisers? The profitable growth opportunities of the next decade will be found in the answers to these tough questions, which we at Multimedia have been addressing for some time. We hope that you'll read the review of our operating divisions (Photo of Walter E. Bartlett) WALTER E. BARTLETT Chairman of the Board, President and Chief Executive Officer (Photo of Donald D. Sbarra) DONALD D. SBARRA Senior Vice President - Operations 3 beginning on page six, which outlines many of the steps we have already undertaken. We are committed to managing the Company for the highest long-term value for our shareholders, and will keep you informed as we continue to refine our strategies to fulfill that goal. Multimedia began upgrading its cable systems with fiber optics in 1993, and will spend approximately $150 million to upgrade all of our cable operations by the end of 1997. As we complete each section of the upgrade, we will offer increasing numbers of our cable customers up to 110 channels of cable programming, compared to a current average of 40 channels in most of our systems. These will include a wider selection of premium channels already available as well as the new home shopping channels and video games that are due to be launched. Beginning in 1995, when interactive converter boxes currently under development become available, we will be ready to offer all of the proposed new interactive video services -- on as many as 500 channels. This investment should increase the value of our cable franchises and enable us to fully participate in the additional revenue streams resulting from potentially hundreds of new cable channels. We also continue to look for acquisitions of subscribers in areas where we already have significant market presence -- chiefly Wichita, Kansas, and Oklahoma City. We recently announced a pending transaction with another cable operator by which we will extend our cable franchise to virtually every household in the Wichita, Kansas, MSA (metropolitan statistical area) through the addition of about 50,000 subscribers. Like many communications companies, Multimedia has been actively exploring new revenue-producing businesses with strategic partners that have expertise complementary to our own. To date these include a partnership with Hyperion Telecommunications, Inc., to develop a competitive (long distance) access system in Wichita; a telephonic advertising consortium being formed by BellSouth Enterprises, Inc. and Cox Enterprises, Inc.; and the planned launch of a local news and talk show cable channel by our Knoxville television station in conjunction with the major cable operator in that area. Looking back on 1993, I would have to describe it as one of good business results, lots of planning for the future, and much change. In December, following the departure of Bill Grimes, I reassumed my former positions of president and chief executive officer. I'm very pleased to be working closely with two men in whom I have the utmost confidence. Don Sbarra, Senior Vice President -- Operations for Multimedia, is managing the five divisions of the Company. Bob Hamby, Senior Vice (Photo of Walter Bartlett and Bob Hamby appears here) Walter Bartlett (right) and Bob Hamby, Senior Vice President-Finance and Administration, and Chief Financial Officer 4 President -- Finance and Administration, and Chief Financial Officer, is managing the administrative and financial functions of Multimedia. We believe this team is well-equipped to manage the Company as we set goals and chart strategic paths for the converging media world. Briefly, some of our accomplishments for 1993 include: [] Repaying $80 million of debt; [] Increasing revenues in every division but broadcasting, the results of which were being compared against $13 million of political and Olympics advertising revenues in 1992; [] Increasing operating profit in four of our five divisions; [] Signing new contracts with Phil Donahue and Sally Jessy Raphael that extend their talk show commitments until August 1995 and August 1998, respectively; [] Celebrating with Sally the 10th anniversary of her talk show; [] Completing the sale of our video production company, and signing agreements for the sale of three radio stations; [] Opening two new security sales offices (followed by another in January 1994); [] Achieving profitability in the first full years of the Jerry Springer and Rush Limbaugh television shows; [] Adding 2 1/2 hours of newscasts per week at four of our television stations; [] Merging our two newspapers in Montgomery, Alabama; and [] Upgrading the training and market research resources for all of our advertising personnel, so that they may better serve their customers. The improving economy should help produce operating profit increases in 1994 for our newspaper and broadcasting divisions. However, entertainment operating profit is not expected to increase materially over the 1993 level due to investments in programming and promotion we plan to make to protect the audience shares of Donahue and Sally Jessy Raphael and to continue to develop our newer shows. Also, because we are nearly doubling our capital expenditures in 1994, mainly for the cable and security divisions, we expect depreciation and amortization expense to increase about $9 million. Because of the ongoing effects of cable rate reregulation and the additional depreciation, we expect the cable division's operating profit to decrease slightly for 1994. If there is any disadvantage in achieving superior earnings growth for seven consecutive years, it's that people come to expect it. We want you to know that the important investments we are making will have a limiting effect on 1994 earnings growth, as outlined above. We believe, however, that these strategic initiatives and technological upgrades are in the best interest of creating greater long-term value in the assets of Multimedia, Inc. Your company will be prepared for both the challenges and the opportunities of the future telecommunications world.[] (Signature of Walter E. Bartlett) WALTER E. BARTLETT Chairman of the Board, President and Chief Executive Officer March 3, 1994 5 Multimedia Newspaper Company Multimedia improved the quality of its newspapers in 1993 while continuing to develop and introduce niche publications and new information delivery vehicles. These innovations will help maintain competitiveness as the number of media choices for both readers and advertisers continues to increase. The division's major daily newspapers also intensified their efforts to capture advertising dollars currently being spent in other media, such as Yellow Page directories and direct mail. Operating revenues for the division were $135.9 million, up 3% over 1992, and 1993 operating profit of $37.7 million was equal to the prior year. Circulation revenue grew 6% to $30.2 million, based on increases in rate and new cus- (Photo appears here) The use of shared research is an important element of Multimedia's advertising sales program. Laura Biggerstaff, Marketing Development Manager of The Greenville (S.C.) News-Piedmont Co., presents Bob Greiner (left), Executive Vice President, Belk Simpson Co., with a map showing potential customer growth areas. Rod Adams (second from left), Consultative Sales Manager of The Montgomery (Ala.) Advertiser, and Murray Howard, Research and Planning Manager for Multimedia Newspaper Co., are also members of the division's market research team. (Photo appears here) WireWatch, newsroom software developed by John Pittman (seated), Executive Editor of The Greenville News-Greenville Piedmont, was the division's foundation for electronic publications via facsimile and videotext. Shown with Pittman are (clockwise from center) newspaper division President Bern Mebane; Cecil Kelley, MNC Director of Operations; and Hal Tanner, Business Manager, Greenville News-Piedmont Co. 6 tomers. Advertising revenues and linage also increased, as strong gains in classified and preprint categories more than offset weaker retail advertising. Multimedia introduced new "audiotext" information services at The Greenville (S.C.) News, the Asheville (N.C.) Citizen-Times and The Montgomery (Ala.) Advertiser in 1993. The services offer readers round-the-clock access via touchtone phone to data in hundreds of categories, including stock quotes and local entertainment. The newspapers are examining ways to make these services more user- friendly, including competitive applications for three-digit ("N11") telephone access numbers. To further develop the "electronic bridge" between the papers' news and advertising databases and the public, Multimedia has agreed to become a charter member of a newspaper consortium in a joint venture being formed by BellSouth Enterprises, Inc. and Cox Enterprises, Inc. The network will market telephonic classified and Yellow Page advertising throughout BellSouth's service area using data from all of the newspapers in the consortium. The Greenville, Asheville and Montgomery newspapers are working together to obtain new advertisers and recapture advertising dollars that have gone into other media with marketing presentations targeted to meet the specific needs of regional accounts. In 1993 they secured not only the preprint business from one major food retailer for their own papers, but also the printing and distribution of the inserts to 43 other newspapers in the region. Multimedia also helped establish a Southeastern region newspaper network that enables clients to reach 13 states with one advertising buy. During the year the Montgomery, Ala., newspapers successfully merged the afternoon Journal with the morning Advertiser. In early 1994, the Advertiser began a two-year capital investment program to build a production facility and purchase a new press, which will greatly enhance the paper's quality and efficiency. In January 1994, the news staffs of the News and Piedmont were merged. The reorganization will enable the two papers to expand their coverage of the Greenville/Spartanburg area, improve overall editorial quality and gradually result in economies of scale. (Photo appears here) Multimedia secured Winn-Dixie's preprint distribution business by creating a printing program for over one million circulars per week and developing a four-state distribution network of 44 newspapers. In this photo, Winn-Dixie's Marketing Director John Harden (far right) surveys weekly circulars with (left to right) Jay Banks, division Vice President and Publisher of the Asheville Citizen-Times; Steve Brandt, Publisher of the Greenville dailies; and Tom Stultz, division Vice President. Although Multimedia Newspapers' results for 1994 will depend largely on the strength and stability of the U.S. economic recovery, the division is well-positioned with strong advertiser acceptance and good cost controls in each of its areas. In addition, Multimedia has taken decisive actions to ensure the continued relevance of its newspapers in a world that is becoming increasingly oriented toward video and audio information sources.[] 7 Multimedia Broadcasting Company Multimedia Broadcasting continued to benefit in 1993 from its commitment to highly rated local and syndicated television programming and excellent service to advertisers, as well as a slowly improving economy. The year was particularly challenging, however, as the division's results were being compared to 1992, which included over $13 million in election-year and Olympics advertising revenues. In addition, the division's mobile production operation, Multimedia Video Productions, was sold in January 1993. Even though operating revenues declined 3% to $155.7 million, the broadcasting division increased operating profit 2% to $38.8 million. Multimedia's broadcasting strategy in the increasingly competitive media world is best described by the word "localism." This refers to producing local news, information and entertainment programs of the highest possible relevance to viewers. Multimedia's television stations added a total of 10 hours of local news to weekly schedules during 1993. The division's stations have (Photo appears here) News Anchor Tina Hicks (second from right) and News Director Dodie Cantrell (right) of WMAZ-TV, Multimedia's CBS affiliate in Macon, Ga., shoot a public service announcement at Carver School, site of Project Head Start, where WMAZ participates in the Adopt-A-School program. Behind the camera are promotion department Producers Latissa Jones (left) and Dawn Sharp. (Photo appears here) Pat Servodidio (left), President of Multimedia Broadcasting Company, visits News Anchors Karen Foss and Rick Edlund on the set of KSDK- TV's award-winning 10 p.m. newscast. KSDK had the nation's top- rated newscast and recorded its biggest lead in five years in the St. Louis market during the November 1993 sweeps period. also taken advantage of new technologies to enhance news programming. Recent investments include new sets at three stations as well as upgrading of weather reporting through the addition of Doppler radar and computerized graphics and animation. In advertising, the division's localized focus involves a consultative approach in which clients benefit from more targeted market information and better-trained sales representatives who bring true value to the advertisers' media-buying process. The division's stations are also aggressively targeting nontraditional television advertisers. Special programs for these customers include innovations such as coupon books that are distributed by mail and promoted on television. 8 The properties' 1993 results varied with economic and competitive conditions within each market. Advertising revenues at the four NBC-affiliated stations also continued to be affected by the network's #3 ranking in primetime programming. WKYC-TV (NBC) in Cleveland posted a strong ratings increase for its late-night news, and added weekend newscasts that outperform the competition. Revenues and operating profit have increased significantly in the three years since Multimedia acquired control of the station. KSDK-TV (NBC) in St. Louis was the top-rated station overall in the nation's top 30 metered markets and had the country's highest-rated late-night newscast, according to Nielsen reports for November 1993. The station widened its lead over news competitors and increased national and local advertising sales during 1993. WBIR-TV (NBC) continued to dominate the Knoxville market for both evening newscasts, and posted gains in revenues and operating profit during the year. Its 6:00 p.m. newscast was ranked first in the country's top 75 markets in the November 1993 Nielsen report. WBIR-TV also signed an agreement to develop a local news and talk cable channel in conjunction with the primary cable operator in Knoxville. WLWT-TV (NBC) signed a new contract to televise the Cincinnati Reds' games during 1994-95, continuing a 43-year tradition as the flagship station of the Cincinnati Reds Television Network. WMAZ-TV (CBS), the only VHF station in Macon, benefited from a stronger economic climate in that area, and maintained its dominance in news and syndicated programming. Multimedia will continue the aggressive positioning of its television stations as leading information and entertainment sources in each of its markets.[] (Photo appears here) Multimedia's commitment to localism is exemplified in WBIR-TV's award-winning Heartland Series, a collection of vignettes on the culture and people of the Appalachian region. Pictured on a Heartland Series location in Knoxville are (left to right) series host Bill Landry; Linda Billman, Managing Producer; Jim Hart, WBIR's Vice President and General Manager; Steve Dean, Creative Services Director; Bill Archer, Recordist; and Doug Mills, Videographer. 9 Multimedia Entertainment Company (Photo appears here) Entertainment division President Bob Turner (left) and Executive Vice President Dick Coveny are shown in front of Multimedia's exhibit at the annual National Association of Television Programming Executives (NATPE) convention, the largest marketplace for buyers and sellers of syndicated television programming. Multimedia's track record for developing and syndicating top-rated talk shows gives it a strong leadership position in a television programming niche that has grown dramatically in both audience share and competition. Multimedia's Donahue and Sally Jessy Raphael shows remained among the highest-rated daytime talk shows, despite an increase from four to 13 competing programs in the last four years. In addition, Jerry Springer, in its second season in national syndication, is the fastest-growing daytime talk show according to Nielsen reports. Rush Limbaugh, The Tele- vision Show, also in its second season, posted a 20% gain in audience and increased its lead as the top syndicated late-night show. The continued success of Multimedia's talk shows resulted in $63.3 million in 1993 operating profit, an increase of 13% over the prior year. Operating revenues increased 25% to $161.6 million, largely due to revenues from Rush Limbaugh and Jerry Springer for the first full year. Donahue had a national rating of 5.5 in 1993, its 26th year. The program is seen in 189 U.S. markets, representing 97% of the country, and in about 50 foreign countries. In 1993 Phil Donahue signed a new contract to continue to host the show through August 1995. Sally Jessy Raphael celebrated its 10th anniversary in 1993, and achieved a 5.0 national rating for the year. The show is seen in 186 U.S. markets, covering 97% of the country, and approximately 30 foreign countries. Ms. Raphael also signed a new contract in 1993, extending her commitment to host the program through August 1998. Rush Limbaugh, the Company's first entry into late-night talk shows, is shown in 223 markets, covering virtually the entire U.S. The show had a 3.6 rating for the 1993 fall season, only .7 of a point behind NBC's "The Tonight Show." Jerry Springer increased its number of markets to 145 for the 1993- 1994 season and is now available in 87% of the country. The show continues to post steady audience gains, and Multimedia is committed to developing it into 10 one of the leading talk shows. During 1993 Multimedia began to market a new talk show, scheduled to debut in September 1994. Susan Powter will be hosted by the well-known fitness advocate, whose book, "Stop the Insanity," reached the top of the New York Times best-seller list. The division believes a motivational format led by one of the more intriguing media personalities will quickly stand out from the din of new talk shows. Multimedia recently completed extensive research on talk show audience viewing habits, which have changed dramatically over the past few years. It is using that information not only to protect the audience shares of Donahue and Sally Jessy Raphael, but also to fine- tune the development of its new shows. The research also confirmed for Multimedia the viability of a news-oriented all-talk channel for cable, which it expects to introduce in the fall of 1994. Multimedia began to leverage its preeminence as a talk show creator more aggressively during the year with the development of co- production arrangements in seven foreign countries. The division intends to co-produce pilots and serve as a series advisor in these international ventures. Multimedia produced 16 hours of made-for-television movies and miniseries during 1993. It expects to curtail that activity in the future, however, in order to concentrate its resources on more profitable programming opportunities.[] (Four photos appear here--see appendix) Multimedia's four talk show hosts: (clockwise from upper left) Phil Donahue, Sally Jessy Raphael, Rush Limbaugh and Jerry Springer. Multimedia's expertise in developing and syndicating successful talk shows has placed the Company in the forefront of a rapidly expanding programming niche. 11 Multimedia Cablevision Company In 1993 Multimedia Cablevision posted its 14th consecutive year of revenue and operating profit increases and planned a five-year $150 million capital investment program. These milestones were achieved while the division also completed retransmission agreements with broadcast television stations in its cable markets and dealt with new rate regulations and other issues posed by the Cable Television Consumer Protection and Competition Act of 1992. Operating revenues were $164.6 million, a 14% increase over 1992, and operating profit increased 12% to $56.6 million. Revenues and operating profit would have increased 7% and 11%, respectively, excluding the effect of an acquisition made in December 1992. At year-end the division served 417,300 subscribers through 125 franchises, making it the 30th largest cable company in the U.S. Multimedia Cablevision's strong profit margin and advertising revenue growth have in large part resulted from its clustering policy, which focuses on four areas -- in Kansas, Oklahoma, North Carolina and suburban Chicago. This strategy greatly enhances operating and advertising economies of scale, and the (Photo appears here) Customer service representatives Stacy Hernandez (right) and Debbie Spillman assist customers in Cablevision's Wichita office. Multimedia's reputation for providing excellent service has positioned the Company as a leader in its field. (Photo appears here) Multimedia Cablevision's regional Vice Presidents discuss the division's rebuilding of its systems with fiber optics. Ron Marnell, Kansas, (second from right) outlines the Wichita rebuild for (left to right) Cliff Waggoner, Illinois; Terry Gorsuch, Oklahoma; and Bruce Mears, North Carolina. 12 division will continue to seek franchise acquisitions in those areas. Multimedia increased the number of subscribers within its existing systems by 1.8% during 1993. This internal growth rate was somewhat lower than the division's recent average of about 3-4%, partly because subscriber growth has slowed for the cable industry in general and also because of economic softness in Wichita, Kansas, its largest system. During 1993 Multimedia rebuilt systems serving 15% of its customers with fiber optics. Over the next four years, the division will rebuild the rest of its systems and integrate digital compression, which will prepare it for new competitors and open up many revenue opportunities. New competitors could include direct broadcast satellite and wireless cable operators, but the regional telephone companies present the most likely challenge due to their name recognition, financial resources, and network switching and mass billing expertise. Despite the increase in competitors, Multimedia expects to continue to offer its markets a superior combination of service, price, programming and technology, largely due to the rebuild plan. The division believes its subscriber relations are already among the best in its industry, and it constantly works to improve its customer service. The rebuild program will enhance both picture quality and reliability to a level equal to or better than other new technologies. Potential new revenue sources will also become available through the increased channel capacity of fiber versus traditional coaxial cable, together with digital compression technology. Immediate opportunities include new premium cable networks and multiple versions of existing networks that offer more flexibility to subscribers. "Video on demand," which will allow viewers to order movies, sporting events, news programs and hundreds of video games at will, is also expected to be one of the most significant new revenue sources. Additional future services could include electronic Yellow Page directories and classified advertising as well as interactive video home shopping. Multimedia Cablevision continues to increase revenue from currently available ancillary sources. Cable programming attracts a much larger proportion of viewers than it does advertising revenue, and the division (Photo appears here) Cablevision's North Carolina region utilizes college and professional athletes as spokespeople in a unique outreach program called Supersports. Here, former NBA star Phil Ford, now assistant coach at the University of North Carolina, delivers a motivational talk to a group of young people. has improved its sales efforts in order to build market share. Multimedia has also signed a partnership agreement with Hyperion Telecommunications, Inc., to offer access for long distance signals to commercial customers in Wichita. The Company believes it can profitably compete with the regional telephone company for these customers because of its superior fiber optic system with highly reliable backup systems and existing access to the necessary right-of-ways.[] 13 Multimedia Security Service During 1993 Multimedia Security Service continued to develop the management and sales infrastructure necessary for rapid subscriber growth in an industry that offers much opportunity. After being included in Multimedia Cablevision's results for its first 11 years of operation, Multimedia Security is reporting its results separately for the first time in 1993, although the two divisions still operate under common management. Operating revenues for 1993 were $16.8 million, up 63% over 1992, and operating profit increased 1% to $1.8 million. At year-end, Multimedia served more than 52,400 customers, an increase of 48% over the prior year. (Photo appears here) Mark Wilson (left), Security's Vice President of Operations, meets with Shift Supervisor A. J. Jones (center) and Central Station Manager Phil Davis in the division's nerve center, where both residential and commercial security systems throughout the country are monitored. (Photo appears here) Security's rapid growth is being coordinated by veterans of the same management team who were actively involved in the cable division's expansion in the last decade. Shown on the construction site of the new Security headquarters in Wichita are (left to right) Vice President and Controller Patsy Selby; division President Mike Burrus; Senior Vice President Tom Smith; and Vice President and General Counsel David Fleming. 14 The first security offices were opened in Wichita and Oklahoma City, where Multimedia was already well-known for excellent service to its cable customers. The division has expanded into other areas, however, opening full-service offices in Dallas and Miami in late 1992, in Houston and Chicago during 1993, and in St. Louis in January 1994. An eighth sales office will be opened later in 1994. Offices that primarily provide maintenance and repair service to existing accounts have also been opened recently in Los Angeles, Phoenix and Las Vegas. In addition to selling systems from its own sales offices, Security also grows through the acquisition of accounts from other alarm companies. In 1993, two-thirds of its new customers were generated from these acquisitions. Multimedia Security began a telemarketing operation in 1993, which is intended to augment in-person sales presentations. Security has also increased its advertising in Wichita, Okla- homa City and the Chicago area. To facilitate the continued rapid growth that it expects in the security business, the division is moving its central monitoring station, customer service and administrative offices from their existing site at Multimedia's cable headquarters in Wichita to its own nearby location. Ground was broken on the new monitoring facility in late 1993, and it will be completed by the end of summer 1994. The factors that make the security business attractive for Multimedia -- growing concern about crime, the relatively few households that already have alarms, and technological advances that are reducing the cost of equipment -- will inevitably attract more competitors in the future. However, Multimedia has a distinct advantage in that it has been developing its expertise and reputation in this area for over a decade, and it is a large, well-capitalized security company operating among hundreds of smaller, less well-established companies. (Photo appears here) Security Regional Managers Joel Johnson (right), Miami, and Randy Rosiere, Wichita, review promotional and sales materials. The Miami office, which opened in January 1993, has quickly become one of the division's most productive operations, and the flagship office in Wichita continues as one of Multimedia Security's top producers.[] 15 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations (Photo of Bob Hamby) Bob Hamby, Multimedia's Senior Vice President -- Finance and Administration, and Chief Financial Officer Results of Operations The Company had net earnings for 1993 of $99.9 million compared with $60.5 million for 1992. Net earnings per share for 1993 were $2.60 compared with $1.61 for 1992. The 1993 net earnings reflect a net benefit of $14.3 million resulting from the cumulative effect of the adoption of Statements of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, and No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. In addition, net earnings in 1993 also reflect a reduction in income tax expense of approximately $12.0 million due to the resolution of the IRS examination of the Company's 1982 through 1986 consolidated federal income tax returns and the changes in tax rates and amortization of intangible assets resulting from the Budget Reconciliation Act of 1993. The earnings also included an after-tax gain of approximately $1.4 million resulting from the sale of the Company's mobile video production unit in January 1993. Earnings and earnings per share for 1993, excluding the accounting changes, income tax adjustments and the gain on the sale of the Company's mobile video production unit, were $72.2 million and $1.88, respectively. Operating Revenues The following table shows the percentage increases (decreases) in the Company's revenues for the years 1993 and 1992.
Division 1993 vs. 1992 1992 vs. 1991 Newspapers 3% 3% Broadcasting (3%) 7% Cable 14% 11% Entertainment 25% 18% Security 63% 81% Total operating revenues 10% 10%
NEWSPAPERS The increase in newspaper revenues for 1993 resulted from increases in circulation revenues, classified advertising and increases in other revenues. The increase in newspaper revenues for 1992 resulted from increases in circulation revenues and increases in other revenues. Advertising revenues increased 1% for 1993 and remained flat in 1992. Advertising revenues represent approximately 75% of total newspaper operating revenues. Linage increased 2% in 1993 and 16 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis decreased 1% in 1992. The 1993 annual average net paid circulation increased 2% for daily papers to 330,000; 1% for Sunday papers to 359,000; and 19% for non-daily publications to 201,000. At December 31, 1993, daily circulation was 323,000, a slight decrease from the prior year; Sunday circulation was 352,000, flat with last year; and non-daily publications' circulation was 202,000, an increase of 28%. The 1992 annual average net paid circulation increased 1% for daily papers to 325,000; 2% for Sunday papers to 356,000; and 14% for non-daily publications to 169,000. At December 31, 1992, daily circulation was 325,000, a 2% increase from the prior year; Sunday circulation was 351,000, an increase of 2%; and non-daily publications' circulation was 159,000, flat with 1991. The Company's three largest newspaper operations, which are in Greenville, South Carolina; Asheville, North Carolina; and Montgomery, Alabama, account for approximately 75% of the division's revenues. BROADCASTING Broadcasting revenues decreased 3% in 1993. Local and national revenues increased approximately $6.3 million in 1993, and political revenues were approximately $8.0 million less than in 1992. The 1993 revenues decreased by approximately $3.4 million as a result of the sale of the Company's mobile video production unit. Broadcasting revenues increased 7% in 1992 principally as a result of political revenues, which were approximately $8.4 million greater than in 1991. Television operating revenues represent over 90% of the total broadcasting revenues. Local time sales account for approximately 50% and national time sales account for approximately 33% of the total television operating revenues. The remainder of television operating revenues is accounted for by political, network and other revenues. CABLE Cable revenues increased 14% in 1993, with approximately half of the increase due to the acquisition of cable systems in Indiana. Excluding the revenues from the Indiana cable systems, cable revenues would have increased 7% in 1993. Of this 7% increase in cable revenues from 1992 to 1993 and the 11% increase from 1991 to 1992, approximately 4% and 3%, respectively, were due to rate increases to the cable subscriber. Subscriber growth contributed increases of 1% and 4%, respectively. Other cable acquisitions and growth of ancillary revenues accounted for 2% and 4%, respectively. The average monthly revenue per cable subscriber at the end of 1993 was $33.29 versus $32.13 in 1992 and $30.36 in 1991. Multimedia Cablevision increased its basic cable subscriber counts to 417,000 in 1993 from 410,000 in 1992 and 365,000 in 1991. In February 1992, the Company purchased approximately 5,000 cable subscribers in Illinois from Dowden Communications Investors, L.P., and in December 1992, the Company purchased approximately 28,000 subscribers in Indiana from Prime Cable Income Partners, L.P. ENTERTAINMENT Entertainment revenues increased 25% in 1993 primarily due to increases in revenues from the SALLY 17 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis JESSY RAPHAEL show and the first full year of revenues for the division's new talk television shows JERRY SPRINGER and RUSH LIMBAUGH, THE TELEVISION SHOW. Revenues for the division's made-for-television movie production business, Multimedia Motion Pictures (MMP), reflect the increase in movie production from six hours in 1992 to 16 hours in 1993. The majority of the 1992 increase in entertainment revenues was attributable to increases in revenues from the DONAHUE and SALLY JESSY RAPHAEL shows. A portion of the 1992 increase in revenues was also derived from MMP and the introduction of new shows, including JERRY SPRINGER and RUSH LIMBAUGH, THE TELEVISION SHOW. Excluding the impact of MMP's productions and new shows in 1993 and 1992, the revenue increase would have been 5% and 11%, respectively. The DONAHUE and SALLY JESSY RAPHAEL shows account for virtually all of the division's profit and represent approximately 50% and 25%, respectively, of the entertainment division's revenues. In 1993, Phil Donahue signed a new contract with Eleven-Year Review (IN THOUSANDS EXCEPT PER-SHARE DATA)
Year Ended December 31, 1993 1992 1991 Operating revenues $634,574 576,781 524,326 Operating expenses..................................................................... 399,971 360,694 330,072 Depreciation and amortization 50,200 42,982 38,448 Total operating costs and expenses 450,171 403,676 368,520 Operating profit....................................................................... 184,403 173,105 155,806 Interest expense....................................................................... 61,996 71,820 79,315 Other income (expense), net 1,494 (447) 643 Earnings before income taxes, minority interest and other items(1)............................................................... 123,901 100,838 77,134 Income taxes........................................................................... 38,703 41,343 30,254 Minority interest in subsidiaries' losses, net 320 1,009 1,517 Earnings (loss) before other items.................................................. 85,518 60,504 48,397 Other items 14,332 -- -- Net earnings (loss) $ 99,850 60,504 48,397 Earnings (loss) per share before other items........................................... $ 2.23 1.61 1.30 Earnings (loss) per share.............................................................. $ 2.60 1.61 1.30 Cash dividends per share............................................................... $ -- -- -- Average common shares outstanding(2)................................................... 38,374 37,593 37,253 Long-term debt, including current installments......................................... $664,997 745,995 757,125 Total assets $655,174 627,945 556,285
1. OTHER ITEMS CONSIST OF THE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES IN 1993, AND AN EXTRAORDINARY ITEM IN 1990. 2. INCLUDES DILUTIVE COMMON STOCK EQUIVALENTS IN 1987 THROUGH 1993. SHARE AND PER-SHARE AMOUNTS HAVE BEEN RETROACTIVELY ADJUSTED TO REFLECT THE 3-FOR-1 STOCK SPLIT EFFECTED APRIL 1991. 18 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis the Company to continue to host the DONAHUE show through August 1995. Sally Jessy Raphael also signed a new contract in 1993 to continue to host the SALLY JESSY RAPHAEL show through August 1998. SECURITY Security revenues increased 63% in 1993 and 81% in 1992 primarily due to the increase in the number of security subscribers. The number of security subscribers at year-end increased to 52,400 in 1993 from 35,300 in 1992 and 25,500 in 1991. Of the increase in the number of subscribers in 1993, 60% was due to acquisitions, and 40% was due to internally generated sales. Monitoring fees from security customers represent approximately 80% of the division's revenues. Installation and maintenance fees account for the remainder of the division's operating revenues.
1990 1989 1988 1987 1986 1985 1984 1983 480,724 462,698 439,588 410,753 371,799 336,271 304,361 269,720 279,787 269,536 263,671 251,434 232,142 221,377 202,014 181,266 30,655 29,492 28,572 27,744 25,487 24,275 21,523 18,411 310,442 299,028 292,243 279,178 257,629 245,652 223,537 199,677 170,282 163,670 147,345 131,575 114,170 90,619 80,824 70,043 88,289 102,109 108,340 110,999 111,890 36,378 8,289 8,198 (873) (56) 3,522 6,573 159 (6,323) (8,368) 3,413 81,120 61,505 42,527 27,149 2,439 47,918 64,167 65,258 32,462 22,845 15,650 14,660 7,100 26,280 30,479 30,084 -- -- -- -- -- -- -- -- 48,658 38,660 26,877 12,489 (4,661) 21,638 33,688 35,174 (3,078) -- -- -- -- -- -- -- 45,580 38,660 26,877 12,489 (4,661) 21,638 33,688 35,174 1.32 1.04 .73 .34 (.14) .47 .67 .72 1.23 1.04 .73 .34 (.14) .47 .67 .72 -- -- -- -- -- .16 .20 .17 36,984 37,263 36,579 36,450 33,000 46,350 49,995 49,161 798,877 747,776 793,569 841,379 882,108 880,541 80,831 86,818 535,535 404,142 405,000 409,279 408,765 399,037 402,820 387,112
19 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis Operating Costs and Expenses Operating costs and expenses are comprised of production costs, selling, general and administrative expenses, and depreciation and amortization expenses. The following table shows the percentage increases (decreases) in the Company's operating costs and expenses for the years 1993 and 1992.
Division 1993 vs. 1992 1992 vs. 1991 Newspapers 4% -- Broadcasting (4%) 6% Cable 15% 11% Entertainment 34% 26% Security 77% 83% Total operating costs 12% 10%
NEWSPAPERS The majority of the operating costs and expenses increase in 1993 was due to increases in newsprint and production costs. Operating costs and expenses remained flat in 1992 principally due to a decrease in newsprint costs. Newsprint represents approximately 20% of the total newspaper division's operating costs and expenses. BROADCASTING The 1993 decrease in broadcasting operating costs and expenses was principally due to decreases in programming costs and a reduction of approximately $2.4 million in costs due to the sale of the Company's mobile video production unit. The 1992 increase in broadcasting operating costs and expenses was principally due to increases in programming costs, sales-related costs and programming write-offs of approximately $2.5 million. CABLE The 1993 costs and expenses include the results of the Indiana cable systems purchased in December 1992. Excluding the results of the Indiana cable systems, operating costs and expenses would have increased approximately 6% in 1993. This 6% operating costs and expenses increase in 1993 and the 1992 increase were principally due to programming cost increases and the expansion of the division's wireless cable operation. ENTERTAINMENT The 1993 increase is primarily attributable to the costs related to the increase in the number of hours of programming in MMP and increases in costs associated with the first full year of the production of JERRY SPRINGER and RUSH LIMBAUGH, THE TELEVISION SHOW. The number of hours of programming produced and sold by MMP increased from six hours in 1992 to 16 hours in 1993. The 1992 expenses include expenses related to MMP and new talk shows. Excluding the effect of the costs mentioned above, operating costs increases for 1993 and 1992 would have been approximately 6% and 13%, respectively. SECURITY The security operating costs and expenses increases in 1993 and 1992 were principally due to the expansion of the Company's security alarm business. The majority of the costs and expenses increases in 1993 and 1992 was due to the opening of new full-service offices, increases in central station monitoring costs, and depreciation and amortization expense related to the subscriber growth. The division opened one new full-service office in the fourth quarter of 1991, two offices in the fourth quarter of 1992 and 20 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis two additional offices during the first quarter of 1993. The start-up costs associated with the increase in sales offices and the increase in depreciation and amortization offset the related revenue increases. Operating Profit The above changes in operating revenues and operating costs and expenses resulted in the following increases in the Company's operating profits for the years 1993 and 1992.
Division 1993 vs. 1992 1992 vs. 1991 Newspapers -- 9% Broadcasting 2% 10% Cable 12% 11% Entertainment 13% 10% Security 1% 72% Total operating profit 7% 11%
Interest Expense Interest expense was $62 million in 1993, $72 million in 1992 and $79 million in 1991. The decrease in expense was principally due to debt payments and reduction in interest rates related to the Company's floating rate debt. At December 31, 1993, the Company's debt financing included a $581 million unsecured bank facility and $400 million of unsecured Senior Notes. The borrowings under the bank facility bear a floating interest rate over applicable prime, CD or LIBOR rates based on the Company's debt to annualized operating cash flow ratio. The Company has interest rate swap agreements which effectively fix LIBOR on $100 million of its floating rate debt at approximately 5.4%. The interest rate swap agreements expire at various times from October 1994 through November 1996. The Company has interest rate cap agreements which cap LIBOR at 7% on $50 million that expire in 1994 and 1995, and an interest rate cap agreement which caps LIBOR at 7% on $25 million which begins in 1996 and expires in 1997. The bank Credit Agreement required the Company to maintain interest rate protection agreements until December 31, 1993, of not less than 40% of the outstanding balance under the bank credit facility. The Senior Notes bear interest at a composite rate of 10.7%. The Company's Board of Directors approved interest rate guidelines in October 1990 to maintain interest rate protection on a minimum of 70% of outstanding debt. In addition to purchasing a 51% equity interest in WKYC from NBC, the Company purchased a 51% interest in a $75 million principal promissory note of WKYC which was held by NBC. As a result, 51% of the note is now due to the Company, and NBC retained a 49% interest in the note ($36.8 million), which bears interest at a rate of 10% and is due in full on December 26, 1997. The composite interest rate on all debt was 9.2%, 8.6% and 9.8% at the end of 1993, 1992 and 1991, respectively. Income Taxes The effective income tax rates were 32%, 41% and 39% for 1993, 1992 and 1991, respectively. The resolution of the Internal Revenue Service (IRS) examination of the Company's 1982 through 1986 consolidated federal income tax returns and changes in tax 21 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis rates and amortization of intangible assets from the Budget Reconciliation Act of 1993 occurred in the third quarter of 1993. The cumulative effect of the above mentioned items was a decrease in tax expense of approximately $12 million. The Company expects the 1994 tax rate to be between 41% and 42%. The Company is contesting certain proposed deficiencies for 1987 through 1989. The deficiencies principally involve various acquisition issues related primarily to cable. The ultimate resolution of these matters cannot be ascertained at this time. The Company is continuing to vigorously contest the assessments. The Company believes that it has adequately provided for agreed-upon and potential deficiencies, including interest. This is discussed further on page 35. Effective January 1, 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes, and reported a gain of approximately $15.4 million as the cumulative effect of the change in the method of accounting for income taxes. SFAS No. 109 requires a change from the deferred method under Accounting Principles Board (APB) Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS No. 109, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 109. Postretirement Benefits Effective January 1, 1993, the Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, and reported an expense of approximately $1.1 million, net of tax, as the cumulative effect of the change in the method of accounting for postretirement benefits. The new rules require employers to accrue for the costs of providing health and other welfare benefits to future retirees. The cost of postretirement medical benefits has historically been accounted for on the cash basis. Prior years' financial statements have not been restated. Minority Interest Minority interest represents the minority shareholders' proportionate share of the income or loss of certain consolidated subsidiaries, primarily WKYC-TV, Inc. Inflation Historically, the Company has competitively priced its products and services to more than offset price increases to the Company by vendors and others. The Company was able to implement price increases for many of its products and services in 1993, 1992 and 1991, during periods of low inflation. The Company anticipates this trend of price increases to be sustained through 1994, except for any prices subject to governmental regulation. 22 Multimedia, Inc. and Subsidiaries Management's Discussion and Analysis Liquidity and Capital Resources The Company defines liquidity in terms of its ability to fund its current operations, make capital expenditures and service its debt. Internally generated funds and the bank Credit Agreement are the Company's primary sources of liquidity. The primary uses of funds have been for capital expenditures, taxes, acquisitions, debt repayments and film contract payments. The bank Credit Agreement and/or Senior Notes contain covenants which limit (i) payment of dividends; (ii) purchase of capital stock of the Company; (iii) incurrence of indebtedness; (iv) acquisitions outside the Company's current lines of business; (v) liens; (vi) investments; (vii) transactions with affiliates; (viii) sales of assets; and (ix) certain extraordinary transactions. In addition, one or both of the agreements require the Company to maintain specific ratios of debt to annualized operating cash flow, annualized operating cash flow to interest expense and annualized operating cash flow to fixed charges. Management believes it is in compliance with all covenants. Principal payment schedules for the Credit Agreement and Senior Notes are provided on pages 31 through 33. The Company estimates its cash interest expense requirements for 1994 to be approximately $61 million, capital expenditure requirements to be approximately $90 million and the required principal payments to be approximately $1 million. At December 31, 1993, the Company had approximately $270 million available under the bank Credit Agreement. The bank facility and Senior Notes provide, among other things, additional available funds for future acqui- sitions and repurchase of the Company's stock within certain limitations. At December 31, 1993, the Company had signed letters of intent to purchase security systems for up to $1 million. During the first quarter of 1994, the Company sold its radio stations in Milwaukee, Wisconsin, and Shreveport, Louisiana, for a total of $7.2 million, which resulted in a gain of approximately $3.6 million before taxes. (Photo appears here) Pictured outside Multimedia's Greenville, S.C., headquarters are (left to right) Clyde Baucom, Vice President -- Personnel and Benefits; Claudia Price, Vice President -- Taxes; Tom Magaha, Vice President -- Finance and Development, and Controller; and Alan Austin, Treasurer. 23 Multimedia, Inc. and Subsidiaries Consolidated Statements of Earnings YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS EXCEPT PER-SHARE DATA)
1993 1992 1991 Operating revenues: Newspapers............................................................................. $135,920 132,485 128,954 Broadcasting........................................................................... 155,718 160,529 150,643 Cable.................................................................................. 164,598 144,383 129,855 Entertainment.......................................................................... 161,588 129,122 109,205 Security 16,750 10,262 5,669 Total operating revenues 634,574 576,781 524,326 Operating costs and expenses: Production............................................................................. 229,385 202,865 185,031 Selling, general and administrative.................................................... 170,586 157,829 145,041 Depreciation and amortization 50,200 42,982 38,448 Total operating costs and expenses 450,171 403,676 368,520 Operating profit.................................................................... 184,403 173,105 155,806 Interest expense.......................................................................... 61,996 71,820 79,315 Other income (expense), net 1,494 (447) 643 Earnings before income taxes, minority interest and cumulative effect of changes in accounting principles.............................................................. 123,901 100,838 77,134 Income taxes.............................................................................. 38,703 41,343 30,254 Minority interest in subsidiaries' losses, net 320 1,009 1,517 Earnings before cumulative effect of changes in accounting principles............... 85,518 60,504 48,397 Cumulative effect of changes in accounting principles 14,332 -- -- Net earnings $ 99,850 60,504 48,397 Earnings per share before cumulative effect of changes in accounting principles........... $ 2.23 1.61 1.30 Cumulative effect of changes in accounting principles .37 -- -- Earnings per share $ 2.60 1.61 1.30 Weighted average shares 38,374 37,593 37,253
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 24 Multimedia, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit) YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
1993 1992 1991 Common Stock: Balance at beginning of year........................................................ $ 3,680 3,507 3,460 Stock options exercised 41 173 47 Balance at end of year 3,721 3,680 3,507 Additional paid-in capital: Balance at beginning of year........................................................ 164,367 140,435 131,034 Stock options exercised............................................................. 6,882 7,676 2,939 Tax benefit from exercise of employee stock options................................. 2,084 12,875 2,963 Amortization of stock options 4,356 3,381 3,499 Balance at end of year 177,689 164,367 140,435 Retained earnings (deficit): Balance at beginning of year........................................................ (458,780) (519,284) (567,681) Net earnings 99,850 60,504 48,397 Balance at end of year (358,930) (458,780) (519,284) $(177,520) (290,733) (375,342)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 25 Multimedia, Inc. and Subsidiaries Consolidated Statements of Cash Flows YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 (IN THOUSANDS)
1993 1992 1991 Cash flows from operating activities: Net earnings.......................................................................... $ 99,850 60,504 48,397 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization...................................................... 50,200 42,982 38,448 Amortization of film contract rights............................................... 14,035 18,277 15,119 Amortization of debt issue costs................................................... 1,117 1,058 1,014 Cumulative effect of changes in accounting principles.............................. (14,332) -- -- Minority interest in subsidiaries' losses, net..................................... (320) (1,009) (1,517) Amortization of stock options...................................................... 4,356 3,381 3,499 Gain on disposal of assets, net.................................................... (739) -- -- Increase (decrease) in deferred income taxes....................................... (3,516) 788 (1,744) (Increase) decrease in current assets: Trade accounts receivable....................................................... (6,276) (6,830) (4,325) Inventories, deferred income tax benefits, deferred program costs, and prepaid expenses and other........................................................... (7,972) 12 657 Increase (decrease) in current liabilities: Accounts payable, accrued payroll and accrued expenses.......................... 8,144 6,133 5,632 Accrued interest................................................................ (5,412) (1,887) 1,679 Income taxes payable............................................................ 17,199 7,884 494 Unearned income 1,714 1,299 2,512 Net cash flows provided by operating activities 158,048 132,592 109,865 Cash flows from investing activities: Additions to property, plant and equipment............................................ (47,378) (37,493) (32,187) Proceeds from disposal of assets...................................................... 4,678 -- -- Acquisitions of properties............................................................ (13,170) (78,710) (23,338) Other (4,485) 1,224 795 Net cash provided by (used for) investing activities (60,355) (114,979) (54,730) Cash flows from financing activities: Proceeds from borrowings.............................................................. -- -- 15,937 Long-term debt retired, net........................................................... (80,998) (11,130) (57,689) Film contract payments................................................................ (17,454) (16,463) (15,162) Proceeds from exercise of employee stock options...................................... 6,923 7,849 2,986 Other 272 10 406 Net cash provided by (used for) financing activities (91,257) (19,734) (53,522) Increase (decrease) in cash and cash equivalents......................................... 6,436 (2,121) 1,613 Cash and cash equivalents, beginning of year 4,598 6,719 5,106 Cash and cash equivalents, end of year $ 11,034 4,598 6,719
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 26 Multimedia, Inc. and Subsidiaries Consolidated Balance Sheets DECEMBER 31, 1993 AND 1992 (IN THOUSANDS EXCEPT SHARE DATA)
ASSETS 1993 1992 Current assets: Cash and cash equivalents........................................................................ $ 11,034 4,598 Trade accounts receivable, less allowances for discounts and uncollectible accounts of $3,713 in 1993 and $3,945 in 1992........................................................................ 85,756 80,937 Inventories...................................................................................... 4,408 4,602 Deferred income tax benefits..................................................................... 8,856 8,108 Film contract rights............................................................................. 8,476 9,231 Deferred program costs........................................................................... 9,670 4,039 Prepaid expenses and other 5,516 3,736 Total current assets 133,716 115,251 Property, plant and equipment, at cost: Land and land improvements....................................................................... 5,313 5,222 Buildings........................................................................................ 39,155 38,713 Broadcasting equipment........................................................................... 53,898 63,100 Publishing equipment............................................................................. 58,599 57,566 Cable equipment.................................................................................. 272,899 243,240 Other equipment and fixtures..................................................................... 68,559 55,171 Construction in progress 1,710 436 500,133 463,448 Less accumulated depreciation 259,371 244,938 Net property, plant and equipment............................................................. 240,762 218,510 Intangible assets, net.............................................................................. 251,356 269,141 Other assets 29,340 25,043 $ 655,174 627,945 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt........................................................... $ 393 1,999 Accounts payable................................................................................. 20,557 16,756 Accrued interest................................................................................. 2,999 8,411 Accrued payroll.................................................................................. 5,884 5,834 Accrued expenses................................................................................. 30,465 26,281 Income taxes payable............................................................................. 15,432 1,072 Film contracts payable........................................................................... 8,540 12,758 Unearned income 19,416 17,702 Total current liabilities 103,686 90,813 Long-term debt, excluding current installments...................................................... 664,604 743,996 Deferred income taxes............................................................................... 44,046 64,792 Other liabilities................................................................................... 2,837 1,236 Minority interest................................................................................... 17,521 17,841 Stockholders' equity (deficit): Common stock of $.10 par value per share. Authorized 100,000,000 shares and issued 37,210,000 shares in 1993 and 36,803,000 shares in 1992................................................... 3,721 3,680 Additional paid-in capital....................................................................... 177,689 164,367 Retained earnings (deficit) (358,930) (458,780) Total stockholders' equity (deficit) (177,520) (290,733) $ 655,174 627,945
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 27 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements include the accounts of Multimedia, Inc. and subsidiaries. Significant intercompany items are eliminated in consolidation. REVENUE RECOGNITION Revenue is recognized when programming and advertising are aired or printed, or when services are rendered. CASH EQUIVALENTS Cash equivalents include investments with banks with original maturities of three months or less. Cash investments with banks totalled $1,981,000 at December 31, 1993. There were no investments with banks at December 31, 1992. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value) and include newsprint and supplies. DEPRECIATION Depreciation for financial reporting purposes is calculated principally on the straight-line basis over the estimated useful lives of the respective assets. Depreciation expense for 1993, 1992 and 1991 was $35,422,000, $31,710,000 and $29,140,000, respectively. OTHER ASSETS DEFERRED LOAN COSTS Deferred loan costs include amounts incurred in connection with raising bank and Senior Note debt. The costs are amortized using the interest method over periods up to 10 years. DEFERRED COSTS Deferred costs include amounts deferred during the start-up and prematurity periods for cable systems under development, and costs associated with the acquisition of security accounts. These costs are amortized on a straight-line basis over periods up to 15 years. FILM CONTRACTS Film contract rights represent agreements with film syndicators for television program material. When the program or film becomes available for telecasting, the cost of the contract is recorded as an asset and the corresponding contractual obligation as a liability. The cost is amortized over the expected number of telecasts. The portion of the cost to be amortized within one year and after one year are reflected in the consolidated balance sheets as current and noncurrent assets, respectively. The payments under these contracts due within one year and after one year are similarly classified as current and noncurrent liabilities. INTANGIBLE ASSETS Intangible assets, which include cable television franchise rights, represent the excess of the cost of properties acquired over the amounts assigned to the net tangible assets at dates of acquisition. Intangible assets arising from acquisitions after October 31, 1970, are amortized on a straight-line basis over periods up to 40 years. Intangibles acquired prior to October 31, 1970, will be amortized only to the extent there is a permanent decline in value. INTEREST RATE SWAP AND CAP AGREEMENTS The interest rate swap agreements are being accounted for as a hedge of the obligation and accordingly, the net swap settlement amount is recorded as 28 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 1 CONTINUED) an adjustment to interest expense in the period incurred. The net swap settlement amounts for 1993, 1992 and 1991 resulted in charges to interest expense of $2.1 million, $7.8 million and $5.4 million, respectively. The interest rate swap and cap agreements expire at various times from 1994 through 1997. The Company believes that the sellers of the swap and cap agreements will be able to meet their obligations under the agreements. INCOME TAXES Effective January 1, 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes, and has reported the cumulative effect of that change in the method of accounting for income taxes in the 1993 consolidated statement of earnings. SFAS No. 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferred method, deferred taxes are not adjusted for subsequent changes in tax rates. POSTRETIREMENT BENEFITS The Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, as of January 1, 1993, which requires accrual, during an employee's active years of service, of the expected costs of providing postretirement benefits to employees and their beneficiaries and dependents. The Company's accumulated postretirement benefit obligation as of December 31, 1992, based upon calculations performed by the Company's actuarial consultant, was $1.1 million, net of tax, which has been reported in the 1993 consolidated statement of earnings. EARNINGS PER SHARE Earnings per share are computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year retroactively adjusted to give effect to the stock split. Common stock equivalents are dilutive stock options determined by using the treasury stock method. MINORITY INTEREST Minority interest represents the minority shareholders' proportionate share of the equity and the income or loss of certain consolidated subsidiaries, primarily WKYC-TV, Inc. The Company owns 51% of WKYC-TV, Inc. 29 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (2) RECAPITALIZATION MERGER On September 20, 1985, the Company's shareholders approved a Recapitalization Agreement and Plan of Merger (the Recapitalization Merger). The Recapitalization Merger was consummated on October 1, 1985, and was accounted for as a redemption not subject to purchase accounting. This resulted in a charge to retained earnings of approximately $887 million. (3) ACQUISITIONS In 1993, the Company purchased the accounts of existing security alarm monitoring companies for approximately $12,100,000 in cash. The purchase price has been assigned to property, plant and equipment ($6,100,000) and other assets ($6,000,000). Other acquisitions for 1993 included the purchase of the remaining 20% interest in an existing Illinois cable television franchise. The purchase price is considered immaterial. On December 3, 1992, the Company purchased Indiana cable television systems with approximately 28,000 subscribers for approximately $58,000,000 in cash. The purchase price has been assigned to property, plant and equipment ($18,700,000), intangibles ($37,100,000) and other assets ($2,200,000). The following unaudited pro forma summary presents the results as if the acquisition of Indiana cable television systems had occurred at the beginning of each respective period presented, after giving effect to certain adjustments including interest expense on the acquisition debt. The pro forma results do not necessarily represent results which would have occurred if the acquisition had occurred on the date indicated nor does it indicate results which may occur in the future. (In thousands except per-share data)
1992 1991 Total operating revenues.......... $ 585,878 533,278 Net earnings...................... 58,105 44,946 Earnings per share 1.55 1.21
In February 1992, the Company purchased an Illinois cable television system with approximately 5,000 subscribers for approximately $9,500,000 in cash. The purchase price has been assigned to property, plant and equipment ($8,400,000) and intangibles ($1,100,000). In 1992, the Company purchased the accounts of existing security alarm monitoring companies for approximately $8,500,000 in cash. The purchase price has been assigned to property, plant and equipment ($4,200,000) and other assets ($4,300,000). Other acquisitions for 1992 included purchases of the remaining 20% interest in two existing Illinois cable television franchises. The purchase price of these interests is considered immaterial. In 1991, the Company purchased the accounts of existing security alarm monitoring companies for approximately $16,500,000 in cash. The purchase price has been assigned to property, plant and equipment ($2,300,000), intangibles ($9,000,000) and other assets ($5,200,000). On September 13, 1991, the Company purchased certain television and first-run syndicated television assets from Carolco Pictures, Inc.'s wholly owned subsidiary Orbis Communications, Inc. for $5,000,000 in cash. The purchase price of these assets has been included in other assets. Other acquisitions for 1991 included a small cable television system and the purchase of the remaining 20% interest in two Illinois cable television franchises. The purchase price of these 30 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 3 CONTINUED) other acquisitions is considered immaterial. The operations of all acquisitions for the three-year period ending December 31, 1993, have been included in the consolidated statements of earnings since the dates of acquisition. Other than the Indiana cable television systems, the pro forma effects of the acquisitions on operating revenues, net earnings and net earnings per share for the year of acquisition and for the year immediately preceding the year of acquisition are not significant and are not presented. (4) OTHER ASSETS Other assets include (in thousands):
1993 1992 Deferred loan costs, net of accumulated amortization.......... $ 6,780 7,918 Deferred costs, net of accumulated amortization...................... 14,376 12,295 Film contract rights................. 318 771 Other 7,866 4,059 Total $ 29,340 25,043
(5) INTANGIBLE ASSETS Intangible assets include (in thousands):
1993 1992 Excess of cost over net tangible assets......................... $216,953 219,149 Franchise costs................... 79,165 85,473 Less accumulated amortization..... (63,803) (54,522) Amounts not being amortized 19,041 19,041 Total $251,356 269,141
(6) LONG-TERM DEBT A summary of long-term debt follows (in thousands):
1993 1992 Bank notes under bank credit facility....................... $ 227,500 306,500 Senior notes...................... 400,000 400,000 Note payable...................... 36,750 36,750 Notes payable in quarterly or annual installments through June 1998 747 2,745 Total long-term debt........... 664,997 745,995 Less current installments 393 1,999 Long-term debt, excluding current installments $ 664,604 743,996
BANK NOTES The bank credit facility is comprised of a $415 million revolving credit line and a $166 million term loan. The commitment levels which remain in effect during the years ended are as follows (in thousands):
Revolving Term Date Credit Loan Total December 31, 1993........... $415,000 166,000 581,000 December 31, 1994........... 355,000 142,000 497,000 December 31, 1995........... 290,000 116,000 406,000 December 31, 1996........... 225,000 90,000 315,000 December 31, 1997........... 160,000 64,000 224,000 December 31, 1998........... 90,000 36,000 126,000 December 31, 1999........... 30,000 12,000 42,000 June 30, 2000 -- -- --
The bank credit facility has a floating interest rate based on the Company's debt to annualized operating cash flow ratio. At December 31, 1993, the interest rate for these bank notes was the LIBOR rate plus 5/8% or the prime rate. A commitment fee of 3/8% per annum on the unused portion of the revolving credit 31 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 6 CONTINUED) commitment must be paid quarterly. The Company has the option under the bank Credit Agreement to seek bids from the various banks for alternative interest rates. The Company has interest rate swap agreements which effectively fix the LIBOR rate on $100 million of its floating rate debt at approximately 5.4%. These interest rate swap agreements expire at various times between October 1994 and November 1996. The Company also has interest rate cap agreements which effectively cap LIBOR on $50 million of its floating rate debt at approximately 7.0%, which expire at various times between October 1994 and December 1995. In addition, the Company has an interest rate cap which caps LIBOR at 7% on $25 million, which begins in 1996 and expires in 1997. SENIOR NOTES The Senior Notes are comprised of five series which have maturities from 1995 through 2005 with an original average life of 10 years and bear interest at a composite rate of approximately 10.7%. The remaining average life is 6.5 years. Information regarding each series follows (in thousands):
Principal Interest Due Dates Amount Rate (2) Series A.......... June 29, 1995 $ 30,000 10.23% Series B.......... June 29, 1996 30,000 10.36% Series C.......... June 29, 1997 30,000 10.50% Series D.......... June 29, 1998 70,000 10.61% Series E(1)....... June 29, 1999 240,000 10.92% through June 29, 2005 $400,000
(1) ONE-SEVENTH OF THE PRINCIPAL AMOUNT DUE EACH JUNE 29 FOR THE YEARS 1999 TO 2005. (2) INTEREST IS PAYABLE SEMI-ANNUALLY ON JUNE 29 AND DECEMBER 29. COVENANTS The bank Credit Agreement and/or Senior Notes contain covenants which limit (i) payment of dividends; (ii) purchase of capital stock of the Company; (iii) incurrence of indebtedness; (iv) acquisitions outside of the Company's current lines of business; (v) liens; (vi) investments; (vii) transactions with affiliates; (viii) sales of assets; and (ix) certain extraordinary transactions. In addition, one or both of the agreements require the Company to maintain specific ratios of debt to annualized operating cash flow, annualized operating cash flow to interest expense and annualized operating cash flow to fixed charges. Management believes it is in compliance with all covenants. NOTE PAYABLE In addition to purchasing a 51% equity interest in WKYC in 1990 from NBC, the Company purchased a 51% interest in a $75 million principal promissory note of WKYC which was held by NBC. As a result, 51% of the note is now due to the Company, and NBC retained a 49% interest in that note ($36.8 million), which bears interest at a rate of 10% payable semi-annually on July 15 and January 15. The principal amount is due in full on December 26, 1997. OTHER The other notes payable include $1,537,000 at December 31, 1992, from a $20,000,000 commitment to the Company which expires on July 29, 1994. There were no outstanding borrowings at December 31, 1993, under this commitment. The interest rate on this commitment is the overnight Federal Funds rate plus 1.50%. A commitment fee of 1/16% per annum on the unused portion of the commitment must be paid quarterly. The remaining notes payable have fixed interest rates ranging from 8% to 11.25%. 32 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 6 CONTINUED) The minimum aggregate annual repayments of long-term debt during the next five years, excluding bank notes under the Credit Agreement, are as follows (in thousands): 1994, $393; 1995, $30,254; 1996, $30,062; 1997, $66,777; 1998, $70,012. (7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and cash equivalents, trade accounts receivable, accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments. The fair value of the interest rate swaps or caps is the estimated amount that the Company would receive or pay to eliminate the swap or cap agreements at the reporting date, taking into account current interest rates and the current credit-worthiness of the swap counterparties. The fair value of the Company's long-term debt is based on estimates of market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair value of film contracts payable is the present value of the future obligations. Estimated fair values of the Company's financial instruments are as follows (in thousands):
1993 CARRYING FAIR AMOUNT VALUE Assets: Interest rate cap agreements..... $ 624 82 Liabilities: Interest rate swap agreements.... -- 2,610 Long-term debt: Bank notes under bank credit facility...................... 227,500 227,500 Senior notes.................. 400,000 479,278 Note payable.................. 36,750 41,830 Other notes payable........... 747 747 Film contracts payable 8,540 8,338
(8) INCOME TAXES As discussed in Note 1, the Company adopted SFAS No. 109 as of January 1, 1993. The cumulative effect of this change in accounting for income taxes of $15,420,000 was determined as of January 1, 1993, and is reported separately in the consolidated statement of earnings for the year ended December 31, 1993. Prior-years' financial statements have not been restated to apply the provisions of SFAS No. 109. Total income tax expense for the year ended December 31, 1993, was allocated as follows (in thousands): Income from continuing operations................. $38,703 Cumulative effect of change in accounting principle -- adoption of SFAS No. 106.......... (755) Stockholders' equity -- additional paid-in capital for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (2,084) Total income tax expense $35,864
33 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 8 CONTINUED) Income tax expense (benefit) includes (in thousands):
1993 1992 1991 Federal: Current.............. $28,905 33,821 27,071 Deferred 1,844 263 (1,817) 30,749 34,084 25,254 State: Current.............. 7,783 7,369 4,479 Deferred 171 (110) 521 7,954 7,259 5,000 Total $38,703 41,343 30,254
The items comprising the difference in taxes on income computed at the U.S. statutory rates (35% in 1993 and 34% in 1992 and 1991) and the amounts provided follow (in thousands):
1993 1992 1991 Computed expected tax expense................... $43,365 34,285 26,226 Increase (reduction) in tax expense resulting from: State income taxes, net of Federal income tax benefit................ 5,170 4,791 3,300 Amortization............ 1,796 1,756 662 Reduction for settlement of IRS exam............ (12,372) -- -- Loss of subsidiary not consolidated for tax purposes............... -- -- 1,531 Additional provision for (reduction in) income taxes.................. (365) 799 (2,141) Other, net 1,109 (288) 676 Actual tax expense $38,703 41,343 30,254
The significant components of deferred income tax expense attributable to income from continuing operations for the year ended December 31, 1993, are as follows (in thousands): Deferred tax expense (exclusive of the effect of the following item)............................. $1,195 Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates 820 $2,015
For the years ended December 31, 1992 and 1991, deferred income tax expense (benefit) of $153,000 and ($1,296,000), respectively, results from timing differences in the recognition of income and expense for income tax and financial reporting purposes. The sources and tax effects of these timing differences are presented below (in thousands):
1992 1991 Accelerated depreciation.............. $ 304 (1,787) Amortization.......................... (1,108) 2,118 Accrued expenses and allowances....... (717) 42 Other, net 1,674 (1,669) $ 153 (1,296)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1993, are presented on page 35 (in thousands): 34 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 8 CONTINUED) Deferred tax assets: Amortization of stock options.................. $ 3,214 Accrued expenses and allowances................ 10,294 Total gross deferred tax assets............. 13,508 Less -- valuation allowance -- Net deferred tax assets 13,508 Deferred tax liabilities: Accelerated depreciation....................... 38,911 Amortization................................... 9,018 Other, net 769 Total gross deferred tax liabilities 48,698 Net deferred tax liability $35,190
Management believes that a valuation allowance is not considered necessary based upon the level of historical taxable income and the projections for future taxable income over the periods during which the deferred tax assets are deductible. The Internal Revenue Service (IRS) has examined the Company's federal consolidated income tax returns through 1989. In 1993 the Company reached an agreement with the IRS as to the 1982 through 1986 tax liabilities. The agreed-to settlement principally involves purchase price allocations related to cable acquisitions and characterization of professional fees incurred in 1985 and was less than the amount previously accrued. This agreement resulted in a reduction in income taxes as previously described. The IRS has issued notices of deficiencies with regard to the Company's tax returns for 1987 through 1989. The deficiencies principally involve various acquisition issues related primarily to cable. The ultimate resolution of these matters cannot be ascertained at this time. The Company is continuing to vigorously contest the assessments. The Company believes that it has adequately provided for agreed-upon and potential deficiencies, including interest. (9) COMMON STOCK, STOCK OPTIONS AND PREFERRED STOCK On April 17, 1991, the Company's Board of Directors effected a three-for-one stock split by declaring a stock dividend of two shares on each outstanding share. The record date for the stock dividend was April 19, 1991, and the payment date was April 29, 1991. Shares were issued and recorded in the accounts by transferring the aggregate par value of the shares issued from additional paid-in capital to common stock. All common stock data in the financial statements have been retroactively adjusted to give effect to the common stock split. The Company has adopted five stock option plans (the Restricted Option Plan, Performance Option Plan, New Key Executive Plan, 1991 Stock Option Plan and Director Option Plan) and signed stock option agreements with Phillip J. Donahue and Sally Jessy Raphael. Each option is for one share of common stock. All of the 1,513,494 authorized options, exercisable at $.33 per share, under the Restricted Option Plan were granted in 1985. Fair market value on the date of grant was $3.33 per share. Information regarding options under the Restricted Option Plan follows:
1993 1992 1991 Outstanding at January 1.................... -- 679,810 790,011 Exercised -- 679,810 110,201 Outstanding at December 31 -- -- 679,810 Exercisable at December 31 -- -- 679,810
35 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 9 CONTINUED) All of the 1,032,498 authorized options, exercisable at $3.33 per share, under the Performance Option Plan were granted in 1985. Fair market value on the date of grant was $3.33 per share. The Performance Options became exercisable as defined operating cash flow goals of the Company were equaled or exceeded. Information regarding options under the Performance Option Plan follows:
1993 1992 1991 Outstanding at January 1.................... 200,000 264,555 367,896 Exercised -- 64,555 103,341 Outstanding at December 31 200,000 200,000 264,555 Exercisable at December 31 200,000 200,000 264,555
The forfeited shares from the Restricted Option Plan and the Performance Option Plan are now available for options which may be granted under the New Key Executive Plan. The New Key Executive Plan, 1991 Stock Option Plan, Director Stock Option Plan and agreements with Phillip J. Donahue and Sally Jessy Raphael authorize the granting of 8,085,372 options. Generally, options granted under these plans are exercisable to the extent of 20% per year, beginning approximately one year following date of grant, provided the holder of the option is still an employee of or is rendering services to the Company at such time. Option prices, which are established by the Board of Directors, have been determined based on the market values on dates of grant, except for 1,542,400 options granted in 1987 through 1992 at prices ranging from $3.33 to $23.00 per share. Information regarding options under the New Key Executive Plan, 1991 Stock Option Plan, Director Stock Option Plan and Donahue and Raphael agreements follows:
1993 1992 1991 Outstanding at January 1: Options......... 2,755,700 3,340,173 2,764,101 Price........... $3.33- $3.33- $3.33- $29.00 $28.67 $26.00 Granted: Options......... 385,000 448,000 967,100 Price........... $32.13 $15.00- $3.33- $35.00 $29.00 $28.67 Forfeited or cancelled: Options......... 178,280 38,550 142,800 Price........... $3.33- $15.21- $3.33- $35.00 $27.10 $27.10 Exercised: Options......... 406,780 993,923 248,228 Price........... $3.33- $3.33- $3.33- $27.10 $27.10 $24.50 Outstanding at December 31: Options......... 2,555,640 2,755,700 3,340,173 Price........... $3.33- $3.33- $3.33- $35.00 $29.00 $28.67 Exercisable at December 31: Options......... 1,365,698 1,171,770 1,647,913 Price........... $3.33- $3.33- $3.33- $35.00 $28.67 $28.67
Compensation expense of $4,356,000, $3,381,000 and $3,499,000 is included in selling, general and administrative expense in 1993, 1992 and 1991, respectively, related to the amortization of the deferred compensation on the options issued under the above plans. The Company has 600,000 shares of authorized but unissued 5% convertible cumulative preferred stock of $20 par value per share. 36 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (10) SHAREHOLDER RIGHTS PLAN In September 1989, the Company declared a dividend distribution of one common share purchase Right for each outstanding share of the Company's common stock. The Rights are designed to assure that all the Company's shareholders, other than an acquiring shareholder, receive equal treatment in the event of any proposed takeover of the Company. Each Right will entitle shareholders to buy one share of common stock at an exercise price of $133.33. The Rights will be exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 15% or more of the common stock. If a person or group acquires 15% or more of the Company's outstanding common stock, each holder of a Right, other than Rights beneficially owned by the acquiring person, will have the right to purchase common shares of the Company having a market value of twice the exercise price of the Right. If the Company is acquired in a merger or other business combination transaction, each holder of a Right will thereafter have the right to purchase common shares of the acquiring company which at the time of such transaction will have a market value of twice the exercise price of the Right. Prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's common stock, the Rights are redeemable for one-third of one cent per Right at the option of the Board of Directors. If unexercised, the Rights expire September 6, 1999. (11) OTHER INCOME (EXPENSE) Other income (expense) includes (in thousands):
1993 1992 1991 Gain on disposal of assets, net........................... $ 739 -- -- Interest income.................. 904 82 174 Other, net (149) (529) 469 $1,494 (447) 643
In January 1993, the Company sold its mobile video production business for $4.5 million, which resulted in a gain of $2.3 million before taxes. Gain on disposal of assets, net, in 1993 includes approximately $1.0 million in writeoffs of cable equipment related to rebuilds. Interest income includes $.8 million in refunds received from the IRS related to the settlement of its audits of the Company's 1982 through 1986 federal consolidated income tax returns. (12) EMPLOYEE BENEFIT PLANS PENSION PLANS The Company and its subsidiaries have noncontributory pension plans which cover substantially all employees who meet age and service requirements. The pension plans provide defined benefits that are based on years of credited service, average compensation (as defined) and the primary social security benefit. Contributions to the plans are based on the Entry Age Normal actuarial funding method and are limited to amounts that are currently deductible for tax reporting purposes. The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected 37 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 12 CONTINUED) benefit obligation were 7.25% and 6.5%, respectively, in 1993, and 8% and 6.5%, respectively, in 1992. The expected long-term rate of return on assets was 8% in 1993 and 1992. The following tables set forth the pension plans' funded status and amounts recognized in the Company's consolidated financial statements at December 31, 1993, 1992 and 1991 (in thousands):
1993 1992 Actuarial present value of accumulated benefit obligation, including vested benefits of $36,308 in 1993 and $30,975 in 1992 $37,854 32,382 Projected benefit obligation.......... $50,603 41,849 Plan assets at fair value 59,817 56,453 Excess of plan assets over the projected benefit obligation....... $ 9,214 14,604 Unrecognized net gain................. (2,704) (8,158) Unrecognized net asset being amortized over an average of 17 years........ (5,180) (5,755) Other (1,298) (332) Prepaid pension costs included in other assets $ 32 359
1993 1992 1991 Net pension expense (income) included the following components: Service cost............ $ 2,206 1,942 2,037 Interest cost........... 3,312 3,029 2,795 Actual return on plan assets.................. (5,310) (3,547) (11,263) Net deferral and amortization 20 (1,654) 7,111 Net pension expense (income) $ 228 (230) 680
THRIFT PLAN The Company and its subsidiaries have a salary deferral thrift plan for all eligible employees. The Company and its subsidiaries match tax-deferred contributions by employees up to 2% of their salaries. Company contributions charged to operations in 1993, 1992 and 1991 were $1,359,000, $1,216,000 and $1,122,000, respectively. Thrift plan costs are funded biweekly. OTHER POSTRETIREMENT BENEFITS The Company sponsors unfunded postretirement benefit plans that provide health care, life insurance and other postretirement benefits to certain retired employees. The health care plans generally include participant contributions, co-insurance provisions and limitations on the Company's obligation and service- related eligibility requirements. Effective January 1, 1993, the Company adopted SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. SFAS No. 106 requires the accrual method of accounting for these benefits, rather than the Company's previous policy, which was to record these benefits as they were paid. The effect of SFAS No. 106 on current-year earnings after recording the cumulative effect of adopting SFAS No. 106 was not material. The following table presents the amounts recognized in the Company's consolidated balance sheet at December 31, 1993 (in thousands): 38 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 12 CONTINUED) Accumulated postretirement benefit obligation Retirees........................................ $1,428 Fully eligible participants..................... 161 Other active plan participants 436 2,025 Employer contributions (164) Net postretirement benefit liability included in other liabilities $1,861
Net periodic postretirement benefit cost for 1993 consisted of the following components (in thousands): Service cost................................... $ 35 Interest cost 147 Net periodic postretirement benefit cost $182
The weighted average discount rate used in determining the accumulated benefit obligation was 7%. The health care cost trend rate was assumed to be 14% for the first year grading down to 6% (ratably over 8 years). An increase in the assumed health care cost trend rates by one percentage point in each year would increase the Accumulated Postretirement Benefit Obligation as of December 31, 1993, by $165,658 and the aggregate of service and interest cost for 1993 by $23,694. SUPPLEMENTAL RETIREMENT PROGRAM In 1991 the Company adopted an unfunded Supplemental Retirement Program (SERP) not included in the above table for certain executive officers. The actuarial present value of accumulated benefit obligation at December 31, 1993, and 1992 was $1,355,000 and $749,000, respectively. The expense for 1993 and 1992 was $606,000 and $519,000, respectively. The amounts for 1991 were not material. (13) QUARTERLY OPERATING RESULTS (UNAUDITED) The Company's quarterly operating results for 1993 and 1992 are presented below (in thousands except per-share data).
Quarter Ended March 31 June 30 September 30 December 31 1993 Operating revenues............................................. $144,069 163,527 153,296 173,682 Operating profit............................................... 38,130 46,605 45,737 53,931 Earnings before cumulative effect of changes in accounting principles.................................................. 15,198 18,267 30,241 21,812 Net earnings................................................... 29,530 18,267 30,241 21,812 Earnings per share before cumulative effect of changes in accounting principles....................................... .40 .48 .79 .56 Net earnings per share......................................... .77 .48 .79 .56 1992 Operating revenues............................................. $126,006 142,845 140,538 167,392 Operating profit............................................... 34,763 45,438 43,171 49,733 Net earnings................................................... 10,370 15,813 15,080 19,241 Net earnings per share .28 .42 .40 .51
39 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (14) INDUSTRY SEGMENTS Financial information by industry segment for each of the years in the
three-year period ended December 31, 1993, is summarized below (in thousands): 1993 1992 1991 Operating revenues: Newspapers............ $135,920 132,485 128,954 Broadcasting.......... 155,718 160,529 150,643 Cable................. 164,598 144,383 129,855 Entertainment......... 161,588 129,122 109,205 Security 16,750 10,262 5,669 $634,574 576,781 524,326 Operating profit: Newspapers............ 37,667 37,698 34,554 Broadcasting.......... 38,816 38,191 34,693 Cable................. 56,645 50,692 45,581 Entertainment......... 63,285 55,841 50,931 Security 1,838 1,818 1,056 198,251 184,240 166,815 Less corporate expenses (13,848) (11,135) (11,009) $184,403 173,105 155,806 Depreciation and amortization: Newspapers............ 6,049 5,962 5,594 Broadcasting.......... 9,031 9,888 10,332 Cable................. 28,817 22,387 19,910 Entertainment......... 2,024 1,960 1,040 Security 4,140 2,640 1,429 50,061 42,837 38,305 Corporate 139 145 143 $ 50,200 42,982 38,448 1993 1992 1991 Additions to property, plant and equipment: Newspapers............ 4,611 6,785 4,974 Broadcasting.......... 4,025 5,142 3,797 Cable................. 32,413 22,159 20,775 Entertainment......... 497 574 281 Security 5,704 2,739 2,308 47,250 37,399 32,135 Corporate 128 94 52 $ 47,378 37,493 32,187 Identifiable assets: Newspapers............ 89,473 90,872 89,255 Broadcasting.......... 192,596 200,679 208,585 Cable................. 256,990 251,700 181,474 Entertainment......... 50,222 35,792 30,986 Security 47,336 31,894 21,859 636,617 610,937 532,159 Corporate 18,557 17,008 24,126 $655,174 627,945 556,285
The Company operates principally in five industries: newspapers, broadcasting, cable television, entertainment and security alarms. Newspaper operations involve the publication and distribution of both daily and non-daily newspapers from which revenues are derived primarily from circulation and the sale of advertising linage. Broadcasting operations involve the sale of time to advertisers and network revenue. Cable operations involve the provision of broadcast signals of television and radio stations owned by others and other programming to subscribers whose monthly payments are the primary source of revenues. Entertainment operations generate revenue from programming, 40 Multimedia, Inc. and Subsidiaries Notes to Consolidated Financial Statements (NOTE 14 CONTINUED) talent and production operations. Security operations involve the monitoring, installation and servicing of security systems. Operating profit is total revenues less operating expenses. Interest expense, net other income (expense) and income taxes have been excluded in computing operating profit. Identifiable assets by industry segment represent those assets used in the Company's operations in that segment. (15) CASH FLOW INFORMATION Net cash provided by operating activities is further analyzed as follows (in thousands):
1993 1992 1991 Operating profit plus depreciation, amortization and amortization of stock options: Newspapers............ $ 43,716 43,660 40,148 Broadcasting.......... 47,847 48,079 45,025 Cable................. 85,462 73,079 65,491 Entertainment......... 65,309 57,801 51,971 Security.............. 5,978 4,458 2,485 Corporate (9,354) (7,609) (7,367) 238,958 219,468 197,753 Cash payments for interest................ (61,636) (72,649) (76,622) Cash payments for taxes, net of refunds.......... (32,016) (33,275) (30,942) Amortization of film contract rights......... 14,035 18,277 15,119 Other (1,293) 771 4,557 Net cash flows provided by operating activities $158,048 132,592 109,865
The Company entered into contracts for program rights totalling $12,977,000, $14,218,000 and $15,320,000 for 1993, 1992 and 1991, respectively, which are not reflected in the consolidated statements of cash flows or the above schedule. (16) COMMITMENTS At December 31, 1993, the Company had commitments for purchases of film contracts and property, plant and equipment of $11.8 million and $5.8 million, respectively. The Company also had contracts at year-end to acquire security subscribers for up to $1 million. Commitments relating to rebuilds and upgrades to cable franchises to be performed from 1994 through 1996 were approximately $11.6 million at year-end. The Company has agreements with various non-profit community organizations giving them a 20% equity interest in their particular cable television system. The Company is required to purchase these equity interests after a period of not less than seven and not more than 12 years from the date of the franchise agreement depending upon when specified minimum profitability levels have been achieved. The minimum buy-back commitment at December 31, 1993, was estimated at approximately $1.8 million. In addition, the Company periodically enters into contractual agreements with talent in the entertainment and broadcasting businesses. During the first quarter of 1994, the Company sold its radio stations in Milwaukee, Wisconsin, and Shreveport, Louisiana, for a total of $7.2 million, which resulted in a gain of approximately $3.6 million before taxes. 41 Multimedia, Inc. and Subsidiaries Independent Auditors' Report The Board of Directors and Stockholders Multimedia, Inc.: We have audited the accompanying consolidated balance sheets of Multimedia, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of earnings, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Multimedia, Inc. and subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 8 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's SFAS No. 109 ACCOUNTING FOR INCOME TAXES. As discussed in Notes 1 and 12, the Company also adopted the provisions of the Financial Accounting Standards Board's SFAS No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, in 1993. (KPMG Peat Marwick signature appears here) KPMG Peat Marwick GREENVILLE, SOUTH CAROLINA FEBRUARY 11, 1994 42 Multimedia, Inc. and Subsidiaries Report of Management The accompanying financial statements and other financial data were prepared by the management of the Company, which has the responsibility for the integrity of the information presented. The financial statements have been prepared in conformity with generally accepted accounting principles and, as such, include amounts that are the best estimates and judgments of management with consideration given to materiality. Management is further responsible for maintaining a system of internal control, designed to provide reasonable assurance that the books and records reflect the transactions of the Company and that its established policies and procedures are carefully followed. Because of inherent limitations in any system, there can be no absolute assurance that errors or irregularities will not occur. Nevertheless, management believes that the system of internal control provides reasonable assurance that assets are safeguarded and that financial information is objective and reliable. The internal control system is supported by written policies and procedures, by careful selection and training of qualified personnel, and by an internal auditing function that independently evaluates and formally reports on the adequacy and effectiveness of the system. In addition, the Company's business ethics policy requires employees to maintain the highest level of ethical standards in the conduct of the Company's business. The Company's financial statements have been audited by KPMG Peat Marwick, independent certified public accountants. Their Independent Auditor's Report, which is based on an audit made in accordance with generally accepted auditing standards, expresses an opinion as to the fair presentation of the financial statements. In performing their audit, KPMG Peat Marwick considers the Company's internal control structure to the extent they deem necessary in order to issue their opinion on the financial statements. The Board of Directors pursues its oversight role for the financial statements through the Audit Committee, which consists solely of outside directors. The Audit Committee meets periodically with management, the internal auditors and the independent auditors to review matters relating to financial reporting, the internal control system and the nature, extent and results of audit efforts. The internal auditors and the independent auditors have unrestricted access to the Audit Committee, with and without the presence of management, to discuss accounting, auditing and financial reporting matters. The Audit Committee also recommends for approval to the Board of Directors the appointment of the independent auditors. MULTIMEDIA, INC. FEBRUARY 11, 1994 43 Multimedia, Inc. and Subsidiaries Officers Walter E. Bartlett Chairman of the Board; President and Chief Executive Officer Robert E. Hamby Jr. Senior Vice President -- Finance and Administration, and Chief Financial Officer Donald D. Sbarra Senior Vice President -- Operations Michael C. Burrus Vice President; President, Multimedia Cablevision Co. Wm. deBerniere Mebane Vice President; President, Multimedia Newspaper Co. Pat A. Servodidio Vice President; President, Multimedia Broadcasting Co. Robert L. Turner Vice President; President, Multimedia Entertainment Co. Alan D. Austin Treasurer Thomas L. Magaha Vice President -- Finance and Development, and Controller J. Clyde Baucom Vice President -- Personnel and Benefits Markeeta L. McNatt Vice President -- Investor Relations and Corporate Communications Claudia I. Price Vice President -- Taxes David L. Freeman Secretary Sandra W. Harbert Assistant Secretary Karl E. Witzke Assistant Controller Board of Directors Walter E. Bartlett 1 Chairman of the Board; President and Chief Executive Officer, Multimedia, Inc. George H. V. Cecil 2, 5 President, Biltmore Dairy Farms, Inc. Rhea T. Eskew 4, 5 Consultant to the Company; former President, Multimedia Newspaper Company David L. Freeman 1, 3, 6 Secretary of the Company; attorney, partner, Wyche, Burgess, Freeman & Parham, P.A. Robert E. Hamby Jr. 1 Senior Vice President -- Finance and Administration, and Chief Financial Officer, Multimedia, Inc. John T. LaMacchia 3, 5 President and Chief Executive Officer, Cincinnati Bell Inc. Leslie G. McCraw 2, 5 Chairman of the Board and Chief Executive Officer, Fluor Corporation Dorothy P. Ramsaur 4, 5 Private investments Donald D. Sbarra Senior Vice President -- Operations, Multimedia, Inc. Elizabeth P. Stall 3, 4, 5, 6 Private investments William C. Stutt 2, 3, 5, 6 Limited partner, Goldman Sachs Group, L.P. 1. Executive Committee 2. Audit Committee 3. Compensation Committee 4. Employee Benefits Committee 5. Stock Option Committee 6. Nominating Committee (appointed 10-27-93) 44 Multimedia, Inc. and Subsidiaries Multimedia Newspaper Company 305 S. Main St. P.O. Box 1688 Greenville, SC 29602 Alabama Daily and Sunday: The Montgomery Advertiser Non-dailies: Alabama Outdoor The Autauga Times Health Monthly East Montgomery Weekly The Prattville Progress Community Press -- Millbrook Arkansas Daily: The Baxter Bulletin Midweek (Mountain Home) Non-daily: Twin Lakes Shopper (Mountain Home) Georgia Daily: The Moultrie Observer Non-daily: Weekly Moultrie Observer North Carolina Daily and Sunday: Asheville Citizen-Times Non-dailies: Five zoned weekly "Neighbors" Ohio Dailies: Gallipolis Daily Tribune The Daily Sentinel (Pomeroy) Sunday: Sunday Times-Sentinel (Gallipolis) Non-daily: The Tri-County News (Gallipolis) South Carolina Dailies: The Greenville News Greenville Piedmont Sunday: The Greenville News Non-dailies: The Tribune-Times (Fountain Inn) The Poinsett Register Three zoned weekly "Extras" (Greenville) Fort Jackson Leader (Columbia) Tennessee Daily: The Leaf-Chronicle (Clarksville) Non-dailies: The Ashland City Times The Dickson Herald The Nashville Record The Stewart-Houston Times (Dover-Erin) The News-Examiner (Gallatin) Clarksville Money-Saver The Sumner County Shopper (Gallatin) The Shopper's Fair (Dickson) The Star News (Hendersonville) Cheatham County Money-Saver Robertson County Times Monthly: Music City News The Gospel Voice (Nashville) Television Productions -- TNN Music City News Country Awards Music City News Country Songwriters Awards Virginia Daily and Sunday: The Daily News-Leader Non-daily: Spotlight (Staunton) West Virginia Daily: Point Pleasant Register Multimedia Broadcasting Company 140 W. Ninth St. Cincinnati, OH 45202 Television Georgia Macon: WMAZ-TV (CBS) Missouri St. Louis: KSDK (NBC) Ohio Cincinnati: WLWT (NBC) Cleveland: WKYC (NBC) Tennessee Knoxville: WBIR-TV (NBC) Radio Georgia Macon: WAYS(FM) WMAZ-AM Louisiana Shreveport: KEEL-AM* KITT (FM)* South Carolina Greenville: WFBC-AM/(FM) Spartanburg: WORD-AM Wisconsin Milwaukee: WEZW(FM)* Multimedia Entertainment Company 45 Rockefeller Plaza 35th Floor New York, NY 10111 Donahue / Sally Jessy Raphael / Pozner & Donahue / Jerry Springer / Rush Limbaugh, The Television Show Multimedia Motion Pictures Multimedia Cablevision Company 701 E. Douglas Ave. P.O. Box 3027 Wichita, KS 67202 Multimedia operates more than 125 cable television franchises in Kansas, Illinois, Indiana, North Carolina and Oklahoma and serves approximately 417,300 basic subscribers. Multimedia Security Service 701 E. Douglas Ave. P.O. Box 3027 Wichita, KS 67202 Multimedia serves more than 52,000 security alarm customers.* Divested in early 1994. 45 Multimedia, Inc. and Subsidiaries Shareholder Information Corporate Headquarters Multimedia, Inc. 305 S. Main Street Greenville, SC 29601 Mailing Address: P.O. Box 1688 Greenville, SC 29602 Investor Information Requests for the Form 10-K for the year ended December 31, 1993, and other financial information should be directed to the Vice President of Investor Relations at the above address, or telephone (803) 298-4819. Annual Meeting The annual meeting of shareholders will be held at 2:00 p.m. on Wednesday, April 20, 1994, in the Dorothy Gunter Theatre, Peace Center for the Performing Arts, 300 South Main Street, Greenville, SC. All shareholders are cordially invited to attend. Auditors KPMG Peat Marwick Greenville, SC Stock Transfer Agent and Registrar Wachovia National Bank of North Carolina, N.A. Corporate Trust Department P.O. Box 3001 Winston-Salem, NC 27102 1-800-633-4236 Common Stock Multimedia's common stock is listed on the NASDAQ National Market System. The market symbol is MMEDC. Authorized 100,000,000 shares; outstanding at year-end, 37,209,609 shares. On December 31, 1993, there were 1,277 shareholders of record. The CUSIP number for the common stock is 62545K 10 7. See page one for stock price history information. No dividends were declared or paid during 1992 or 1993. (Recycled symbol appears here) Multimedia, Inc. encourages the principle of recycling and advocates the use of recycled newsprint in the production of its publications. The 1993 Annual Report is printed entirely on recycled papers. (Multimedia, Inc. logo appears here) MULTIMEDIA, INC., P.O. Box 1688, Greenville, South Carolina 29602 (803) 298-4373 ************************************************************************** APPENDIX On the Annual Report Cover the Multimedia, Inc. logo appears where noted. The page before page 1 is a full page photo. On Page 1 there are three bar graphs that appear where noted. The plot points are as follows: Operating Revenues (in thousands) 1993 1992 1991 $634,574 $576,781 $524,326 Net Earnings (in thousands) 1993 1992 1991 $99,850 $60,504 $48,397 Earnings Per Share 1993 1992 1991 $2.60 $1.61 $1.30 On Page 2 there is a bar graph that appear where noted. The plot points are as follows: Operating Profit (in thousands) 1993 1992 1991 $184,403 $173,105 $155,806 On Page 4 there are two pie graphs that appear where noted. The plot points are as follows: Operating Revenues Entertainment 25% Newspapers 21% Cable 26% Broadcasting 25% Security 3% Operating Profit Entertainment 32% Newspapers 19% Cable 29% Broadcasting 19% Security 1% On Page 3 two photos appear on the right-hand side of the page. One photo is of Walter E. Bartlett, Chairman of the Board, President and Chief Executive Officer. The next photo is of Donald D. Sbarra, Senior Vice President-Operations. On Page 4 a photo of Walter Bartlett and Bob Hamby appears in the bottom right-hand column. On Page 5 the signature of Walter E. Bartlett appears where indicated. On Page 6 a photo of Laura Biggerstaff presenting Bob Greiner a map appears in the upper right-hand column of the page. A photo of John Pittman, Bern Mebane, Cecil Kelly and Hal Tanner appears at the bottom half of the page. On Page 7 a photo of John Harden, Jay Banks, Steve Brandt and Tom Stultz appears in the middle right-hand column. On Page 8 a photo of Tina Hicks and Dodie Cantrell appears in the bottom left-hand column. Also a photo of Pat Servodidio, Karen Foss and Rick Edlund appears in the top right-hand column on the page. On Page 9 a photo of Bill Landry, Linda Billman, Jim Hart, Steve Dean, Bill ARcher and Doug Mills appears at the bottom of the page. On Page 10, there is a photo of Bob Turner and Dick Coveny in the upper left-hand column. On Page 11 four photos appear in the middle of the page, one each of Phil Donahue, Sally Jessy Raphael, Rush Limbaugh and Jerry Springer. On Page 12 a photo of Stacy Hernandez and Debbie Spillman appears in the upper right-hand column on the page. A photo of Ron Marnell, Cliff Waggoner, Terry Goruch and Bruce Mears appears on the bottom of the page. On Page 13 a photo of Phil Ford delivering a motivational talk to a group of young people appears in the middle right-hand column on the page. On Page 14 a photo of Mark Wilson, A.J. Jones, and Phil Davis appears in the upper right-hand corner of the page. A photo of Patsy Selby, Mike Burrus and David Fleming appears at the bottom of the page. On Page 15 a photo of Joel Johnson and Randy Rosiere appears in the left-hand column on the page. On Page 16 a photo of Bob Hamby appears in the left-hand column on the page. On Page 23 a photo of Clyde Baucom, Claudia Price, Tom Magaha, and Alan Austin appears at the bottom, left-hand column of the page. On Page 42 a signature of KPMG Peat Marwick appears where noted. On Page 46 there is a recycled symbol that appears at the bottom of the page where noted. On the back cover the Multimedia, Inc. logo appears where indicated. EX-21 7 EXHIBIT 21 - SUBSIDIARIES OF THE COMPANY Exhibit 21 Multimedia, Inc. Subsidiaries of the Registrant Name of State of Names under which Corporation Incorporation does business Multimedia, Inc. SC Staunton News-Leader (the Registrant) Spotlight The Moultrie Observer The Headliner Weekly Moultrie Observer WFBC-AM/FM WMAZ-AM/WAYS-FM Clemson Sports Network WORD-AM Multimedia WBIR, Inc. SC WBIR TV Multimedia WMAZ, Inc. SC WMAZ TV Multimedia KSDK, Inc. SC KSDK TV WKYC Holdings, Inc. (51% DE owned by the Registrant) WKYC-TV, Inc. DE WKYC TV Multimedia Publishing of South Carolina, Inc. SC Greenville News Greenville Piedmont The Paper The Poinsett Register Food Extra (TMC) The Tribune-Times The Golden Strip Times (TMC) The New Home Buyers Guide The Exchange The Employment Guide Anderson Real Estate Guide Multimedia Publishing of North Carolina, Inc. SC Asheville Citizen-Times Employment Guide The Real Estate/Home Buyers Guide The Advertiser Company AL Montgomery Advertiser Real Estate Guide Wheels Montgomery This Week Progress II (TMC) Exhibit 21 (Continued) Multimedia, Inc. Subsidiaries of the Registrant Name of State of Names under which Corporation Incorporation does business Service Engraving Company, Inc. AL Autauga Times The Prattville Progress Leaf Chronicle Company TN Clarksville Leaf-Chronicle The Ashland City Times Cheatham County Money-Saver Clarksville Money-Saver The Dickson Herald The Shopper's Fair The Nashville Record The Stewart-Houston Times The Star News Robertson County Times Sumner Times, Inc. TN The News-Examiner The Sumner County Shopper Music City News Publishing Co., Inc. TN Music City News The Gospel Voice Baxter County Newspapers, Inc. AR Baxter Bulletin Twin Lakes Shopper The Ohio Valley Publishing Company OH Gallipolis Daily Tribune The Daily Sentinel The Tri-County News Point Pleasant Register Company WV Point Pleasant Register Multimedia Entertainment, Inc. SC WLWT TV Multimedia Entertainment Company Multimedia Programs, Inc. OH Multimedia of Cincinnati, Inc. OH Multimedia Motion Pictures, Inc. SC Multimedia Films, Inc. SC Multimedia Specials, Inc. SC MPPI, Inc. SC MPPI of South Carolina, Inc. Multimedia Cablevision, Inc. SC Multimedia Security Service Exhibit 21 (Continued) Multimedia, Inc. Subsidiaries of the Registrant Name of State of Names under which Corporation Incorporation does business Medicine Lodge CATV, Inc. KS Red Carpet Cable, Inc. OK Multimedia Security Service, Inc. SC AirCapital Cablevision, Inc. KS Multimedia Cablevision of Oak Lawn, Inc. IL Multimedia Cablevision of Oak Forest, Inc. IL Multimedia Cablevision of Batavia, Inc. IL Multimedia Cablevision of Evergreen Park, Inc. IL Multimedia Cablevision of Hometown, Inc. IL Multimedia Cablevision of Lisle, Inc. IL Multimedia Cablevision of Markham, Inc. IL Multimedia Cablevision of Chicago Ridge, Inc. IL Multimedia Cablevision of Harvey, Inc. IL Multimedia Cablevision of Phoenix, Inc. IL Multimedia Cablevision of Alsip, Inc. IL Multimedia Cablevision of Illinois, Inc. IL Multimedia Cablevision of South Holland, Inc. IL Multimedia Cablevision Leasing Co., Inc. IL Multimedia Cablevision of Villa Park, Inc. IL Exhibit 21 (Continued) Multimedia, Inc. Subsidiaries of the Registrant Name of State of Names under which Corporation Incorporation does business Tar River Communications, Inc. NC Tar River Cable TV New Bern Cable TV Greenville Cable TV Kinston Cable TV Clinton Cable TV Valparaiso Cable TV LaPorte Cable TV Multimedia Cablevision of Midwest City, Inc. OK Multimedia Talk Television, Inc. SC Multimedia Development, Inc. SC Teleproductions Corporation SC Between Friends, Inc. SC Dazzle, Inc. SC South Carolina Dazzle, Inc. Visions, Inc. SC Donato Productions Conspiracy Productions, Inc. SC MOW Productions, Inc. SC Multimedia Enterprise, Inc. SC Multimedia Telecommuni- cations, Inc. SC EX-23 8 EXHIBIT 23 - ACCOUNTANTS' CONSENT Exhibit 23 CONSENT TO USE OF REPORTS The Board of Directors and Stockholders Multimedia, Inc.: We consent to incorporation by reference in the Registration Statements No. 2-68069, 33-17234, 33-40050, 33-40253, 33-61574, and 33-61462 on Forms S-8 and the Registration Statements No. 33-42179 and 33-46557 on Forms S-3 of Multimedia, Inc. of our reports dated February 11, 1994, relating to the consolidated balance sheets of Multimedia, Inc. and subsidiaries as of December 31, 1993 and 1992 and the related consolidated statements of earnings, stockholders' equity (deficit) and cash flows and related schedules for each of the years in the three-year period ended December 31, 1993 which reports appear in the December 31, 1993 annual report on Form 10-K of Multimedia, Inc. (Signature of KPMG Peat Marwick appears here) Greenville, South Carolina March 25, 1994 EX-99 9 EXHIBIT 99 - PROXY STATMENT FOR MULTIMEDIA, INC. (Multimedia, Inc. logo appears here) MULTIMEDIA, INC. 305 SOUTH MAIN STREET P.O. BOX 1688 GREENVILLE, SOUTH CAROLINA 29602 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 20, 1994 TO OUR SHAREHOLDERS: You are cordially invited to the Annual Meeting of Shareholders of Multimedia, Inc. to be held at 2:00 P.M. on Wednesday, April 20, 1994, at the Dorothy Gunter Theatre, Peace Center for the Performing Arts at 300 South Main Street in Greenville, South Carolina for the purpose of considering and acting upon the following: 1. The election of twelve directors to serve until the next annual meeting of shareholders or until their successors have been duly elected and qualified. 2. The ratification of the appointment of KPMG Peat Marwick as independent auditors of the Company for 1994. 3. The transaction of such other matters as may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on March 3, 1994, as the record date for the determination of shareholders entitled to notice of and to vote at the meeting. BY ORDER OF THE BOARD OF DIRECTORS David L. Freeman, SECRETARY Greenville, South Carolina March 15, 1994 A FORM OF PROXY IS ENCLOSED. TO ENSURE THAT YOUR SHARES WILL BE VOTED AT THE ANNUAL MEETING, YOU ARE REQUESTED TO COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED, POSTAGE PAID, ADDRESSED ENVELOPE. NO ADDITIONAL POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN THE EVENT YOU ATTEND THE MEETING. [This page left blank intentionally] MULTIMEDIA, INC. 305 SOUTH MAIN STREET POST OFFICE BOX 1688 GREENVILLE, SOUTH CAROLINA 29602 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS APRIL 20, 1994 This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Multimedia, Inc. (the Company) to be voted at the Annual Meeting of Shareholders of the Company to be held at 2:00 P.M., on Wednesday, April 20, 1994, at the Dorothy Gunter Theatre, Peace Center for the Performing Arts at 300 South Main Street, in Greenville, South Carolina. The approximate date of mailing this Proxy Statement and the accompanying proxy is March 15, 1994. Only shareholders of record at the close of business on March 3, 1994, are entitled to notice of and to vote at the meeting. As of such date, there were outstanding 37,274,978 shares of Common Stock, $.10 par value per share (the only voting securities), of the Company. Each share is entitled to one vote. Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before it is voted. Proxies may be revoked by (i) delivering to the Secretary of the Company, at or before the Annual Meeting, a written notice of revocation bearing a later date than the proxy, (ii) duly executing a subsequent proxy relating to the same shares and delivering it to the Secretary of the Company at or before the Annual Meeting or (iii) attending the Annual Meeting and giving notice of revocation to the Secretary of the Company or in open meeting prior to the proxy being voted (although attendance at the Annual Meeting will not in and of itself constitute a revocation of a proxy). Any written notice revoking a proxy should be sent to: Multimedia, Inc., 305 South Main Street, Post Office Box 1688, Greenville, South Carolina 29602, Attention: Secretary. All shares represented by valid proxies received pursuant to the solicitation and prior to voting at the meeting and not revoked before they are exercised will be voted, and, if a choice is specified with respect to any matter to be acted upon, the shares will be voted in accordance with such specification. 1 ELECTION OF DIRECTORS The By-laws of the Company provide that the number of Directors to be elected at any meeting of shareholders shall be determined by the Board of Directors. The Board has determined that twelve Directors shall be elected at the Annual Meeting. The following twelve persons are nominees for election as Directors at the meeting to serve until the next annual meeting of shareholders of the Company or until their successors are duly elected and qualified. Unless authority to vote at the election of Directors is withheld, it is the intention of the persons named in the enclosed form of proxy to nominate and vote for the persons named below all of whom, other than M. Dexter Hagy, are currently Directors of the Company. Except as otherwise noted below, the business address of each nominee is Multimedia, Inc., 305 South Main Street, Greenville, S.C. 29601. Each such person is a citizen of the United States. There are no family relationships among the directors and the executive officers of the Company, except for Mrs. Ramsaur and Mrs. Stall who are cousins. The Company believes that all of the nominees will be available and able to serve as Directors, but in the event any nominee is not available or able to serve, the shares represented by the proxies will be voted for such substitute as shall be designated by the Board of Directors.
SHARES BENEFICIALLY DIRECTOR OWNED (% OF NAME AND AGE PRINCIPAL OCCUPATION SINCE OUTSTANDING) (20) Walter E. Bartlett Chairman of the Board, Chief 1978 415,095 (1.11%) (66) Executive Officer and President of the Company (1)(13) George H. V. Cecil Chairman of Biltmore Dairy Farms, 1975 20,000 (*) (69) Inc., P.O. Box 5355, Asheville, North Carolina 28813 (Real Estate Development and Investments) (2)(15)(17) Rhea T. Eskew Consultant to the Company, 1979 18,800 (*) (70) 400 Huntington Road Greenville, South Carolina 29615 (3)(16)(17) David L. Freeman Secretary of the Company and a 1984 76,400 (*) (69) member of the law firm of Wyche, Burgess, Freeman & Parham, P.A., 44 E. Camperdown Way, Greenville, South Carolina 29601 (4)(13)(14)(18) M. Dexter Hagy President of Vaxa Corporation, -- 2,000 (*) (49) Nations Bank Plaza, Suite 606, Greenville, South Carolina 29601 (Investment Holding Company) (5) Robert E. Hamby, Jr. Senior Vice President Finance and 1990 127,231 (*) (47) Administration and Chief Financial Officer of the Company (6)(13)
2
SHARES BENEFICIALLY DIRECTOR OWNED (% OF NAME AND AGE PRINCIPAL OCCUPATION SINCE OUTSTANDING) (20) John T. LaMacchia President and Chief Executive 1989 5,600 (*) (52) Officer and Director of Cincinnati Bell Inc., 201 East 4th Street Cincinnati, Ohio 45202 (Telephone Company) (7)(14)(17) Leslie G. McCraw Chairman of the Board and Chief 1990 5,600 (*) (59) Executive Officer of Fluor Corporation, 3333 Michelson Drive, Irvine, California 92730 (Engineering and Construction) (8)(15)(17) Dorothy P. Ramsaur Homemaker active in the supervision 1986 1,565,822 (4.20%) (67) of personal and family investments, 1 Rockingham Rd., Greenville, South Carolina 29607 (9)(16)(17) Donald D. Sbarra Senior Vice President of Operations 1988 200 (*) (63) of the Company (10) Elizabeth P. Stall Homemaker active in civic affairs 1986 63,982 (*) (62) and in the supervision of personal and family investments, 11 Sirrine Drive, Greenville, South Carolina 29605 (11)(14)(16)(17)(18) William C. Stutt Limited Partner of Goldman Sachs 1981 27,000 (*) (66) Group, L.P., 85 Broad Street, New York, New York 10004 (Investment Banking) (12)(14)(15)(17)(18) All Directors and Executive 2,601,356 (6.87%)(19) Officers as a Group (16 persons)
(*) Less than 1%. (1) Mr. Bartlett was elected Chairman of the Board in October 1989. Mr. Bartlett was elected Chief Executive Officer and President of the Company in December 1993. He served as Chief Executive Officer from December 1984 to April 1993. He served as President and Chief Executive Officer from December 1984 to December 1989 and from October 1990 to April 1992. The number of shares shown as beneficially owned by Mr. Bartlett includes 200,000 shares covered by options. (2) Mr. Cecil is a Director of Carolina Power & Light Co. The number of shares shown as beneficially owned by Mr. Cecil includes 5,000 shares covered by an option, pursuant to the Director Stock Option Plan. (3) Mr. Eskew elected to retire from the Company in December 1989. Prior to his retirement, Mr. Eskew served as Senior Executive of Multimedia Newspaper Company from December 3 1984. The number of shares shown as beneficially owned by Mr. Eskew includes 5,000 shares covered by an option, pursuant to the Director Stock Option Plan. (4) Mr. Freeman was elected Secretary of the Company in April 1990. He served as Assistant Secretary of the Company from April 1982 to April 1990. Mr. Freeman is a member of the law firm of Wyche, Burgess, Freeman & Parham, P.A., general counsel to the Company. The number of shares shown as beneficially owned by Mr. Freeman includes 1,400 shares covered by options, but does not include 10,600 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. (5) Mr. Hagy is a Director of Carolina First Corporation. (6) Mr. Hamby was elected Senior Vice President Finance and Administration and Chief Financial Officer in October 1993. He served as Treasurer and Chief Financial Officer from October 1987 to October 1993. Mr. Hamby is a Director of Carolina First Corporation. The number of shares shown as beneficially owned by Mr. Hamby includes 109,000 shares covered by options, but does not include 51,000 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. The number of shares shown as beneficially owned by Mr. Hamby also includes 1,543 shares held by the Company's Thrift Plan of which Mr. Hamby may be deemed a beneficial owner and 5,700 shares owned by his wife as custodian for his sons, as to which shares owned by his wife he disclaims beneficial ownership. (7) Mr. LaMacchia is a Director of the Kroger Co. The number of shares shown as beneficially owned by Mr. LaMacchia includes 5,000 shares covered by an option, pursuant to the Director Stock Option Plan. (8) Mr. McCraw is a Director of Allergan, Inc. The number of shares shown as beneficially owned by Mr. McCraw includes 5,000 shares covered by an option, pursuant to the Director Stock Option Plan. (9) The number of shares shown as beneficially owned by Mrs. Ramsaur includes 1,244,247 shares held by her as trustee under the will of Roger Peace. The number of shares shown as beneficially owned by Mrs. Ramsaur includes 5,000 shares covered by an option, pursuant to the Director Stock Option Plan. (10) Mr. Sbarra was elected Senior Vice President of Operations of the Company in December 1993 and Senior Vice President of the Company in October 1987. He served as Chairman of Multimedia Cablevision Company from April 1993 to December 1993 and President of Multimedia Cablevision Company from October 1987 to April 1993. (11) Mrs. Stall is a Director of Carolina First Corporation. The number of shares shown as beneficially owned by Mrs. Stall includes 750 shares owned by her husband, of which shares she disclaims beneficial ownership. The number of shares shown as beneficially owned by 4 Mrs. Stall includes 5,000 shares covered by an option, pursuant to the Director Stock Option Plan. (12) The Goldman Sachs Group, L.P., of which Mr. Stutt is a limited partner, is the 99% general partner of Goldman, Sachs & Co. The number of shares shown as beneficially owned by Mr. Stutt includes 1,400 shares owned by his wife (individually or as custodian for a child), of which he disclaims beneficial ownership and 300 shares owned by his daughter and son-in-law, as to which shares he has investment power but disclaims beneficial ownership and 300 shares owned by his stepson, of which he disclaims beneficial ownership. The number of shares shown as beneficially owned by Mr. Stutt includes 5,000 shares covered by an option, pursuant to the Director Stock Option Plan. (13) Member of the Executive Committee. (14) Member of the Compensation Committee. (15) Member of the Audit Committee. (16) Member of the Employee Benefits Committee. (17) Member of the Stock Option Committee. (18) Member of the Nominating Committee. (19) Includes an aggregate 593,100 of shares covered by options which are or may become exercisable within 60 days, and includes 9,163 shares held by the Company's Thrift Plan of which an executive officer may be deemed a beneficial owner and excludes an aggregate of 329,000 shares covered by options not exercisable within 60 days by executive officers. (20) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act), shares are deemed beneficially owned if the named person has the right to acquire ownership of such shares within 60 days. Percentages are computed on the assumption that unissued shares so subject to acquisition upon the exercise of options by a given person or group are outstanding, but no other such shares similarly subject to acquisition by other persons are outstanding. 5 The Board of Directors met six times during the year ended December 31, 1993. The Audit Committee met with representatives of KPMG Peat Marwick two times during 1993 for the purpose of reviewing the firm's scope and results of audit. The Compensation Committee met twice in 1993 for the purpose of submitting to the Board of Directors suggested officers' salaries for the ensuing year, incentive bonus plans and other non-stock compensation. The Stock Option Committee met once in 1993 for the purpose of granting options for the Company's common stock to the Company's executive officers and employees. The Employee Benefits Committee met twice in 1993 for the purpose of reviewing new and amended employee benefit programs and personnel policies. The Nominating Committee, which was established in October 1993 and did not meet in 1993, recommends to the Board nominees for election as directors. Recommendations from shareholders will be considered by the Nominating Committee and should be sent to the attention of the Company's Secretary at the Company's address. All Directors attended at least 75 percent of the meetings of the Board and Committees on which such Directors serve. PRINCIPAL SHAREHOLDERS OF THE COMPANY As of December 31, 1993, to the extent known to the Company and based on information provided by the following persons, the following provides certain information as to the persons or groups who were the only beneficial owners of 5% or more of the outstanding shares.
NUMBER OF NAME & ADDRESS SHARES PERCENT OF BENEFICIAL BENEFICIALLY OF TOTAL OWNER OWNED OUTSTANDING The Equitable Companies Incorporated 3,553,775 9.55% 787 Seventh Avenue New York, New York 10019 (1) Heine Securities Corporation Michael F. Price 1,974,600 5.31% 51 John F. Kennedy Parkway Short Hills, New Jersey 07078 (2) Wachovia Corporation, as trustee 2,038,605 5.48% 301 North Main Street Winston-Salem, North Carolina 27150 (3) Wellington Management Company 3,260,905 8.76% 75 State Street Boston, Massachusetts 02109 (4)
(1) The number of shares shown as beneficially owned by The Equitable Companies Incorporated (Equitable) is based on information provided as of December 31, 1993 and includes 3,466,775 shares held by Equitable's subsidiary, Alliance Capital Management, L.P., on 6 behalf of client discretionary investment advisory accounts, and 87,000 shares held by Equitable's subsidiary, The Equitable Life Assurance Society of the United States. With respect to these shares, Equitable's subsidiaries have sole voting power with respect to 2,564,930 shares, have shared voting power with respect to 87,000 shares, and have sole investment power with respect to 3,553,775 shares. (2) The number of shares shown as beneficially owned by Heine Securities Corporation (HSC) is based on information provided as of December 31, 1993. One or more of HSC's advisory clients is the legal owner of 1,974,600 shares. Pursuant to investment advisory agreements with its advisory clients, HSC has sole investment discretion and voting authority with respect to such 1,974,600 shares. Michael F. Price is President of HSC, in which capacity he exercises voting control and dispositive power over the same shares. Mr. Price disclaims beneficial ownership of the shares beneficially owned by HSC. (3) The number of shares shown as beneficially owned by Wachovia Corporation, as trustee is based on information provided as of December 31, 1993 and includes 1,988,080 shares held by its subsidiary The South Carolina National Bank, as trustee. With respect to these shares, Wachovia or its subsidiary has sole voting power with respect to 1,158,101 shares, shared voting power with respect to 55,857 shares, sole investment power with respect to 1,864,766 shares and shared investment power with respect to 113,089 shares. (4) The number of shares shown as beneficially owned by Wellington Management Company (WMC) is based on information provided as of December 31, 1993. These shares are owned by various investment advisory clients of WMC or its subsidiary, Wellington Trust Company, National Association. Pursuant to investment advisory agreements with such clients, WMC or its subsidiary has shared voting power with respect to 1,700,430 shares and shared dispositive power with respect to all 3,260,905 shares. 7 EXECUTIVE OFFICERS The following provides certain information regarding the executive officers of the Company who are appointed by and serve at the pleasure of the Board:
SHARES BENEFICIALLY OWNED (% OF NAME AND AGE POSITION OUTSTANDING)(6) Walter E. Bartlett (66) Chairman of the Board, Chief Executive Officer 415,095 (1.11%) and President of the Company (1) Michael C. Burrus (39) Vice President of the Company and President of 41,900 (*) Multimedia Cablevision Company (2) David L. Freeman (69) Secretary of the Company (1) 76,400 (*) Robert E. Hamby, Jr. (47) Senior Vice President Finance and Adminis- 127,231 (*) tration and Chief Financial Officer of the Company (1) William deB. Mebane (45) Vice President of the Company and President of 67,578 (*) Multimedia Newspaper Company (3) Donald D. Sbarra (63) Senior Vice President of Operations of the 200 (*) Company (1) Pat A. Servodidio (56) Vice President of the Company and President of 55,400 (*) Multimedia Broadcasting Company (4) Robert L. Turner (52) Vice President of the Company and President of 108,748 (*) Multimedia Entertainment Company (5)
(*) Less than 1%. (1) See information under ELECTION OF DIRECTORS. (2) Mr. Burrus joined the Company in 1981 and was named Vice President of the Company and President of Multimedia Cablevision Company in April 1993. He served as Executive Vice President of Multimedia Cablevision Company from March 1992 until April 1993. He served as Vice President of Operations and Finance of Multimedia Cablevision Company from February 1985 until March 1992. The number of shares shown as beneficially owned by Mr. Burrus includes 41,900 shares covered by options, but does not include 84,200 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. Mr. Burrus failed to file a Form 4, but filed a Form 5, under the Exchange Act with respect to a 1993 disposition of shares held for his account in the Company's Thrift Plan. (3) Mr. Mebane was elected Vice President of the Company and President of Multimedia Newspaper Company in March 1989. From December 1983 to March 1993, he served from time to time as Publisher of the Greenville News and the Greenville Piedmont. He served as Vice President of Multimedia Newspaper Company from June 1985 to February 1989. The number 8 of shares shown as beneficially owned by Mr. Mebane includes 41,800 shares covered by options, but does not include 41,200 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. The number of shares shown as beneficially owned by Mr. Mebane also includes 606 shares held for him in an IRA account and 7,472 shares held by the Company's Thrift Plan of which Mr. Mebane may be deemed a beneficial owner. (4) Mr. Servodidio was elected Vice President of the Company and President of Multimedia Broadcasting Company in April 1992. He served as Vice President/General Manager of WKYC-TV (majority owned by the Company) from June 1991 until April 1992. Mr. Servodidio was President of RKO General (a broadcasting company) from 1987 to 1991. The number of shares shown as beneficially owned by Mr. Servodidio includes 55,400 shares covered by options, but does not include 97,600 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. (5) Mr. Turner joined the Company and was named President of Multimedia Entertainment Company in February 1991 and was elected Vice President of the Company in April 1991. Mr. Turner was President and Chief Executive Officer of Orbis Communications, Inc. (a syndicated program and television movie business) from February 1984 until February 1991. The number of shares shown as beneficially owned by Mr. Turner includes 108,600 shares covered by options, but does not include 44,400 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. The number of shares shown as beneficially owned by Mr. Turner also includes 148 shares held by the Company's Thrift Plan of which Mr. Turner may be deemed a beneficial owner. (6) See Note (20) to the table under ELECTION OF DIRECTORS. 9 MANAGEMENT COMPENSATION The following table sets forth certain information respecting the compensation of each individual who served as the Chief Executive Officer of the Company during 1993, and the four other most highly compensated executive officers of the Company in 1993, for the fiscal years ended December 31, 1993, 1992 and 1991. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS SECURITIES ANNUAL COMPENSATION (1) UNDERLYING NAME AND OPTIONS ALL OTHER PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (POUND) COMPENSATION ($) Walter E. Bartlett 1993 $533,676 $ 236,000 -- $ 4,444(2) Chairman, President and CEO 1992 528,244 325,000 -- 2,739(2) 1991 484,200 130,000 -- 4,474(2) J. William Grimes 1993 460,735 None 100,000 757,798(3) President and CEO 1992 408,404 281,308 25,000 19,410(3) 1991 97,947 300,000 105,000 5,155(3) Robert L. Turner 1993 383,776 169,725 -- 4,717(2) President MEC 1992 371,710 213,150 18,000 4,468(2) 1991 288,852 138,125 120,000 -- Robert E. Hamby, Jr. 1993 298,680 164,691 -- 4,859(2) Senior VP Finance and CFO 1992 283,680 182,023 20,000 4,644(2) 1991 258,680 62,500 30,000 4,485(2) Donald D. Sbarra 1993 323,680 125,000 -- 5,622(2) Senior VP-Operations 1992 323,680 187,961 -- 5,609(2) 1991 308,680 120,400 -- 5,401(2) William deB. Mebane 1993 273,680 96,195 -- 4,761(2) President MNC 1992 260,680 165,236 14,000 4,531(2) 1991 248,680 40,000 30,000 4,512(2)
(1) The Company pays for various perquisites such as club memberships for executive officers and certain other employees. Such club memberships may have been used for personal reasons on occasion. However, the Company has made reasonable inquiry and has concluded that the aggregate amounts of such and other personal benefits do not, in any event, exceed $50,000 or 10% of the salary and bonus as to each person. (2) Amounts contributed by the Company under the Company's Thrift Plan, except that the amounts shown for Mr. Sbarra also include $1,100 each year for life insurance that will provide a death benefit of $88,417 payable to his beneficiary in the event of his death. 10 (3) The 1993 amount for Mr. Grimes includes $700,000 in severance payments, $46,929 in moving related expenses, $5,914 in imputed interest related to the loans from the Company described below and $4,955 in amounts contributed by the Company under the Company's Thrift Plan. Of the $700,000 in severance payments, $237,250 was paid in 1993 with the balance to be paid in 1994. The 1992 and 1991 amounts include $17,430 and $5,155, respectively, for imputed interest related to the loans from the Company as described below. The 1992 amount also includes $1,980 contributed by the Company under the Company's Thrift Plan. OPTION GRANTS IN THE LAST FISCAL YEAR The following table sets forth the options granted in 1993 to the named executive officers.
INDIVIDUAL GRANTS NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS OPTIONS GRANTED GRANT DATE GRANTED TO EMPLOYEES EXERCISE EXPIRATION PRESENT (POUND) IN FISCAL YEAR PRICE ($/SH)(1) DATE VALUE ($) Walter E. Bartlett None -- -- -- -- J. William Grimes 100,000 66.7% $ 35.00 4/20/03(2) $1,956,000(3) Robert L. Turner None -- -- -- -- Robert E. Hamby, Jr. None -- -- -- -- Donald D. Sbarra None -- -- -- -- William deB. Mebane None -- -- -- --
(1) The exercise price of the options granted was the fair market value of the Company's common stock on the date of grant. (2) Each option was to become exercisable for 20% of the shares covered thereby on December 31, 1993 and for an additional 20% of the shares covered thereby on each anniversary thereof. All of these options granted to Mr. Grimes were forfeited upon his resignation in December 1993 as an officer and director of the Company. (3) The present value determination was made using the Black-Scholes option pricing model. The following assumptions were used in the Black-Scholes option pricing model: expected volatility of .3092, expected risk-free rate of return of 5.84%, dividend yield of 0%, expected exercise period of 10 years and no adjustments for nontransferability or risk of forfeiture. 11 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth information on option exercises during 1993 by the named executive officers and the value of such officers' unexercised options at December 31, 1993.
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY ACQUIRED ON OPTIONS OPTIONS EXERCISE VALUE AT FISCAL YEAR-END (POUND) AT FISCAL YEAR-END ($)(2) NAME (POUND) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Walter E. Bartlett -- -- 200,000 -- $6,208,400 $ -- J. William Grimes 63,000 $ 1,589,250 -- -- -- -- Robert L. Turner -- -- 108,600 29,400 2,343,048 217,782 Robert E. Hamby, Jr. -- -- 109,000 31,000 1,648,958 226,382 Donald D. Sbarra -- -- -- -- -- -- William deB. Mebane -- -- 41,800 26,200 437,750 200,582
(1) The values shown represent the excess of the fair market value on the exercise date over the exercise price. (2) The values shown represent the excess of the fair market value at December 31, 1993 over the exercise price of the shares covered by all unexercised options held by the named executive. The Board of Directors has approved a plan of Executive Salary Protection (the Protection Plan) for selected executive officers, under which the Company will pay, to each participant's beneficiary, a continuation of income in the event of the participant's death. In the event of the death of a participant while still employed prior to age 65 (or, in the case of Mr. Bartlett, in the event of his death prior to January 1, 1995), the participant's beneficiary will receive 100% of a specified dollar amount set from time to time by the Board of Directors for that participant for one year and 50% of such amount for each of nine additional years or until the employee's sixty-fifth birthday, whichever is later. The specified dollar amount for Messrs. Bartlett, Turner, Hamby, Sbarra and Mebane, as of December 31, 1993, was $350,000, $250,000, $250,000, $250,000 and $250,000, respectively. In conjunction with the Protection Plan, the Company purchases life insurance on the life of each participant for the exclusive benefit of the Company to indemnify the Company for its potential liabilities under the Protection Plan. The insurance plan is designed so that, if the assumptions made as to mortality and turnover experience, policy dividends, tax savings, interest and other actuarial factors are realized, the Company should recover all its payments, plus a factor for the use of the Company's money. 12 The following table sets forth the annual pension benefit payable under the Company's retirement pension plan (the Pension Plan) to an employee, including any employee who is a director or an officer, upon retirement in 1994, at age 65, based on selected periods of service. PENSION PLAN TABLE
AVERAGE ANNUAL YEARS OF SERVICE EARNINGS 10 15 20 25 30 $100,000 $ 12,500.00 $ 18,750.00 $ 25,000.00 $ 31,250.00 $ 37,500.00 200,000 (2) 25,000.00 37,500.00 50,000.00 62,500.00 75,000.00 300,000 (2) 37,500.00 56,250.00 75,000.00 93,750.00 112,500.00 400,000 (2) 50,000.00 75,000.00 100,000.00 125,000.00(1) 150,000.00(1) 500,000 (2) 62,500.00 93,750.00 125,000.00(1) 156,250.00(1) 187,500.00(1) 600,000 (2) 75,000.00 112,500.00 150,000.00(1) 187,500.00(1) 225,000.00(1) 700,000 (2) 87,500.00 131,250.00(1) 175,000.00(1) 218,750.00(1) 262,500.00(1) 800,000 (2) 100,000.00 150,000.00(1) 200,000.00(1) 250,000.00(1) 300,000.00(1)
(1) Exceeds the 1994 maximum amount payable under the Pension Plan of $118,800. (2) Exceeds the 1994 maximum annual salary counted under the Pension Plan of $150,000. The Pension Plan covers all full-time employees of the Company and most of its subsidiaries. The amount payable each year under the Pension Plan to a participant is calculated using a percentage of the average of the employee's cash compensation (including bonuses) during the employee's most recent five highest consecutive compensation years out of the last ten worked, which percentage is based on the employee's years of service, reduced by a factor reflecting the participant's social security benefits, and is adjusted if retirement occurs prior to normal retirement age. Under this plan, Mr. Bartlett has 26 years of service; Mr. Turner has 3 years of service; Mr. Hamby has 9 years of service; Mr. Sbarra has 25 years of service and Mr. Mebane has 23 years of service. In April and July 1991, the Board of Directors adopted a Supplemental Retirement Program for Messrs. Bartlett and Sbarra which provides an annual supplemental retirement benefit for ten years. The Program provides for monthly vesting on a pro-rata basis beginning July 1, 1991 through December 31, 1994, so that Messrs. Bartlett and Sbarra vest 1/42 per calendar month of work completed prior to retirement. The fully vested annual supplemental retirement benefit will be $200,000 for Mr. Bartlett and $100,000 for Mr. Sbarra. OTHER Pursuant to agreements with J. William Grimes, he was provided with a 1991 $300,000 one-time payment, which is included in the summary compensation table, the Company purchased Mr. Grimes' Connecticut home in 1993 for $2.1 million (its approximate appraised value) plus closing 13 costs to facilitate Mr. Grimes moving his residence to Greenville, SC, and prior to that purchase the Company made an interest free loan to Mr. Grimes as a second mortgage on the Connecticut home in the amount of $350,000 and an additional interest free first mortgage loan for the purchase and remodeling of a home in Greenville, SC, of $800,000. Both of these loans were repaid in connection with the Company's purchase of the Connecticut home. The Company sold the Connecticut home in 1993 for $1,800,000, less closing costs. Robert L. Turner had an agreement with the Company pursuant to which his base salary in 1991 was $325,000 and he received in 1991 a one-time payment of $25,000. The agreement provided that, if Mr. Turner's employment with the Company had been terminated without cause in 1993, the Company would have paid him a lump sum equal to 100% of his base salary. Under a deferred compensation agreement, William deB. Mebane, or his beneficiary, is entitled to receive $2,500 per year for 10 years in the event of his pre-retirement death or disability or upon his retirement. Outside directors receive annual fees of $19,200 each, paid on a monthly basis, and attendance fees of $1,000 per board meeting and $350 per committee meeting in addition to the directors' fees. Directors receive reimbursement of travel expenses. In addition, under the Director Stock Option Plan, each non-employee director receives an initial option for 5,000 shares of the Company's common stock and subsequent annual option grants for 1,000 shares of the Company's common stock. The exercise price of each of these options is or will be the common stock's market price on the date of grant. NOTWITHSTANDING ANY STATEMENT IN ANY OF THE COMPANY'S PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE EXCHANGE ACT INCORPORATING FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH BELOW SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILING. REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE The Compensation Committee (the Compensation Committee) of the Board of Directors periodically submits to the Board recommendations respecting the salary, bonus and other non-stock compensation to be provided to the Company's executive officers. The Stock Option Committee (the Stock Option Committee) of the Board grants options for the Company's common stock to the Company's executive officers and employees. These Committees provide the following joint report. 14 EXECUTIVE OFFICER COMPENSATION The Committees believe that the Board and its committees must act on the shareholders' behalf in establishing executive compensation programs, because the Company's shareholders ultimately bear the cost of these programs. The Company's executive compensation philosophy and the structure and administration of the executive compensation programs are adopted and effected in accordance with that belief. The Committees annually review the Company's corporate performance and that of its executive officers in determining appropriate compensation. The Committees strive to sustain a balance between the Company's need to attract and retain qualified and motivated executives, on the one hand, and the maximization of the Company's operating performance and the safeguarding of its assets in order to enhance long-term shareholder value, on the other. The Committees' executive compensation philosophy is to provide for risk-based pay opportunities that reflect Company and individual performance. In addition, the Company's executive compensation is structured to (i) align executive compensation with Company and individual performance, (ii) ensure compensation fairness and consistency in accordance with individual responsibilities and performances and (iii) emphasize both short and long-term Company performance. The current executive compensation structure consists of base salary, annual cash incentive bonus programs and stock options. During the last few years, an increasing portion of each executive's total compensation has become dependent on annual Company performance. The applicable performance measurements have broadened from primarily goals (1985 to 1990) relating to operating cash flow (as defined by the Company) to operating cash flow goals plus (beginning in 1991) individual performance objectives. The Compensation Committee's guiding objective in the establishment of base compensation is to provide a competitive salary in light of the executive's level and scope of responsibilities, the executive's performance and the Company's salary budget. The Compensation Committee periodically has the Company's executive base salaries compared with marketplace information, so that a near median relation is sought. This comparison is based on the Towers Perrin Media Industry Compensation Survey of 86 companies (including 16 of the 19 companies in the Company's Peer Group Index). The base level of income is modified annually, based on subjective judgements, by the Compensation Committee, considering such factors as the cash flow performance of the Company or the applicable division, any change in the individual's responsibility or geographic location and the Company's overall salary budget. To motivate and reward the accomplishment of annual corporate, divisional and individual objectives, the Compensation Committee has approved a Management Committee Incentive Plan (MCIP). This plan provides for annual cash compensation awards to executive officers (other than the chief executive officer and chairman of the board) that vary from 0% to 100% of base 15 salary depending upon the achievement of net operating cash flow levels determined by the Company's management by reference to the Company's annual budget approved by the Board and objective and subjective key individual goals specified by the chief executive officer (in the case of Mr. Hamby) or the chief operating officer (in the case of the other executive officers covered by the plan). As a pay-for-performance bonus plan, year-end incentive awards are paid only if minimum performance thresholds are met. Participants are subject to two performance measures: (1) corporate/divisional operating cash flow goals which govern 75% of the possible award and provide for the minimum bonus payment if 95%, and the maximum bonus payment if 110%, of the applicable cash flow goal is met, and (2) key individual objectives which are weighted based on their importance to the Company and account for 25% of the potential award. These components provide a superior incentive award opportunity if superior results are achieved. For 1993, each division achieved at least 95% of its budgeted cash flow goal, and the Company achieved 98.5% of its cash flow goal. Each of the officers covered by the MCIP achieved at least 90% of his key individual objectives during 1993. The 1993 bonus paid to Mr. Sbarra, who was not a participant in the MCIP in 1993, was awarded by the Compensation Committee because of his new role as Senior Vice President -- Operations. The Stock Option Committee believes that significant executive stock ownership is a major incentive in building shareholders' wealth and aligning the interest of executives and shareholders. Stock options are granted to officers and other employees by the Stock Option Committee and generally vest over a five-year employment period. Numerous objective and subjective factors are considered by the Stock Option Committee in the allocation of stock options among operating divisions, business units and individual executives. Some of the more important factors considered are: Operating cash flow contribution Operating profit contribution Operating cash flow contribution less capital expenditures Number of business locations or staff functions managed Number of key executives managed Future potential of the key executive Commencing in 1994, the Omnibus Budget Reconciliation Act of 1993 denies publicly traded companies the ability to deduct for federal income tax purposes certain compensation paid to top executive officers in excess of $1 million per person. The Compensation Committee and the Stock Option Committee intend in 1994 to examine the new rules and determine whether the Company may provide non-deductible executive compensation. 16 CHIEF EXECUTIVE OFFICER COMPENSATION Mr. Bartlett joined the Company in 1976, served as its chief executive officer from December 1984 to April 1993 and assumed the Board chairmanship in 1989. Mr. Grimes was elected chief executive officer in April 1993 and resigned that position in December 1993. Mr. Bartlett reassumed the position of chief executive officer in December 1993. Mr. Bartlett was President of the Company through its recapitalization merger on October 1, 1985 which allowed the Company's shareholders generally to convert each share of stock into such combination of cash, subordinated debenture and proportionate share of the recapitalized company's stock as was elected by the shareholder. Based on the price of the Company's common stock, the Company's shareholders earned from the recapitalization merger price ($3.33 per share) to December 31, 1993 a total return of 931% (reflecting an annual compound growth rate of 33%). The Chief Executive Officer's base salary is determined by the Compensation Committee in its sole discretion based on comparisons with marketplace information as described above under Executive Officer Compensation. While annual shareholders' total return is important, it is subject to the vagaries of the market. The annual cash bonus paid to the Company's chief executive officer is determined by the Compensation Committee in its sole discretion. In exercising this discretion, the Compensation Committee considers subjective factors, and specific corporate goals that should ultimately be reflected in higher stock prices, such as operating cash flow, net earnings and earnings per share, and the amount of the cash bonus which the chief executive officer would have received had he been subject to the MCIP. Mr. Grimes was not granted a bonus at year-end because his resignation was prior to year-end. However, the severance payments to Mr. Grimes are equivalent to approximately one year's salary plus $213,000 in lieu of a year-end bonus. During recent years, changes in Mr. Bartlett's bonus compensation have generally paralleled the Company's operating performance. In 1993, Mr. Bartlett's bonus was less than his 1992 bonus reflecting the fact that the Company achieved less than 100% (98.5%) of its operating cash flow goals. In 1993, Mr. Bartlett's annual compensation decreased 10%, the Company's operating cash flow increased 9%, and net earnings and earnings per share excluding one time unusual accounting adjustments increased 19% and 17%, respectively. Since 1988, the Company's operating cash flow has increased 35%, net earnings have increased 168%, and earnings per share have increased 158%. These operating performance results compare to a 58% increase in Mr. Bartlett's annual cash compensation since 1988. Upon his election as chief executive officer in 1993, Mr. Grimes was awarded 100,000 stock options which he forfeited upon his resignation in December 1993. 17 In view of the stock options which Mr. Bartlett received in connection with the Company's recapitalization merger, he has not been granted any stock options since 1985. COMPENSATION COMMITTEE STOCK OPTION COMMITTEE John T. LaMacchia, Chair John T. LaMacchia, Chair David L. Freeman George H. V. Cecil Elizabeth P. Stall Rhea T. Eskew William C. Stutt Leslie G. McCraw Dorothy P. Ramsaur Elizabeth P. Stall William C. Stutt
18 PERFORMANCE GRAPH A line graph comparing the cumulative total shareholder return on the Common Stock of the Company for the last five fiscal years with the cumulative total return of the NASDAQ Market Index and a Company selected peer group over the same period is presented below: COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN AMONG MULTIMEDIA, INC., NASDAQ MARKET INDEX AND PEER GROUP INDEX (Performance Graph appears here--see appendix for listing of plot points) ASSUMES $100 INVESTED ON JANUARY 1, 1989 AND DIVIDEND REINVESTMENT Note: The peer group consists of the following companies: A. H. Belo Corporation Capital Cities/ABC, Inc. CBS, Inc. Comcast Corporation Dow Jones & Company, Inc. Gannett Co, Inc. Knight-Ridder, Inc. Lee Enterprises Media General, Inc. Multimedia, Inc. New York Times Company Park Communications, Inc. Scripps Howard Broadcasting Company TCA Cable TV, Inc. Tele-Communications, Inc. Times Mirror Company Tribune Company Viacom, Inc. Washington Post Company The peer group used in the Company's Performance Graph contained in the Company's 1993 Proxy Statement included Affiliated Publications, Inc., the stock of which ceased being publicly traded in 1993. 19 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following directors served on the Compensation Committee during 1993: John T. LaMacchia, as Chair, David L. Freeman, Elizabeth P. Stall and William C. Stutt. The following directors served on the Stock Option Committee during 1993: John T. LaMacchia, as Chair, George H. V. Cecil, Rhea T. Eskew, Leslie G. McCraw, Dorothy P. Ramsaur, Elizabeth P. Stall and William C. Stutt. During 1993, David L. Freeman served as the Secretary for the Company and various of its subsidiaries and was employed by the Company in that capacity. The law firm of Wyche, Burgess, Freeman & Parham, P.A., of which Mr. Freeman is a member, serves as the Company's general counsel and was paid approximately $520,000 by the Company in 1993 for its legal services. Prior to 1990, Rhea T. Eskew was an officer of the Company. William C. Stutt is a limited partner of The Goldman Sachs Group, L.P., the 99% general partner of Goldman, Sachs & Co. which has provided investment banking services for the Company on several occasions in the past. In addition, Goldman Sachs is a market maker in the Company's shares. Goldman Sachs may, from time to time, provide similar or other services for the Company. ELECTION OF AUDITORS The Board of Directors recommends the ratification of the appointment of KPMG Peat Marwick, independent certified public accountants, as auditors for the Company and its subsidiaries for 1994 and to audit and report to the shareholders upon the financial statements as of and for the period ending on December 31, 1994. Representatives of KPMG Peat Marwick will be present at the meeting, and such representatives will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions which the shareholders may have. KPMG Peat Marwick has acted for the Company in this capacity since 1969, and neither the firm nor any of its members has any relation with the Company except in the firm's capacity as such auditors and tax advisers. The appointment of auditors is approved annually by the Board of Directors and subsequently submitted to the shareholders for ratification. The decision of the Board is based on the recommendation of the Audit Committee. VOTING AND OTHER SHAREHOLDER RIGHTS Only holders of the Company's 37,274,978 shares of common stock of record at the close of business on March 3, 1994 will be entitled to vote at the Annual Meeting. The shareholders' common stock may not be voted cumulatively in the election of Directors. 20 Directors will be elected by a plurality of the votes cast at the meeting. The affirmative vote of more shares present or represented at the Annual Meeting voting in favor than voting against will be required to ratify the appointment of auditors. Abstentions and broker non-votes, which are separately tabulated, are included in the determination of the number of shares present and voting, but have no effect on the votes respecting the matters to be voted upon at the meeting. In September 1989, the Company declared a dividend distribution of one common share purchase Right for each then and subsequently outstanding share of the Company's common stock. The Rights are designed to assure that all the Company's shareholders, other than an acquiring person, receive equal treatment in the event of any proposed takeover of the Company. Each Right will entitle the holder to buy from the Company one share of common stock at an exercise price of $133.33. The Rights will be exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender or exchange offer, the consummation of which would result in beneficial ownership by a person or group of 15% or more of the common stock. If a person or group acquires beneficial ownership of 15% or more of the Company's outstanding common stock, each holder of a Right, other than Rights beneficially owned by the acquiring person or group, will have the right to purchase common shares of the Company having a market value of twice the exercise price of the Right (or such lesser number of shares for such proportionately lesser purchase price as is permitted by the amount of the Company's unissued authorized shares). Further, at any time after a person or group acquires beneficial ownership of 15% or more (but less than 50%) of the Company's outstanding common stock, the Board of Directors may, at its option, exchange part or all of the Rights (other than Rights beneficially owned by the acquiring person or group) for shares of the Company's common stock on a one-for-one basis. If the Company is acquired in a merger or other business combination transaction or participates in any of certain specified extraordinary transactions, each holder of a Right, other than Rights beneficially owned by a person or group beneficially owning 15% or more of the Company's outstanding common stock, will thereafter have the right to purchase common shares of the acquiring or surviving company which at the time of such transaction will have a market value of twice the exercise price of the Right. Prior to the acquisition by a person or group of beneficial ownership of 15% or more of the Company's common stock, the Rights are redeemable for one-third of one cent per Right at the option of the Board of Directors. If unexercised, the Rights expire September 6, 1999. 21 SOLICITATION OF PROXIES The Company will pay the cost of soliciting proxies in the accompanying form. In addition to solicitation by mail, proxies may be solicited by directors, officers and other regular employees of the Company by telephone, telegram or personal interview for no additional compensation. Arrangements will be made with brokerage houses and other custodians, nominees and fiduciaries to forward solicitation material to beneficial owners of the stock held of record by such persons, and the Company will reimburse such persons for reasonable out-of-pocket expenses incurred by them in so doing. To assure the presence in person or by proxy of the largest number of shareholders possible, D. F. King & Co., Inc. has been engaged to solicit proxies on behalf of the Company for an estimated fee of $8,000 plus reasonable out-of-pocket expenses. PROPOSALS OF SECURITY HOLDERS Any shareholder of the Company who desires to present a proposal at the 1995 Annual Meeting of Shareholders for inclusion in the proxy statement and form of proxy relating to that meeting must submit such proposal to the Company at its principal executive offices on or before November 16, 1994. FINANCIAL INFORMATION THE COMPANY'S 1993 ANNUAL REPORT IS BEING MAILED TO SHAREHOLDERS ON OR ABOUT THE DATE OF MAILING THIS PROXY STATEMENT. THE COMPANY WILL PROVIDE, WITHOUT CHARGE TO ANY RECORD OR BENEFICIAL SHAREHOLDER AS OF MARCH 3, 1994, WHO SO REQUESTS IN WRITING, A COPY OF SUCH 1993 ANNUAL REPORT OR THE COMPANY'S 1993 ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS), INCLUDING THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH REQUEST SHOULD BE DIRECTED TO MULTIMEDIA, INC., 305 S. MAIN STREET, POST OFFICE BOX 1688, GREENVILLE, SOUTH CAROLINA 29602, ATTENTION: MARKEETA L. MCNATT, CORPORATE COMMUNICATIONS. 22 OTHER BUSINESS As of the date of this Proxy Statement, the Board of Directors was not aware that any business not described above would be presented for consideration at the Annual Meeting. If any other business properly comes before the meeting, it is intended that the shares represented by proxies will be voted with respect thereto in accordance with the judgment of the person voting them. The above Notice and Proxy Statement are sent by order of the Board of Directors. David L. Freeman, SECRETARY Greenville, South Carolina March 15, 1994 23 PROXY MULTIMEDIA, INC. P.O. Box 1688 Greenville, S.C. 29602
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The undersigned hereby appoints Walter E. Bartlett and Robert E. Hamby, Jr. and each of them as Proxies, each with the power to appoint his substitute and hereby authorizes each of them to represent and to vote, as designated below, all the shares of common stock of Multimedia, Inc. held of record by the undersigned on March 3, 1994 at the annual meeting of shareholders to be held April 20, 1994 or any adjournment thereof. 1. Election of Directors
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ] (EXCEPT AS MARKED TO THE CONTRARY BELOW) TO VOTE FOR ALL NOMINEES LISTED BELOW
W. E. Bartlett, G. H. V. Cecil, R. T. Eskew, D. L. Freeman, M. D. Hagy, R. E. Hamby, Jr., J. T. LaMacchia, L. G. McCraw, D. P. Ramsaur, D. D. Sbarra, E. P. Stall and W. C. Stutt (INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.) 2. Proposal to ratify the appointment of KPMG Peat Marwick as independent auditors of the Company for 1994. [ ] FOR [ ] AGAINST [ ] ABSTAIN 3. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. This proxy when properly executed will be voted in the manner directed herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF PROPOSALS 1 AND 2. Please sign exactly as name appears on this proxy. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. Signature Signature if held jointly DATED , 1994 PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. ***************************************************************************** APPENDIX On the Notice of Annual Meeting of Shareholders page, the Multimedia, Inc. logo appears at the top of the page where noted. On Page 19 the Performace Graph appears where noted. The plot points are listed as follows: 1988 1989 1990 1991 1992 1993 Multimedia, Inc. 100 123.20 89.54 90.29 127.58 134.45 Peer Group Index 100 128.70 103.55 115.40 136.61 170.74 NASDAQ Market 100 112.89 91.57 117.56 118.71 142.40 -----END PRIVACY-ENHANCED MESSAGE-----