10-K 1 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, 1994 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 require- ments 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 (share- holders holding as of December 31, 1994, 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, 1995, was $966,254,000. The number of shares outstanding of the Registrant's common stock, $.10 par value, was 37,628,478 at March 3, 1995. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Incorporated Documents Location in Form 10-K ---------------------- --------------------- Portions of 1994 Annual Report to Shareholders Parts I and II Portions of Proxy Statement dated March 15, 1995 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 two radio stations; serves approximately 432,000 cable television subscribers in five states; monitors approximately 65,000 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 1994 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 17 through 21 in the 1994 Annual Report and in the Notes to Consolidated Financial Statements in the 1994 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 1994 Annual Report, which material is incorporated herein by reference. SUBSEQUENT EVENT On February 22, 1995, the Company announced that its board of directors had authorized management, together with Goldman, Sachs & Co., to explore strategic alternatives to enhance shareholder value, including the sale of Multimedia, Inc., the spin-off of one or more of its divisions, a business combination or any similar transaction. No decision has been 1 made to pursue any particular strategic alternative, and there can be no assurance that any transaction will result from the Company's exploration process. 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 one of the two dailies in 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. 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. Classified continued to grow in 1994, increasing by 17.6% 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 1994, 1993 and 1992. 1994 1993 1992 Advertising linage 158,600,000 144,928,000 146,172,000 Advertising revenues $ 110,223,000 $ 99,173,000 $ 98,254,000 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 1994, 1993 and 1992. 1994 1993 1992 Circulation: Daily 321,000 323,000 325,000 Sunday 357,000 352,000 351,000 Non-daily 165,000 202,000 159,000 Circulation revenues $32,824,000 $30,233,000 $ 28,491,000 2 The percentages of the Company's newspaper revenues contributed by advertising, circulation and other operating revenues for the five years ended December 31, 1994, were: 1994 1993 1992 1991 1990 Advertising revenues 73% 73% 74% 76% 78% Circulation revenues 22 22 22 20 19 Other operating revenues 5 5 4 4 3 100% 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 is expected to increase in 1995. 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. With the exception of Mountain Home, Arkansas, the Company's daily newspapers do not compete directly with any other general circulation daily newspaper published in that 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, a NBC affiliate); Cincinnati, Ohio (WLWT, a NBC affiliate); Knoxville, Tennessee (WBIR-TV, a NBC affiliate); and Macon, Georgia (WMAZ-TV, a CBS affiliate). In addition, the Company owns a 51% majority interest in WKYC-TV (a NBC affiliate) in Cleveland, Ohio, and has operating control of the station. Television stations operate under five and six year network affiliation contracts. 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 canceled 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: 3 Television Station Network Affiliation Renewal KSDK August 29, 2000 WLWT August 29, 2000 WBIR August 29, 2000 WKYC August 29, 2000 WMAZ February 1, 2000 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 an AM and FM radio broadcasting station in Macon, Georgia. The stations are 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. The percentages of the Company's broadcasting revenues contributed by television and radio and other for the five years ended December 31, 1994, were: 1994 1993 1992 1991 1990 Television revenues 96% 94% 91% 91% 89% Radio and other revenues 4 6 9 9 11 100% 100% 100% 100% 100% During 1994, the Company sold its radio stations in Milwaukee, Wisconsin; Shreveport, Louisiana; and in Greenville and Spartanburg, South Carolina, for a total of $13.2 million. This resulted in a gain of approximately $8.2 million before taxes. 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. Excluding the results of the properties sold during 1993 and 1994, broadcasting revenues would have increased approximately 11% and operating profit would have increased approximately 33.8% from 1993 to 1994. After the same exclusion, broadcasting revenues would have decreased approximately 1% and operating profit would have increased approximately 5% from 1992 to 1993. 4 The market size, rank and share for the Company's television stations are presented below: Rank Share WKYC (Market #13) 1994 1 (tied) 20 1993 2 17 1992 3 17 KSDK (Market #18) 1994 1 26 1993 1 26 1992 1 24 WLWT (Market #31) 1994 2 18 1993 2 19 1992 3 17 WBIR (Market #63) 1994 1 29 1993 1 28 1992 1 27 WMAZ (Market #124) 1994 1 36 1993 1 42 1992 1 43 Note: Information represents station DMA TV Household share sign-on/ sign-off for the November Arbitron or Nielsen of the respective period. 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. 5 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 1994, 1993 and 1992. 1994 1993 1992 Homes passed 710,000 694,000 688,000 Basic subscribers 432,000 417,000 410,000 Pay subscribers 339,000 323,000 333,000 Basic penetration 60.8% 60.1% 59.6% Pay-to-basic ratio 78.4% 77.5% 81.2% Average monthly revenue per cable subscriber $32.56 $33.29 $32.13 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 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 1994, approximately 58 systems, which account for more than 73% 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 will allow the Company to replace the coaxial wire in its cable systems with fiber and will include the integration of digital compression and the installation of interactive converter boxes in the homes of approximately 50% of the Company's customers. The Company believes the technological upgrade will prepare it for new competitors and potential revenue opportunities. 6 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, and November 19, 1994, the Federal Communications Commission ("FCC" or "Commission") announced several decisions relating to cable rates (see Federal Regulation of Cable Television). During the first quarter of 1995, the Company completed the trade of certain of the Company's cable systems in Oklahoma and Illinois with 40,500 cable subscribers for Telecommunications, Inc.'s cable systems in Wichita, Kansas, with 50,400 subscribers. The Company paid $12.4 million in cash as part of this transaction. Wireless Cable Service In August 1994, the Company sold its wireless cable operations for $35.1 million resulting in a gain of $22.0 million before taxes. 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 65,000 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. The following table shows the number of subscribers and the average recurring monthly revenue per security subscriber at the end of 1994, 1993 and 1992. 1994 1993 1992 Number of subscribers 65,000 52,000 35,000 Average recurring monthly revenue per subscriber $26.32 $25.13 $23.09 7 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 45% and 30%, 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. 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. The "Donahue" show, hosted by Phil Donahue, is in its twenty-seventh year of production and syndication. The show is currently seen in 170 U.S. markets and in 55 foreign countries. Phil Donahue is currently under contract with the Company through August 31, 1996. The "Sally Jessy Raphael" show is currently in its eleventh season of production and syndication and is broadcast in 178 U.S. markets and in 28 foreign countries. Sally Jessy Raphael is currently under contract with the Company through September 1998. The "Jerry Springer" show is currently in its fourth season of production and syndication and is currently seen in 147 U.S. markets and 19 foreign countries. 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 224 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 1998. In September 1994, the Company introduced two new talk shows, "Susan Powter" and "Dennis Prager". These shows are cleared in 184 and 154 markets, respectively. 8 In 1994, the Company discontinued the operations of Multimedia Motion Pictures, Inc., its made-for-television movie business, resulting in a loss of $3.4 million. The entertainment division's primary business is the production of talk shows for syndication to television stations across the country. There has been a significant increase in competition in this area. At the end of 1994, there were over 15 talk shows in syndication with more scheduled to debut in 1995. The increase in the number of shows increases competition not only for viewers but also for advertising dollars, station clearances, guests and production talent. The impact has been a decline in ratings for many talk shows. The "Donahue" and "Sally Jessy Raphael" shows have experienced ratings declines from 15-30%. These declines have resulted in station license renewals at lower amounts than in years past and lower advertising revenues. In October 1994, the Company launched "NewsTalk Television," a cable channel in the news-talk format, to diversify the entertainment division so that results are not as dependent on personality-driven talk shows. This venture will require several years of investment before it is expected to achieve profitability. The Company's current projections are to invest approximately $20 million in "NewsTalk Television" in 1995 compared with $7.7 million in 1994. The Company expects the above two factors to result in a reduction in operating profit of approximately 50% for the Company's entertainment division for 1995. EMPLOYEE RELATIONS The Company employs approximately 3,700 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. The Act would prohibit the Company or its subsidiaries from continuing as broadcast licensees if more than one-fifth of the Company's stock were to be owned of record or voted 9 by aliens or foreign governments, or their representatives, or if an officer or director of the Company were an alien. 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, respectively. If a valid competing application is timely 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) subject to the ultimate outcome of a pending FCC rulemaking proceeding on comparative licensing criteria, the applicants' plans for management of the facility by their respective owners (which is normally not present in the case of a publicly owned broadcasting company); and (iii) other factors, including local residency, minority ownership, 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 comparative 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 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, 1997 10 The Act also prohibits the assignment of a license or the transfer of control of a licensee 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 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 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 attributable broadcast interests which may be owned by an entity or individual. Attributable 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 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.) Rulemaking proceedings are currently pending before the FCC looking toward possible modifications in existing television ownership rules and in standards for determining the types of interests which will be considered to be attributable for purposes of FCC ownership rules. There can be no assurance, however, 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 newspaper or cable 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 (if other than a single AM-FM combination) comprises less than 50% of the total number of stations in the market. The number of stations which may be owned by a single entity on a national basis has increased 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 11 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 broad- casters 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 and will be responsible for payment of copyright costs associated with its carriage, with regard to cable systems in its Area of Dominant Influence as defined by the audience measurement service, Arbitron. Stations electing to grant retransmission consent were expected to conclude their consent agreements with cable systems by October 6, 1993, the date on which systems' authority to carry broadcast signals without consent expired. In June 1993, the Company elected retransmission consent on the majority of its cable systems that carry the signals of the stations in the stations' markets. Must-carry was elected on a small percentage of systems. On April 8, 1993, a special three-judge federal district court for the District of Columbia issued a decision upholding the constitutional validity of the must-carry signal carriage requirements. This decision was vacated by the United States Supreme Court on June 27, 1994, and remanded to the district court for further development of a factual record. 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 certain other television stations which are carried by the cable system. A pending FCC rulemaking proceeding involves issues related to relaxing or abolishing 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") or Advanced Television Systems ("ATV"), Satellite Digital Audio Radio Services ("DARS") 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 dialtone" basis. (See Federal Regulation of Cable Television.) Several federal district courts have struck down the 1984 Cable Act's telco/cross-ownership provision as facially invalid and 12 inconsistent with the First Amendment. The United States Courts of Appeals for the Fourth and the Ninth Circuits have upheld the appeals of two of these district court decisions, and the United States Justice Department is expected to request the United States Supreme Court to review these cases. 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 tele communications services. There are potential spectrum sharing problems with the LMDS proposal, and a September 1994 report issued by a FCC Negotiated Rulemaking Committee was inconclusive as to whether the 28 GHz band could be shared by terrestrial LMDS and satellite users. The FCC is currently considering whether to seek further public comment via a Notice of Proposed Rulemaking. 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. 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. The FCC has completed initial rulemaking proceedings in accordance with timetables imposed by the 1992 Act; however, several 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. 13 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. On April 8, 1993, a special three-judge federal district court of the District of Columbia issued a decision upholding the constitutional validity of the must-carry signal carriage requirements. This decision was vacated by the United States Supreme Court on June 27, 1994, and remanded to the district court for further development of a factual record. 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. (See also, Federal Regulation of Broadcasting, above.) 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 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 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. 14 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 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 dialtone" basis by furnishing transmission facilities to customers who would distribute programming. The FCC amended its rules in 1992 to permit local telephone companies to offer "video dialtone" service for video programmers, including channel capacity for the carriage of video programming and certain noncommon carrier activities such as video 15 processing, billing and collection and joint marketing arrangements. In its video dialtone order, which was part of a comprehensive proceeding examining whether and under what circumstances telephone companies should be allowed to provide cable television services, including video programming to their customers, the FCC concluded that neither the 1984 Cable Act nor its rules apply to prohibit the interexchange carriers (i.e., long distance telephone companies such as AT&T) from providing such services to their customers. Additionally, the FCC also concluded that where a local exchange carrier ("LEC") makes its facilities available on a common carrier basis for the provision of video programming to the public, the 1984 Cable Act does not require the LEC or its programmer customers to obtain a franchise to provide such service. This aspect of the FCC's video dialtone order was upheld on appeal by the U.S. Court of Appeals for the D.C. Circuit. The FCC recently issued an order reaffirming its initial decision, and this order has been appealed. Because cable operators are required to bear the costs of complying with local franchise requirements, including the payment of franchise fees, the FCC's decision could place cable operators at a competitive disadvantage vis- a-vis services offered on a common carrier basis over local telephone company provided facilities. In it Reconsideration Order, the FCC, among other actions, refused to require telephone companies to justify cost allocations prior to the construction of video dialtone facilities and indicated that it would provide guidance on costs that must be included in proposed video dialtone tariffs. The FCC also established dual federal/state jurisdiction over video dialtone services based on the origination point of the video dialtone programming service. In a separate proceeding, the FCC has proposed to increase the numerical limit on the population of areas qualifying as "rural" and in which LECs can provide cable service without a FCC waiver. On January 12, 1995, the FCC adopted a Fourth Further Notice of Proposed Rulemaking in its video dialtone docket. The FCC tentatively concluded that it should not ban telephone companies from providing their own video programming over their video dialtone platforms in those areas in which the cable/telephone cross-ownership rules have been found unconstitutional. The FCC requested comments on this issue and on further refinements of its video dialtone regulatory framework concerning, among other issues, telephone programmer affiliation standards, the establishment of structural safeguards to prevent cross-subsidization of video dialtone and programming activities, and the continuation of the FCC's ban prohibiting telephone companies from acquiring cable systems within their telephone service areas for the provision of video dialtone services. The FCC will also consider whether a LEC offering video dialtone service must secure a local franchise if that LEC also engages in the provision of video programming carried on its video dialtone platform. The FCC has also proposed to broadly interpret its authority to waive the cable/telephone cross-ownership ban upon a showing by telephone companies that they comply with the safeguards which the FCC establishes as a condition of providing video programming. A number of bills that would have permitted telephone companies to provide cable television service within their own service areas were considered during the last Congress, but none were adopted. These bills would have permitted the provision of cable television service by telephone companies in their own service areas conditioned on the establishment of safeguards to prevent cross-subsidization between telephone and cable television operations. 16 Similar legislation is expected to be considered by Congress during its current session. The outcome of these FCC, legislative or court proceedings and proposals or the effect of such outcome on cable system operations cannot be predicted. 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 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 obtained a rehearing from the court. 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. 17 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 Attachment 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 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. The new rules permit cable companies periodic rate increases for inflation and certain external costs. 18 On February 22, 1994, the FCC adopted several rate orders including an order which revised its benchmark regulatory scheme. The FCC's new regulations generally require rate reductions (absent a successful cost-of-service showing) of 17% of September 30, 1992, rates (the "Full Reduction Rate"), adjusted for inflation, channel modifications, equipment costs, and increases in programming costs. However, rate reductions will be held in abeyance for those systems whose rates are already below the revised benchmark levels, or pending the completion of cost studies by the FCC of various types of representative systems, of those systems that would be required to be reduced below the revised benchmark levels in order to achieve the Full Reduction Rate. Further rate reductions to the Full Reduction Rate would be required if validated by the cost studies. The new regulations became effective on May 15, 1994, but operators were permitted to elect to defer a rate reduction prior to July 14, 1994, absent a change in their rates or restructuring of service offerings between May 15 and July 14. Among other issues addressed by the FCC in its February rate orders was the treatment of packages of la carte channels upon the fulfillment of certain conditions. On February 22, 1994, the FCC adopted rules which revised its treatment of la carte programming offerings by applying various criteria to determine whether a cable operator's la carte packages should be subject to rate regulation. Local franchising authorities have the authority under the FCC rules, subject to review by the FCC, to determine whether an la carte offering should be subject to rate regulation. If an operator is found to have bundled channels in an la carte package to evade rate regulation, the FCC may impose forfeitures or other sanctions. On November 10, 1994, the FCC reversed its policy regarding rate regulation of packages of la carte services. la carte services that are offered in a package will now be subject to rate regulation by the FCC, although the FCC indicated that it cannot envision circumstances in which any price for a collective offering of premium channels that have traditionally been offered on a per-channel basis would be found to be unreasonable. Rate increases for regulated services will be indexed for inflation, and operators will also be permitted to increase rates in response to increases in costs beyond their control, such as taxes and increased programming costs. On November 10, 1994, the FCC announced a revision to its regulations governing the manner in which cable operators may charge subscribers for new cable programming services. In addition to the present formula for calculating the permissible rate for new services, the FCC instituted a three-year flat fee mark-up plan for charges relating to new channels of cable programming services. Commencing on January 1, 1995, operators may charge for new channels of cable programming services added after May 14, 1994, at a rate of up to 20 cents per channel, but may not make adjustments to monthly rates totalling more than $1.20 plus an additional 20 cents for programming license fees per subscriber over the first two years of the three-year period for these new services. Operators may charge an additional 20 cents in the third year only for channels added in that year plus the costs for the programming. Operators electing to use the 20 cent per channel adjustment may not also take a 7.5% mark-up on programming cost increases, which is permitted under the FCC's current rate regulations. The FCC indicated that it would request further comment on whether cable operators should continue to receive the 7.5% mark-up on increases in license fees on existing programming services. 19 The FCC also announced that it will permit operators to offer a "new product tier" ("NPT"). Operators will be able to price this tier as they elect so long as, among other conditions, other channels that are subject to rate regulation are priced in conformity with applicable regulations and operators do not remove programming service from existing service tiers and offer them on the NPT. On February 22, 1994, the FCC also adopted interim cost-of-service regulations. Rate reductions will not be required where it is demonstrated that rates for basic and other regulated programming services are justified and reasonable using cost-of-service standards. The FCC established an interim industry-wide 11.25% rate of return, and requested comments on whether this standard and other interim cost-of-service standards should be made permanent. The FCC also established a presumption that acquisition costs above a system's book value should be excluded from the rate base, but the FCC will consider individual showings to rebut this presumption. The need for special rate relief will also be considered by the FCC if an operator demonstrates that the rates set by a cost-of-service proceeding would constitute confiscation of investment, and that, absent a higher rate, the credit necessary to operate and to attract investment could not be maintained. The FCC will establish a uniform system of accounts for operators that elect cost-of-service rate regulation, and the FCC has adopted affiliate transaction regulations. 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. In many systems the Company instituted la carte service offerings in conformity with FCC guidelines. The FCC currently is reviewing several of these restructurings, and it is difficult to predict what action, if any, will result. In addition, 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 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. 20 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, upon adoption by a local franchising authority, 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. 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 21 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 copy- right 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. There- fore, 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 rulemaking 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. ITEM 2. PROPERTIES. The Company owns all of its newspaper publishing plants and properties; 139,500 square feet in Greenville, South Carolina; 100,000 square feet in Montgomery, Alabama; 113,400 square feet in Asheville, North Carolina; 94,500 square feet in Clarksville, Tennessee; 24,800 square feet in Staunton, Virginia; 16,000 square feet in Gallipolis, Ohio; 12,500 square feet in Moultrie, Georgia; and 18,000 square feet in Mountain Home, Arkansas. In addition, the Company leases approximately 42,500 square feet of newspaper production, alternate delivery 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 build a new production plant with $11 million of this to be invested in 1995. 22 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; 50,000 square feet in Knoxville, Tennessee; 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. The Company also leases studio facilities in New York, New York, where "NewsTalk Television" is produced. In its security operations, the Company leases office space in Oklahoma City, Oklahoma; Dallas and Houston, Texas; Miami, Florida; St. Louis, Missouri; Phoenix, Arizona; and Anaheim, California. The central monitoring station is located in the Company's new security 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. 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. 23 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, 1993. 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 1994: First Quarter $28.50 $37.25 Second Quarter $27.00 $32.50 Third Quarter $28.75 $32.25 Fourth Quarter $25.75 $29.75 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 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 1994 or 1993. 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 1994 Annual Report, which material is incorporated herein by reference.) As of March 3, 1995, 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 22 and 23 of the accompanying 1994 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 17 through 21 of the accompanying 1994 Annual Report, which material is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following information is set forth in the accompanying 1994 Annual Report, which material is incorporated herein by reference: 24 All Consolidated Financial Statements of Multimedia, Inc. and Subsidiaries (pages 24 through 27); all Notes to Consolidated Financial Statements (pages 28 through 37); and the "Independent Auditors' Report" (page 38). With the exception of the information herein expressly incorporated by reference, the 1994 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, 1995, for the Annual Meeting of Shareholders to be held April 19, 1995, 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, 1995, for the Annual Meeting of Shareholders to be held April 19, 1995, 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, 1995, for the Annual Meeting of Shareholders to be held April 19, 1995, 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, 1995, for the Annual Meeting of Shareholders to be held April 19, 1995, under the headings "Election of Directors," "Management Compensation" and "Compensation Committee Interlocks and Insider Participation". 25 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 1994 Annual Report attached hereto: Consolidated Statements of Earnings, years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Stockholders' Equity (Deficit), years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows, years ended December 31, 1994, 1993 and 1992 Consolidated Balance Sheets, December 31, 1994 and 1993 Notes to Consolidated Financial Statements Independent Auditors' Report (a) (2) The following auditors' report and financial schedules for the years ended December 31, 1994, 1993 and 1992 are submitted herewith: Independent Auditors' Report on 10-K Schedules Schedule VIII - Valuation and Qualifying Accounts All other schedules are omitted as the required information is inapplicable or the information is presented in the consolidated 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. (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. 26 (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 (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, as amended: Incorporated by reference to Exhibit 4 to the Company's Form 10-Q for the quarter ended March 31, 1994 (File No. 0-6265). (4.1) See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 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 (File No. 0-6265). (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)* 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)* 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. 27 (10.3.1)* Amendment to Key Executive Stock Option Plan, adopted April 21, 1993. (10.4)* Director Stock Option Plan: Incorporated by reference to Exhibit 10.20 to the 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): Incorporated by reference to Exhibit 4.1 of the Company's 1990 second quarter Form 10-Q (File No. 0-6265). 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. (10.5.1) List of Lenders under Credit Agreement as of March 3, 1995. (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 Annual Report of Form 10-K for the year ended December 31, 1985 (File No. 0-6265). 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 (File No. 0-6265). 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. (10.6.3) 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 (File No. 0-6265). 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. 28 (10.6.4) 1994 Amendment to Contract for Services: Incorporated by reference to Exhibit 10.6.4 to the Company's quarterly report on Form 10-Q for the quarter ended September 30, 1994 (File No. 0-6265). 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): Incorporated by reference to Exhibit 4.2 of the Company's 1990 second quarter Form 10-Q (File No. 0-6265). 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. (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 (File No. 0-6265). (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") (File No. 0-6265). (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 (File No. 0-6265). (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. 29 (10.14)* Management Committee Incentive Plan: Incorporated by reference to Exhibit 10.14 to the 1991 Form 10-K. (10.15)* Executive Incentive Plan: Incorporated by reference to Exhibit 10.15 to the 1991 Form 10-K. (10.16)* Summary of Supplemental Executive Retirement Program for Messrs. Bartlett and Sbarra: Incorporated by reference to Exhibit 10.16 to the 1991 Form 10-K. (10.17)* Portion of Board resolution amending Supplemental Executive Retirement Program for Mr. Bartlett, effective June 16, 1994. (10.17.1)* Agreement with Douglas J. Greenlaw, dated July 20, 1994: Incorporated by reference to Exhibit 10.21 to the Company's Form 10-Q for the quarter ended June 30, 1994 (File No. 0-6265). (10.18)* Agreement with Walter E. Bartlett, dated June 16, 1994: Incorporated by reference to Exhibit 10.22 to the Company's Form 10-Q for the quarter ended June 30, 1994 (File No. 0-6265). (10.19) 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 (File No. 0-6265). 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 (File No. 0-6265). (11) Computation of Primary and Fully Diluted Earnings per Share. (13) 1994 Annual Report. (21) Subsidiaries of the Registrant. (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. 30 (27) Financial Data Schedule (99) Proxy Statement dated March 15, 1995. ________________________ * This is a management contract or compensatory plan or arrangement. (b) Reports on Form 8-K. Items reported on Form 8-K dated October 5, 1994: (5) Other Events (7) Exhibits Items reported on Form 8-K dated October 12, 1994: (5) Other Events (7) Exhibits 31 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 SIGNATURE APPEARS HERE Chairman, Chief March 24, 1995 ------------------------ Executive Officer Donald D. Sbarra SIGNATURE APPEARS HERE Senior Vice President March 24, 1995 ------------------------ Finance and Administration Robert E. Hamby, Jr. and Chief Financial Officer SIGNATURE APPEARS HERE Vice President- March 24, 1995 ------------------------ Controller Frederick G. Lohman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the dates indicated. By: SIGNATURE APPEARS HERE Director March 24, 1995 ------------------------ Rhea T. Eskew SIGNATURE APPEARS HERE Director March 24, 1995 ------------------------ David L. Freeman SIGNATURE APPEARS HERE Director March 24, 1995 ------------------------ Douglas J. Greenlaw SIGNATURE APPEARS HERE Director March 24, 1995 ------------------------ Robert E. Hamby, Jr. SIGNATURE APPEARS HERE Director March 24, 1995 ------------------------ M. Dexter Hagy SIGNATURE APPEARS HERE Director March 24, 1995 ------------------------ Donald D. Sbarra SIGNATURE APPEARS HERE Director March 24, 1995 ------------------------ Elizabeth P. Stall Independent Auditors' Report on 10-K Schedule The Board of Directors and Stockholders Multimedia, Inc.: Under the date of February 10, 1995, we reported on the consolidated balance sheets of Multimedia, Inc. and subsidiaries as of December 31, 1994 and 1993 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, 1994, as contained in the 1994 annual report 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 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the financial statement schedule as listed in Item 14(a)(2). The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. (Signature of KPMG Peat Marwick LLP appears here) Greenville, South Carolina February 10, 1995
MULTIMEDIA, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Years ended December 31, 1994, 1993 and 1992 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, 1994 Allowance for discounts $ 118,000 990,000 -- 1,018,000 90,000 Allowance for doubtful accounts 3,595,000 3,543,000 1,104,000 3,515,000 4,727,000 $ 3,713,000 4,533,000 1,104,000 4,533,000 4,817,000 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
EX-10 2 Exhibit 10.3.1 AMENDMENT TO KEY EXECUTIVE STOCK OPTION PLAN ADOPTED APRIL 21, 1993 1. Section 2 of the Plan is amended by adding the following at the end of such section: "If the Board includes members who are not 'disinterested persons' (as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or any applicable successor rule or regulation ("Rule 16b-3")), then all authority of the Board under the Plan shall be exercised by a committee of the Board composed solely of all individuals thereof who are 'disinterested persons' (as so defined)." EX-10 3 Exhibit 10.5.1 LIST OF LENDERS UNDER CREDIT AGREEMENT AS OF MARCH 3, 1995 Commitments Bank Current % Bank of America $ 13,710,000 3.00% Bank of California, N.A. 9,792,857 2.14% Bank of Hawaii 9,792,857 2.14% Bank of Montreal 13,710,000 3.00% Bank of New York 13,710,000 3.00% Bank of Nova Scotia 13,710,000 3.00% Bankers Trust Company 9,792,857 2.14% Banque Paribas 9,792,857 2.14% Chase Manhattan Bank, N.A. 13,057,143 2.86% Citibank, N.A. 9,792,857 2.14% Corestates Philadelphia National Bank 9,792,857 2.14% Credit Lyonnais 19,585,715 4.29% Crestar Bank 9,792,857 2.14% First National Bank of Chicago 13,057,143 2.86% First Union National Bank of NC 22,850,000 5.00% Industrial Bank of Japan 20,238,572 4.43% LTCB Trust Company 9,792,857 2.14% Mellon Bank 9,792,857 2.14% Mitsubishi Trust & Banking Corp. 13,057,143 2.86% National Westminster Bank USA 9,792,857 2.14% NationsBank of Georgia, N.A. 9,792,857 2.14% NationsBank of Texas, N.A. 13,710,000 3.00% Nippon Credit Bank, Ltd. 11,751,429 2.57% PNC Bank, N.A. 9,792,857 2.14% Royal Bank of Canada 9,792,857 2.14% Sakura Bank, Ltd. 9,792,857 2.14% Shawmut Bank Connecticut, N.A. 22,850,000 5.00% Sumitomo Bank, Ltd. 13,057,143 2.86% Tokai Bank, Ltd. 9,792,857 2.14% Toronto-Dominion Bank 35,907,143 7.86% Union Bank 9,792,857 2.14% Wachovia Bank of NC 36,560,000 8.00% Wachovia Bank of SC 9,792,857 2.14% $457,000,000 100.00% EX-10 4 Exhibit 10.17 MULTIMEDIA, INC. BOARD OF DIRECTORS RESOLUTION RESPECTING RETIREMENT OF WALTER E. BARTLETT AND RELATED MATTERS Section 3.1 of Article III of the Supplemental Executive Retirement for Walter E. Bartlett (effective as of July 1, 1991) is hereby amended to provide for eligibility for the full amount of the retirement benefit provided under such plan, the period for measuring eligibility to run from July 1, 1991 through the present date, in lieu of the period ending December 31, 1994 as originally provided under such plan. Mr. Bartlett shall be entitled to the full amount of the retirement benefit in 120 installments as provided under such plan, commencing February 1, 1995. EX-11 5 Exhibit 11 MULTIMEDIA, INC. Computation of Primary and Fully Diluted Earnings per Share Twelve Months Ended 12/31/94 12/31/93 12/31/92 Primary Net earnings applicable to common and common equivalent shares $90,029,000 99,850,000 60,504,000 Shares: Weighted average number of common and common equivalent shares outstanding 38,279,000 38,374,000 37,593,000 Primary earnings per common and common equivalent shares $ 2.35 2.60 1.61 Fully Diluted Net earnings applicable to common and common equivalent shares $90,029,000 99,850,000 60,504,000 Shares: Weighted average number of common and common equivalent shares assuming ending market price 38,277,000 38,422,000 37,673,000 Fully diluted earnings per share $ 2.35 2.60 1.61 EX-13 6 EXHIBIT 13 MULTIMEDIA, INC. 1994 ANNUAL REPORT 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 two 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 65,000 security alarm customers; and Multimedia Entertainment produces and syndicates quality television programming, including Donahue;Sally Jessy Raphael; Jerry Springer;Rush Limbaugh, The Television Show;Susan Powter; Dennis Prager;and NewsTalk Television, a cable television network. Operations Highlights 2 A Letter to Our Shareholders 4 Multimedia Newspaper Company 6 Multimedia Broadcasting Company 8 Multimedia Cablevision Company 10 Multimedia Entertainment Company 12 Multimedia Security Service 14 Multimedia, Inc.and Subsidiaries 16 Shareholder Information IBC FINANCIAL HIGHLIGHTS
(In thousands except per-share data) 1994 1993 1992 Earnings Per Share $ 2.35 2.60 1.61 Revenues 630,483 611,891 553,440 Operating Profit 189,443 184,403 173,105 Net Earnings 90,029 99,850 60,504 Total Assets 683,978 655,174 627,945 Long-term Debt 572,557 664,997 745,995 Capital Expenditures 83,028 47,378 37,493 Depreciation 39,025 35,422 31,710 Shares Outstanding 37,620 37,210 36,803 Operating Profit Margin 30.0% 30.1% 31.3%
STOCK PERFORMANCE
1994 1993 HIGH LOW HIGH LOW Quarter 1 $37.25 28.50 $36.25 32.00 Quarter 2 $32.50 27.00 $38.00 32.00 Quarter 3 $32.25 28.75 $36.75 30.75 Quarter 4 $29.75 25.75 $39.00 33.50
MULTIMEDIA STOCK IS TRADED IN THE NATIONAL MARKET SYSTEM OVER-THE-COUNTER (NASDAQ SYMBOL: MMEDC). LISTED ABOVE ARE THE HIGH AND LOW BIDS BY QUARTER FOR 1994 AND 1993. NO DIVIDENDS WERE DECLARED OR PAID DURING 1994 OR 1993. (Operating Revenues bar chart appears here. The plot points are listed below) OPERATING REVENUES (in thousands) 92 $553,440 93 $611,891 94 $630,483 (Net Earnings bar chart appears here. The plot points are listed below) NET EARNINGS (in thousands) 92 $ 60,504 93 $ 99,850 94 $ 90,029 (Net Earnings bar chart appears here. The plot points are listed below) EARNINGS PER SHARE 92 $ 1.61 93 $ 2.60 94 $ 2.35 ** 1994 EARNINGS FROM ONGOING OPERATIONS EXCLUDING NET GAINS ON SALES OF PROPERTIES WERE $78.3 MILLION OR $2.05 PER SHARE. ** 1993 EARNINGS FROM ONGOING OPERATIONS EXCLUDING ACCOUNTING CHANGES, INCOME TAX ADJUSTMENTS AND THE SALE OF PROPERTY WERE $72.2 MILLION OR $1.88 PER SHARE. 1 OPERATIONS DIVISIONS OPERATIONS (Photo of paper on a press appears here) MULTIMEDIA NEWSPAPER COMPANY Multimedia Newspaper Company, headquartered in Greenville, S.C., publishes 11 daily and six Sunday newspapers in 10 cities in nine states.The division also publishes over 49 non-daily products, including a variety of newsweeklies, shoppers and two monthly magazines.The three largest properties are in Greenville, S.C., Asheville, N.C., and Montgomery, Ala. (Photo of satelite dish appears here) MULTIMEDIA BROADCASTING COMPANY Multimedia Broadcasting Company, based in Knoxville,Tenn., owns and operates five network-affiliated television stations:WKYC (NBC), Cleveland;KSDK (NBC), St.Louis;WLWT (NBC), Cincinnati; WBIR (NBC), Knoxville;and WMAZ (CBS), Macon, reaching over 4% of the U.S.The division also owns WMAZ/WAYS, an AM/FM combination in Macon. (Photo of cable wire appears here) MULTIMEDIA CABLEVISION COMPANY Multimedia Cablevision Company operates more than 125 cable television franchises in Kansas, Oklahoma, Illinois, Indiana and North Carolina, with major clusters of subscribers located in and around Wichita, Oklahoma City, suburban Chicago and eastern North Carolina.At year-end 1994, Multimedia had approximately 432,000 basic and 339,000 pay subscribers and passed approximately 710,000 homes.The division's headquarters are in historic Union Station in Wichita, Kansas. (Photo of a hand holding a microphone appears here) MULTIMEDIA ENTERTAINMENT COMPANY Multimedia Entertainment Company, located at Rockefeller Center in New York City, established a reputation as the originator of the television talk show format.Multimedia now produces and/or syndicates six daily talk shows: Donahue; Sally Jessy Raphael; Jerry Springer; Rush Limbaugh, The Television Show; Susan Powter;and Dennis Prager.NewsTalk Television, a cable network with a news-driven talk format, was launched in October 1994. (Close-up photo of a security system keyboard appears here) MULTIMEDIA SECURITY SERVICE Multimedia Security Service, founded in 1982, is one of the 20 largest security companies in America with offices in Wichita, Oklahoma City, Miami, Dallas, Chicago, Houston, St.Louis, Phoenix and Los Angeles. The division owned 65,000 security alarm accounts at the end of 1994.Multimedia Security moved into its new state-of-the-art headquarters and central monitoring facility in Wichita in August 1994. 2
in millions HIGHLIGHTS OPERATING REVENUES OPERATING PROFITS Multimedia newspapers have no daily competition for (Bar chart appears here. (Bar chart appears here. readership in any of the three major market areas.Seven The plot points are listed The plot points are listed of nine newspaper operations are located in southeastern as follows: as follows: markets predicted to grow faster in households and average income than the U.S.overall.Multimedia ranks 32nd 92 93 94 92 93 94 in the country in total daily circulation. $132.5 $135.9 $150.1 $37.7 $37.7 $45.4 Multimedia stations are the news leaders in three of five (Bar chart appears here. (Bar chart appears here. broadcasting market areas and are competitive demographi- The plot points are listed The plot points are listed cally in the other two.In four of five markets, Multimedia as follows: as follows: provides more local news than any of its competitors. 92 93 94 92 93 94 The division now offers weekend morning newscasts at $137.2 $133.0 $142.8 $38.2 $38.8 $51.8 each of its stations and ranks first in weekend news in all five markets. Multimedia recently traded approximately 40,500 subscribers (Bar chart appears here. (Bar chart appears here. in Illinois and Oklahoma for approximately 50,400 TCI The plot points are listed The plot points are listed subscribers in Wichita, Kansas, giving Multimedia access as follows: as follows: to 95% of Wichita's cable households.This market position 92 93 94 92 93 94 enables Multimedia to increase advertising revenues and $144.4 $164.6 $165.4 $50.7 $56.6 $52.6 offer telephony. Multimedia's programs continue to be among the leaders (Bar chart appears here. (Bar chart appears here. in their dayparts, despite a dramatic increase in competition The plot points are listed The plot points are listed in the talk show genre in recent years.The division as follows: as follows: introduced two new daily programs - Susan Powter ad 92 93 94 92 93 94 Dennis Prager- in September 1994.The division continues $129.1 $161.6 $147.5 $55.8 $63.3 $52.0 to work aggressively to increase its subscriber base for the recently introduced NewsTalk Television. The fastest growing of Multimedia's five divisions, Security (Bar chart appears here. (Bar chart appears here. opened one new full-service office and converted two The plot points are listed The plot points are listed maintenance and repair facilities to full-service offices in as follows: as follows: 1994.Subscribers increased 24% over 1993.Response 92 93 94 92 93 94 times are among the industry's best. $10.3 $16.7 $24.6 $1.8 $1.8 $3.0 3 A LETTER TO OUR SHAREHOLDERS MULTIMEDIA IS FACING SOME TOUGH CHALLENGES, AND CONTINUES TO PURSUE VIABLE ALTERNATIVES TO ENHANCING SHAREHOLDER VALUE. Multimedia's 1994 operating results reflected another year of growth in revenues and operating profit for the Company. Net earnings for 1994 were $90 million and earnings per share were $2.35. These amounts include net after-tax gains of $16.2 million or $.42 per share on the sales of Multimedia's wireless cable systems and radio stations in three markets, as well as losses associated with the closing of its television movie production business. The results also include $4.5 million or $.12 per share in after-tax start-up costs related to our launch of NEWSTALK TELEVISION (previously The Talk Channel). Excluding these items, 1994 earnings from ongoing operations were $78.3 million or $2.05 per share, a 9% increase over 1993 earnings from ongoing operations of $72.2 million or $1.88 per share. Consolidated operating revenues were $630.5 million in 1994, up 3% from $611.9 million in 1993. Operating profit rose 3% to $189.4 million from $184.4 million last year. Debt was reduced by $92.4 million this year - $43.9 million of which came from operations and $48.5 million from the sale of properties - to $572.6 million. RECORD RESULTS This was a banner year for Multimedia's Newspaper and Broadcasting divisions, and both segments posted significant revenue gains compared with last year. Newspaper revenues advanced 10% in 1994, fueled by a 12% increase in advertising revenues. Broadcasting revenues, which grew 7%, benefited from over $7 million in political advertising revenues. The challenge for both divisions, of course, will be to sustain this momentum in 1995. A dramatic retail expansion in our two largest newspaper markets should produce an increase in advertising volume in 1995. Although it will be difficult for Broadcasting to replace the revenues from political advertising, the division's television stations are well-positioned to take advantage of station affiliation changes in the Cleveland and St. Louis markets and should experience an increase in advertising revenues in 1995. READY FOR THE FUTURE Multimedia Cablevision performed admirably in 1994, perhaps the most challenging period in its 14-year existence. Despite the restrictions imposed by the FCC's 1993 rate freeze and 1994 rate rollback, we are proud to report that Cable revenues increased 1% if the impact of the divested wireless operations is excluded. Multimedia's fiber optic upgrades of its cable systems now extend to approximately 35% of its customer base. These rebuilds give Multimedia the channel capacity needed to tap into new revenue streams and the technical structure to take advantage of digital compression as it develops. The Company plans to complete 87% of the upgrades by the end of 1995, with the remaining 13% slated for 1996. GROWTH OPPORTUNITY Multimedia Security Service's revenues increased 47% compared with the prior year. The division added more than 12,000 customers in 1994 and opened one new full-service office and converted two maintenance and repair facilities to full ser- 4 vice during the year. This business presents a growth opportunity over the next few years, and we have made a commitment to utilizing the most advanced technology in the industry as we expand this division. NEW CHALLENGES We've stated throughout the year that the Entertainment division poses the greatest challenge to the Company today. Multimedia created the talk show phenomenon when it introduced THE PHIL DONAHUE SHOW 27 years ago. SALLY JESSY RAPHAEL made its debut in 1984, and as the show grew in popularity, Multimedia had two of the top three syndicated talk shows. Today the appeal of this genre has escalated dramatically, resulting in the introduction of many new talk programs and the fragmentation of ratings for the established shows due to the increased competition. DONAHUE and SALLY JESSY RAPHAEL both experienced a ratings decline of 15-30% in 1994, which in turn reduced station license fees and advertising revenues. On the other hand, ratings for JERRY SPRINGER rose 24% in 1994, and RUSH LIMBAUGH, THE TELEVISION SHOW held its own in the late-night time period despite the addition of several new shows this season. The launch of NEWSTALK TELEVISION in October presented an ideal opportunity to leverage our expertise in talk show and news production. The appetite for our news-driven talk format appears to be building, and we hope to grow this channel to approximately five million subscribers in 1995. Multimedia invested around $7.7 million in NEWSTALK TELEVISION in 1994 and anticipates investing approximately $20 million in 1995. EXPERIENCED LEADERSHIP This was also a year of transition for Multimedia's management team. I was elected chairman and CEO by the board of directors in June. In July, Douglas J. Greenlaw, formerly chairman and chief executive officer of the Ventures Division of Whittle Communications, Inc., was appointed president and chief operating officer. I am acutely aware of the questions facing our management team and the Company today. The year 1995 will be a year for deciding where our assets fit in the converging media-telecommunications market of the future. In keeping with our commitment to increasing shareholder value, the Company announced on February 22 that its board of directors had authorized management, together with Goldman, Sachs & Co., to explore strategic alternatives to enhance shareholder value, including the sale of Multimedia, Inc., the spin-off of one or more of its businesses, a business combination or any similar transaction. Sincerely, Signature of Donald D. Sbarra appears here) Donald D. Sbarra CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER March 3, 1995 (Photo of Donald D. Sbarra appears here) DONALD D. SBARRA CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (Photo of Douglas J. Greenlaw appears here) DOUGLAS J. GREENLAW PRESIDENT AND CHIEF OPERATING OFFICER (Photo of Robert E. Hamby Jr.) ROBERT E. HAMBY JR. SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 5 HIGHLIGHTS ADVERTISING REVENUE GROWTH Rate and volume gains in both classified and retail advertising resulted in a 12% increase in advertising revenues. JOURNALISTIC EXCELLENCE Multimedia newspapers continued their tradition of editorial excellence with numerous first place finishes in judged competitions. GROWING MARKETS Located near the booming I-85 corridor between Atlanta and Charlotte, Multimedia's Greenville, S.C., and Asheville, N.C., newspapers are benefiting from a dramatic expansion in retail business. CIRCULATION Circulation revenue rose 6% over 1993 levels through selective rate increases. OPERATING MARGINS Multimedia newspapers maintain some of the highest operating margins in the industry. MULTIMEDIA NEWSPAPER COMPANY W. deBerniere Mebane (Photo of W. deBerniere Mebane President, appears here) Multimedia Newspaper Company posted double-digit growth in advertising revenues in 1994, the result of a robust economy in its two largest markets. The division also continued its mission to position its papers for growth in an era of changing reader and advertiser needs. Through focus groups, advertiser surveys and traditional readership studies, Multimedia's three major newspapers this year solicited ideas on how they could direct their research, sales and reporting efforts to best serve their customers. Called "customer tracking," the information gained from these resources produced significant change. The input was used to create several successful new products, such as Marketview, a custom research service for advertisers, and also led to the development of new feature sections valued by both readers and advertisers. The Home Delivery Network, an alternate distribution service designed to deliver non-subscriber products that were formerly mailed, was launched in Greenville in selected zip codes. The main purpose of the service is to provide advertisers with an additional marketing and distribution program, and several major customers have already converted from mail delivery of their products. The new system allows the Greenville papers to target customers with free samples, catalogs, coupons and more delivered directly to their homes. An added benefit to the advertiser is cost control, as postal rate increases are avoided. Multimedia will break ground this year on a new $15 million production facility at THE MONTGOMERY (Ala.) ADVERTISER. At the same time, THE ADVERTISER will install a page-maker system able to use software from virtually any source, making it the largest newspaper in the country to achieve total electronic composition. Two newsprint price increases have been announced recently, with at least one more forecast for early 1995. Although these rising prices demand careful budgeting, Multimedia's centralized purchasing of newsprint at the corporate level should help moderate the effects of the increases. The division anticipates that 1995 should be another year of good advertising results, based on rate increases at its largest property and the expansion of business in Greenville and Asheville, where several new retailers and a new grocery chain have entered the market, and plans for construction and expansion of area shopping malls are in progress. 6 (Two photos of presses printing newspapers appear on this page.) NEWSPAPERS 24% of revenues $45.4 million in operating profit MAKING MULTIMEDIA'S NEWSPAPERS INDISPENSABLE TO OUR CUSTOMERS IS OUR TOP PRIORITY. KNOWING THEIR CHANGING NEEDS IS STEP ONE IN THE PROCESS. BEING READY TO CHANGE IS THE NEXT STEP. HIGHLIGHTS WKYC (NBC), CLEVELAND WKYC completed its fourth full year under Multimedia ownership in 1994.The station posted increases in almost every major daypart in the November Nielsen ratings and is now tied for the market's number one position, sign-on to sign-off. KSDK (NBC), ST. LOUIS KSDK was again rated the number one station in the top 30 markets, sign-on to sign-off, as well as for its 5:00 p.m.and 10:00 p.m.newscasts, in the November Nielsen survey. WLWT (NBC), CINCINNATI WLWT won the Associated Press award for Ohio's best newscast in 1994. WBIR (NBC), KNOXVILLE WBIR's 6:00 p.m. newscast maintained its position as the highest rated newscast in the country's top100 markets in November. WMAZ (CBS), MACON WMAZ received the Georgia Association of Broadcasters' Television News Excellence Award, given for the best over- all news organization in the state. MULTIMEDIA BROADCASTING COMPANY James M. Hart (Photo of James M. Hart President, appears here) Multimedia Broadcasting Company Multimedia Broadcasting benefited from a strong advertising market and the renewal of successful key syndicated programming in 1994, enabling the division to continue its investment in its stations and substantially surpass its financial projections at the same time. Multimedia's five television stations - four NBC affiliates and one CBS station-all negotiated favorable long-term agreements with their respective networks this year. The stability provided by these new contracts will allow the Broadcasting division to concentrate on maintaining its news leadership in St. Louis, Knoxville and Macon and to improve its newscasts in Cleveland and Cincinnati. Audience confusion resulting from affiliation changes at competing stations in Cleveland and St. Louis should enhance the ratings of our local newscasts. Multimedia made a strategic decision to exit the radio business last year and has sold all of its radio stations except WMAZ-AM/WAYS-FM in Macon. These stations share facilities with WMAZ-TV. Multimedia Broadcasting entered into a landmark venture when TNi, East Tennessee's first regional news-talk cable channel, was launched in May by WBIR and Scripps Howard Cable in the Knoxville market. TNi offers 18 hours of original news and information programming daily, as well as delayed broadcasts of WBIR's award-winning news and Multimedia's daily talk shows. Throughout 1994, Multimedia's television and radio stations were repeatedly recognized by local and industry organizations for their community service activity. Projects designed to promote and enhance local education were sponsored by all of the stations. In addition, the Multimedia stations sponsored or participated in events raising hundreds of thousands of dollars for their communities. The Broadcasting division's strategic plan for 1995 will continue to focus on the dual objectives of local news leadership and in-depth community service. This commitment to "localism" - providing viewers with the most valuable news and entertainment programming - will differentiate Multimedia's stations as viewers are confronted with additional video options in the home. 8 (Two photos appear on this page. The Top photo shows three people in a television newsroom with a camerman. The bottom photo is of a satellite dish.) BROADCASTING 23%of revenues $51.8 million in operating profit 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 ENTER- TAINMENT PROGRAMS OF THE HIGHEST POSSIBLE RELEVANCE TO VIEWERS. HIGHLIGHTS SUBSCRIBER GROWTH Basic subscribers increased by approximately 15,000 to 432,000 in 1994. EFFICIENT CLUSTERS Multimedia's "clustering" strategy has allowed the Company to maintain some of the best oper- ating margins in the industry, while expanding ancillary services to subscribers. NEW TECHNOLOGIES At year-end, approximately 35% of Multimedia's customers were being served by an upgraded fiber optic system. ENHANCED BASIC SERVICE Multimedia plans to launch new programming on basic tiers to increase revenues and enhance value to our customers. NEW SERVICES Multimedia has introduced The Sega Channel and has begun offering HBO, Cinemax and Showtime in a multiple channel configuration. MULTIMEDIA CABLEVISION COMPANY Michael C. Burrus (Photo of Michael C. Burrus President, appears here) Multimedia Cablevision Company Multimedia Cablevision assimilated the effects of the second round of FCC rate regulations, continued the fiber optic upgrade of its cable systems and launched or planned the introduction of a myriad of new products and services in 1994. Despite the restrictions imposed by the FCC's rate freeze and rollback, Multimedia's 1994 cable revenues increased slightly compared with 1993. Multimedia continues to capitalize on the strategic advantage of its tightly clustered operations. In May, the acquisition of a cable system inWilliamston, North Carolina, serving 2,900 customers and situated immediately adjacent to two other Multimedia systems, was completed. And in January 1995, Multimedia completed the trade of approximately 40,500 subscribers in Illinois and Oklahoma for 50,400 cable subscribers in communities in the Wichita, Kansas, area. The completion of this transaction means Multimedia now serves 95% of the cable households in the Wichita metropolitan area. In order to maintain its position and to allow for the launch of new products and services, Multimedia Cablevision continued the upgrade of its cable systems in 1994. These rebuilds utilize state-of-the-art fiber optic technology and provide the platform for the coming digital environment, as well as an immediate increase in channel capacity, better quality video and audio and greater system reliability. Multimedia also entered the alternate access telephony business during 1994 in partnership with Hyperion Telecommunications, Inc. Multimedia-Hyperion is now offering access for long distance signals to commercial customers in the Wichita area. Multimedia's fiber optic system, with its highly reliable backup features, allows the Company to compete with the regional telephone company on the basis of both quality and price. One of Multimedia Cablevision's top priorities for 1995 is to grow revenues. As additional channel capacity becomes available, the division plans to increase its pay-per-view offerings substantially, add new networks to its basic programming packages and launch new services including The Sega Channel and premium channels such as HBO in a multichannel configuration. All of these services will expand choice for the Company's subscribers and should provide additional revenue opportunities for the division. 10 (Two photos appear on this page, one showing a television studio room with two people and tv monitors. The second photo is of a cable wire.) CABLE 26% of revenues $52.6 million in operating profit MULTIMEDIA CABLEVISION'S MANAGEMENT HAS TURNED ITS ATTENTION TO COMPETING IN THE NEW TELECOMMUNICATIONS ENVIRONMENT AND TO DEVELOPING NEW PRODUCTS AND SERVICES TO AUGMENT THE TRADITIONAL CABLE VIDEO FARE. HIGHLIGHTS DONAHUE AND LIMBAUGH RENEW CONTRACTS Phil Donahue, now in his 27th year, extended his contract to host the Donahue show through the 1995-96 season.Rush Limbaugh also renewed his contract in 1994 and will continue his show through the 1997-98 season. Rush Limbaugh,The Television Showcontinued to be the top-rated syndicated program in the late-night time period. SALLY JESSY RAPHAEL AND JERRY SPRINGER Sally Jessy Raphael remained among the top three daytime talk shows in her delivery of the key women demographics in the November 1994 sweeps. Jerry Springer began his third full season and was one of the fastest growing talk shows according to Nielsen. TWO NEW SHOWS Susan Powter, a daytime show featuring topics of interest to women, and Dennis Prager, an issues- oriented, late-night discussion program, premiered with the new television season in September. MULTIMEDIA ENTERTAINMENT COMPANY Robert L. Turner (Photo of Robert L. Turner President, appear here) Multimedia Entertainment Company Multimedia Entertainment again capitalized on its expertise in talk television production in 1994 as it introduced two daily television programs and launched a news-talk cable network. SUSAN POWTER and DENNIS PRAGER complement Multimedia's four established programs - DONAHUE, SALLY JESSY RAPHAEL, JERRY SPRINGERand RUSH LIMBAUGH, THE TELEVISION SHOW. No other company has achieved the success that Multimedia has with talk shows, but never before has the competition in this genre escalated so dramatically. The number of shows now vying for audience shares has eroded ratings for last year's top-ranked programs. DONAHUE and SALLY JESSY RAPHAEL's ratings declined 29% and 19%, respectively, compared with 1993, but Multimedia has taken steps to improve and protect its audience shares and station clearances. NEWSTALK TELEVISION, Multimedia's new cable network, premiered on October 1 to a positive response. Based on a live, audience-driven format, NEWSTALK TELEVISION utilizes Multimedia's most significant assets - its knowledge and success in talk television and news. The Company's goal is to establish a long- term appreciating asset for its shareholders by expanding these assets from a base of personality-oriented programs to a new foundation in an enduring cable network. The new channel ended 1994 with approximately one million subscribers and will strive to grow its subscriber base to around five million by the end of 1995. As the leading American talk show producer, Multimedia has also exported its expertise worldwide. Production partnerships have been formed in more than 10 territories in Europe and Asia to develop American-style talk shows using local talent and production facilities. Multimedia is now receiving license fees for co-produced series in the United Kingdom, Germany and Israel and expects to conclude similar arrangements in at least three other territories in 1995. Multimedia Entertainment is committed to growing and strengthening its existing talk show franchises to more effectively compete in 1995. The division will continue to lay the groundwork for the future with development of programming for various dayparts, production of foreign talk shows and expanding affiliation agreements to increase subscriber counts for NEWSTALK TELEVISION. 12 (Seven photos appear on this page. The top half is divided with six photos of Multimedia's entertainment hosts which include, Phil Donahue, Sally Jessy Raphael, Jerry Springer, Rush Limbaugh, Susan Powter and Dennis Prager. The seventh photo shows a hand holding a microphone.) ENTERTAINMENT 23% of revenues $52.0 million in operating profit MULTIMEDIA'S PROGRAMS CONTINUE TO BE AMONG THE LEADERS IN THEIR DAYPARTS DESPITE A TOTAL OF MORE THAN 15 COMPETING TALK SHOWS IN DAYTIME AND THE ADDITION OF FIVE NEW PROGRAMS IN THE LATE-NIGHT MIX. HIGHLIGHTS RAPID GROWTH Security continued to be the fastest growing of the Company's five divisions in 1994. THREE NEW OFFICES The opening of a new full-service operation in St.Louis and the conversion of maintenance and repair facilities to full service in Phoenix and Los Angeles is consistent with Multimedia's philosophy of establishing operations where it has accumulated a critical mass of accounts. NEW CENTRAL STATION A new headquarters building in Wichita houses a state- of-the-art central monitoring station and also consolidates customer service and administrative functions. EXCELLENT RESPONSE TIMES Multimedia's average response time is 15 seconds, and more than 95% of alarms are handled in less than 30 seconds. CUSTOMER SERVICE Multimedia's reputation for outstanding customer service has proved to be an asset in growing this division. MULTIMEDIA SECURITY SERVICE Michael C. Burrus (Photo of Michael C. Burrus President, appears here) Multimedia Security Service By the end of the year, Multimedia Security Service owned and monitored 65,000 accounts, an increase of 24% over 1993 levels, positioning it well within the top 20 security companies in the country. The division now has a total of nine full-service offices located in Wichita, Oklahoma City, Miami, Dallas, Houston, Chicago, Phoenix, St. Louis and Los Angeles. In August, the Security Division moved into its new national headquarters building in Wichita. This state-of-the-art facility is vital as the Company works towards its goal of being one of the largest and most reputable security companies in the nation. The new office was designed to serve as many as 250,000 customers, with expansion plans designed to go beyond that level when necessary. The central monitoring station is the lifeblood of any security operation, and Multimedia Security has made a significant commitment to having one of the most sophisticated central stations in the industry. But the real measure of the value of a security service to the customer is its alarm response time. At present, Multimedia's average response time is less than fifteen seconds; in addition, more than 95% of the alarms are handled in less than thirty seconds. The Company intends to more effectively communicate this excellent performance to its customers in 1995. Multimedia plans to continue the growth of its security business through a three-pronged approach - internal sales, an outside dealer network that produces accounts for the Company to purchase on an ongoing basis and bulk acquisitions. In order to reach its planned customer levels, the division expects to generate roughly one-third of its growth internally and to purchase the other two-thirds. The security business is one Multimedia understands quite well, having been in the industry for more than a dozen years. Market demand is at an all-time high and is predicted to continue to increase well beyond its current level, as only approximately 11% of the nation's homes now have monitored security systems. The Company believes there is a significant opportunity for consolidation of the smaller, local or regional companies, and Multimedia Security Service has positioned itself as one of the leading participants in this process. 14 (Two photos appear on this page. The top photo shows two people working on security computer systems. The bottom photo shows a close-up of a security system keyboard.) SECURITY 4% of revenues $3.0 million in operating profit THE 1994 OPENING OF A STATE-OF-THE-ART CENTRAL MONITORING STATION HAS ALLOWED MULTIMEDIA TO ACHIEVE AN EXCEPTIONAL RECORD IN RESPONDING TO ALARMS - AND THAT'S THE REAL MEASURE OF THE VALUE OF OUR SERVICE. MULTIMEDIA, INC. AND SUBSIDIARIES (A map of the United States depicting Multimedia headquarters and sites appears here with the following legends:) NEW YORK CITY Entertainment Headquarters KNOXVILLE Broadcasting Headquarters GREENVILLE Corporate and Newspaper Headquarters WICHITA Cablevision and Security Headquarters (box) DAILY NEWSPAPER LOCATIONS (circle) TV STATION LOCATIONS (triangle)RADIO STATIONS (star) STATES WITH MULTIMEDIA CABLE FRANCHISES (diamond) FULL-SERVICE SECURITY OFFICES MULTIMEDIA NEWSPAPER COMPANY 305 S. MAIN ST. P.O. BOX 1688 GREENVILLE, S.C. 29602 ALABAMA Daily and Sunday: The Montgomery Advertiser ARKANSAS Daily: The Baxter Bulletin (Mountain Home) GEORGIA Daily: The Observer (Moultrie) NORTH CAROLINA Daily and Sunday: Asheville Citizen-Times OHIO Dailies: Gallipolis Daily Tribune The Daily Sentinel (Pomeroy) Sunday: Sunday Times-Sentinel (Gallipolis) SOUTH CAROLINA Dailies: The Greenville News Greenville Piedmont Sunday: The Greenville News TENNESSEE Daily: The Leaf-Chronicle (Clarksville) Monthly: Music City News The Gospel Voice (Nashville) Television Production TNN Music City News Country Awards VIRGINIA Daily and Sunday: The Daily News-Leader (Staunton) WEST VIRGINIA Daily: Point Pleasant Register Multimedia also publishes 49 non-daily products. MULTIMEDIA BROADCASTING COMPANY RIVERVIEW TOWER, SUITE 1401 900 S. GAY ST. KNOXVILLE,TENN. 37902 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 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 432,000 basic subscribers. MULTIMEDIA ENTERTAINMENT COMPANY 45 ROCKEFELLER PLAZA 35TH FLOOR NEW YORK, N.Y. 10111 Donahue / Sally Jessy Raphael / Pozner & Donahue / Jerry Springer / Rush Limbaugh, The Television Show/ Susan Powter / Dennis Prager NewsTalk Television MULTIMEDIA SECURITY SERVICE 800 E.WATERMAN WICHITA, KS. 67202 Multimedia serves more than 65,000 security alarm customers. MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS The Company had net earnings for 1994 of $90.0 million compared with $99.9 million for 1993. Net earnings per share for 1994 were $2.35 compared with $2.60 for 1993. The 1994 results include net after-tax gains of $16.2 million or $.42 per share from the sales of the Company's wireless cable systems and radio stations in three markets offset by losses associated with the closing of its made-for-television movie production business. The results also include $4.5 million or $.12 per share in after-tax start-up costs associated with NEWSTALK TELEVISION (previously The Talk Channel), the Company's cable channel launched in October 1994. Earnings from ongoing operations in 1994 (excluding the above items) were $78.3 million or $2.05 per share. 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 IncomeTaxes" and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." In addition, net earnings in 1993 reflect a net 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 1993 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. 1993 earnings from ongoing operations (excluding the above items) were $72.2 million or $1.88 per share. OPERATING REVENUES The following table shows the percentage increases (decreases) in the Company's revenues for the years 1994 and 1993. Division 1994 vs.1993 1993 vs.1992 Newspapers 10% 3% Broadcasting 7% (3%) Cable 14% Entertainment (9%) 25% Security 47% 63% Total operating revenues 3% 11% NEWSPAPERS The increase in newspaper revenues for 1994 and 1993 resulted from increases in circulation revenues, advertising revenues and other revenues. Circulation revenues increased 6% in both 1994 and 1993, principally due to price increases. Advertising revenues increased 12% in 1994 and 1% in 1993. Advertising revenues represent approximately 75% of total newspaper operating revenues. Linage increased 13% in 1994 and 2% in 1993. The 1994 annual average net paid circulation decreased 1% for daily publications to 327,000 and increased 1% for Sunday papers to 362,000. At December 31, 1994, daily circulation was 321,000, a 1% decrease from the prior year, and Sunday circulation was 357,000, a 1% increase. The 1993 annual average net paid circulation increased 2% for daily papers to 330,000, and 1% for Sunday papers to 359,000. At December 31, 1993, daily circulation was 323,000, a slight decrease from the prior year, and Sunday circulation was 352,000, flat with the prior year. The Company's three largest newspapers, which are in Greenville, South Carolina, Asheville, North Carolina, and Montgomery, Alabama, account for approximately 75% of the division's revenues. BROADCASTING Broadcasting revenues increased 7% in 1994. Local and national revenues increased $8.2 million, and political revenues increased $7.0 million. In addition, revenues decreased by $3.9 million as a result of the sale of the Company's Milwaukee, Wisconsin, and Shreveport, Louisiana, radio stations. Broadcasting revenues decreased 3% in 1993. Local and national revenues increased approximately $5.2 million in 1993, and political revenues were approximately $6.6 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.Television operating revenues represent over 95% 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. MULTIMEDIA, INC. AND SUBSIDIARIES 17 MANAGEMENT'S DISCUSSION AND ANALYSIS CABLE Cable revenues increased less than 1% in 1994. Excluding the impact of the sale of the wireless cable operations, cable revenues rose 1%. Increases in revenue resulting from continued subscriber growth were offset by a decline in the average monthly revenue per subscriber as a result of the FCC's second round of cable rate regulations, which began on July 15, 1994. Cable revenues increased 14% in 1993, of which 7% related to the acquisition of the Indiana Cable systems; 4% related to rate increases; 1% related to subscriber growth; and 2% related to growth in ancillary services. The average monthly revenue per cable subscriber at the end of 1994 was $32.56 versus $33.29 in 1993 and $32.13 in1992. Multimedia Cablevision increased its basic cable subscriber counts to 432,000 in 1994 from 417,000 in 1993 and 410,000 in 1992. ENTERTAINMENT Entertainment revenues decreased 9% or $14.1 million in 1994. The Company's made-for-television movie business, Multimedia Motion Pictures (MMP), which was closed during the year, accounted for a decrease in revenues of $19.9 million. Revenues from the Company's talk shows increased $3.3 million. Increases in revenues from the SALLY JESSY RAPHAEL show, JERRY SPRINGER show, RUSH LIMBAUGH, THE TELEVISION SHOW and two new shows, DENNIS PRAGER and SUSAN POWTER, offset a reduction in revenues from the DONAHUE show. Revenues from the DONAHUE show decreased 9% for the year. Revenues from other sources increased $2.7million. Entertainment revenues increased 25% in 1993 primarily due to increases in revenues from the SALLY JESSY RAPHAEL show, the first full year of revenues for the division's talk television shows, JERRY SPRINGER and RUSH LIMBAUGH, THE TELEVISION SHOW, and an increase in movie production from six hours in 1992 to 16 hours in 1993. Excluding the impact of MMP and new shows in 1994 and 1993, the revenue increase would have been 3% and 5%, respectively. The DONAHUE and SALLY JESSY RAPHAEL shows account for virtually all of the division's profit and represent approximately 45% and 30%, respectively, of the entertainment division's revenues. In 1994, Phil Donahue signed a new contract with the Company to host the DONAHUE show through August 1996. Rush Limbaugh signed a new contract in 1994 to continue RUSH LIMBAUGH, THE TELEVISION SHOW through 1998. Sally Jessy Raphael signed a new contract in 1993 to continue to host the SALLY JESSY RAPHAEL show through August 1998. The entertainment division's primary business is the production of talk shows for syndication to television stations across the country. There has been a significant increase in competition in this area. At the end of 1994, there were over 15 talk shows in syndication with more scheduled to debut in 1995. The increase in the number of shows increases competition not only for viewers but also for advertising dollars, station clearances, guests and production talent. The impact has been a decline in ratings for many talk shows. The DONAHUE and SALLY JESSY RAPHAEL shows have experienced ratings declines from 15-30%. These declines have resulted in station license renewals at lower amounts than in years past and lower advertising revenues. In October 1994, the Company launched NEWSTALK TELEVISION, a cable channel in the news-talk format, to diversify the entertainment division so that results are not as dependent on personality-driven talk shows.This venture will require several years of investment before it is expected to achieve profitability.The Company's current projections are to invest approximately $20 million in NEWSTALK TELEVISION in 1995 compared with $7.7million in 1994. The Company expects the above two factors to result in a reduction in operating profit of approximately 50% for the Company's entertainment division for 1995. MULTIMEDIA, INC. AND SUBSIDIARIES 18 MANAGEMENT'S DISCUSSION AND ANALYSIS SECURITY Security revenues increased 47% in 1994 and 63% in 1993 primarily due to the increase in the number of security subscribers. The number of security subscribers at year-end increased to 65,000 in 1994 from 52,400 in 1993 and 35,300 in 1992. Of the increase in the number of subscribers in 1994, 43% was due to acquisitions, and 57% was due to internally generated sales. Monitoring fees from security customers represent approximately 80% of the division's operating revenues. Installation and maintenance fees account for the remainder of the division's operating revenues. 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 1994 and 1993. Division 1994 vs.1993 1993 vs.1992 Newspapers 7% 4% Broadcasting (3%) (5%) Cable 5% 15% Entertainment (3%) 34% Security 44% 77% Total operating costs 3% 12% NEWSPAPERS The majority of the operating costs and expenses increases in 1994 and 1993 were due to increases in newsprint costs and production and selling costs associated with increased advertising revenue. Newsprint represents approximately 20% of the total newspaper division's operating costs and expenses. Newsprint costs are expected to increase approximately 20% in 1995. BROADCASTING The 1994 decrease in broadcasting operating expenses was principally due to decreases in programming costs and a reduction of approximately $4.1 million resulting from the sale of the Company's radio stations. 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. CABLE The 1994 increase in cable operating costs and expenses is primarily attributable to increases in depreciation expense associated with cable rebuilds and increases in programming expenses. 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, principally due to increases in programming costs. ENTERTAINMENT The 1994 decrease in entertainment operating costs and expenses is primarily due to the closing of MMP, offset by $7.7million in start-up costs associated with the launch of NEWSTALK TELEVISION and costs associated with the two new talk shows. The 1993 increase is primarily attributable to the costs related to the increase in the number of hours of programming by 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. Excluding the effect of the specific costs mentioned above, operating costs increases for 1994 and 1993 would have been approximately 7% and 6%, respectively. SECURITY The security operating costs and expenses increases in 1994 and 1993 were principally due to the expansion of the Company's security alarm business. The majority of the costs and expenses increases in 1994 and 1993 were due to the opening of new full-service offices and the increases in MULTIMEDIA, INC. AND SUBSIDIARIES 19 MANAGEMENT'S DISCUSSION AND ANALYSIS central station monitoring costs and depreciation and amortization expense related to the subscriber growth. The division opened two full-service offices during 1993 and three additional full-service offices in 1994. The start-up costs associated with the opening of offices and the increase in depreciation and amortization expense are more than offset by the related revenue increases. OPERATING PROFIT The above changes in operating revenues and operating costs and expenses resulted in the following increases (decreases) in the Company's operating profits for the years 1994 and 1993. Division 1994 vs.1993 1993 vs.1992 Newspapers 21% --- Broadcasting 33% 2% Cable (7%) 12% Entertainment (18%) 13% Security 66% 1% Total operating profit 3% 7% INTEREST EXPENSE Interest expense was $59 million in 1994, $62 million in 1993 and $72 million in 1992. The decreases in expense in 1994 and 1993 were principally due to interest savings from debt payments offsetting a slight increase in interest rates related to the Company's floating rate debt. The Company's debt financing included a $457 million unsecured bank facility, under which $135.5 million was outstanding at December 31, 1994, 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 Senior Notes bear interest at a composite rate of 10.7%. The Company has interest rate swap agreements which effectively fix LIBOR on $75 million of its floating rate debt at approximately 5.7%. The interest rate swap agreements expire at various times from June 1996 through November 1996. The Company has an interest rate cap agreement which caps LIBOR at 7% on $25 million, which expires in December 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 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. The purpose of the Company's involvement in interest rate swaps and caps is to minimize the Company's exposure to interest rate fluctuations on its floating rate debt. The Company believes that it has no material concentration of credit or market risk with respect to these interest rate protection agreements. 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 10.3%, 9.2% and 8.6% at the end of 1994, 1993 and 1992, respectively. INCOME TAXES The effective income tax rates were 41%, 32% and 41% for 1994, 1993 and 1992, 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 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 1995 tax rate to be between 41% and 42%. The Company is contesting certain proposed deficiencies for 1987through 1989. The deficiencies principally involve various acquisition issues related primarily to the cable division. The Company is continuing to vigorously contest the assessments, but the ultimate resolution of these matters cannot be ascertained at this time. The Company believes that it has adequately provided for agreed upon and potential deficiencies, including interest. MULTIMEDIA, INC. AND SUBSIDIARIES 20 MANAGEMENT'S DISCUSSION AND ANALYSIS 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 1994, 1993 and 1992, during periods of low inflation. The Company anticipates this trend of price increases to be sustained through 1995. The FCC released guidelines in late March of 1994 relating to its second round of cable rate regulation. While these regulations did not have a material negative impact on the Company's cable operations, certain planned rate increases could not be implemented. In November 1994, the FCC issued "going forward" rules with regard to future rates. The Company will be allowed to increase cable rates under these regulations as it adds new services. 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. In addition, in 1994 the Company generated $48.5 million in proceeds from the sale of its wireless cable business and radio stations in Milwaukee, Wisconsin; Shreveport, Louisiana; and Greenville, South Carolina. The primary uses of funds have been for capital expenditures, taxes, acquisitions, debt repayments and program rights 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 the Company is in compliance with all covenants. Principal payment schedules for the Credit Agreement and Senior Notes are provided in Note 6 of the Notes to Consolidated Financial Statements. For 1995, the Company estimates its cash interest expense requirements to be approximately $60 million, capital expenditure requirements to be approximately $103 million and the required principal payments to be approximately $30 million. At December 31, 1994, the Company had approximately $230 million unused availability under the bank Credit Agreement. The bank facility provides, among other things, working capital funds and additional available funds for future acquisitions and repurchase of the Company's stock within certain limitations. During the first quarter of 1995, the Company completed the trade of certain of the Company's cable systems in Oklahoma and Illinois with 40,500 cable subscribers for Telecommunications, Inc.'s cable systems in Wichita, Kansas, with 50,400 subscribers. The Company paid $12.4 million in cash as part of this transaction. ACCOUNTING CHANGES As is more fully explained in the Notes to Consolidated Financial Statements, effective January 1, 1993, the Company adopted SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions," and SFAS No. 109, "Accounting for Income Taxes." A net gain, after tax, of $14.3 million, representing the cumulative effect of these changes in accounting principles, was reported in 1993. Financial statements for 1992 were not restated to apply the provisions of these statements. SUBSEQUENT EVENT On February 22, 1995, the Company announced that its board of directors had authorized management, together with Goldman, Sachs & Co., to explore strategic alternatives to enhance shareholder value, including the sale of Multimedia, Inc., the spin-off of one or more of its divisions, a business combination or any similar transaction. MULTIMEDIA, INC. AND SUBSIDIARIES 21 ELEVEN YEAR REVIEW YEARS ENDED DECEMBER 31,
(In thousands except per-share data) 1994 1993 1992 Operating revenues $630,483 611,891 553,440 Operating expenses 387,638 377,288 337,353 Depreciation and amortization 53,402 50,200 42,982 Total operating costs and expenses 441,040 427,488 380,335 Operating profit 189,443 184,403 173,105 Interest expense 59,142 61,996 71,820 Other income (expense), net 25,584 1,494 (447) Earnings before income taxes, minority interest and other items1 155,885 123,901 100,838 Income taxes 64,693 38,703 41,343 Minority interest in subsidiaries'losses (income), net (1,163) 320 1,009 Earnings (loss) before other items 90,029 85,518 60,504 Other items 14,332 Net earnings (loss) $ 90,029 99,850 60,504 Earnings (loss) per share before other items $ 2.35 2.23 1.61 Earnings (loss) per share $ 2.35 2.60 1.61 Cash dividends per share $ Average common shares outstanding2 38,279 38,374 37,593 Long-term debt, including current installments $572,557 664,997 745,995 Total assets $683,978 655,174 627,945
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 1994. SHARE AND PER-SHARE AMOUNTS HAVE BEEN RETROACTIVELY ADJUSTED TO REFLECT THE 3-FOR-1 STOCK SPLIT EFFECTED APRIL 1991. MULTIMEDIA, INC. AND SUBSIDIARIES 22
1991 1990 1989 1988 1987 1986 1985 1984 502,260 461,314 442,632 419,037 390,709 353,239 319,867 290,103 308,006 260,377 249,470 243,120 231,390 213,582 204,973 187,756 38,448 30,655 29,492 28,572 27,744 25,487 24,275 21,523 346,454 291,032 278,962 271,692 259,134 239,069 229,248 209,279 155,806 170,282 163,670 147,345 131,575 114,170 90,619 80,824 79,315 88,289 102,109 108,340 110,999 111,890 36,378 8,289 643 (873) (56) 3,522 6,573 159 (6,323) (8,368) 77,134 81,120 61,505 42,527 27,149 2,439 47,918 64,167 30,254 32,462 22,845 15,650 14,660 7,100 26,280 30,479 1,517 48,397 48,658 38,660 26,877 12,489 (4,661) 21,638 33,688 (3,078) 48,397 45,580 38,660 26,877 12,489 (4,661) 21,638 33,688 1.30 1.32 1.04 .73 .34 (.14) .47 .67 1.30 1.23 1.04 .73 .34 (.14) .47 .67 .16 .20 37,253 36,984 37,263 36,579 36,450 33,000 46,350 49,995 757,125 798,877 747,776 793,569 841,379 882,108 880,541 80,831 556,285 535,535 404,142 405,000 409,279 408,765 399,037 402,820
MULTIMEDIA, INC. AND SUBSIDIARIES 23 CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(In thousands except per-share data) 1994 1993 1992 Operating revenues: Newspapers $150,140 135,920 132,485 Broadcasting 142,841 133,035 137,188 Cable 165,406 164,598 144,383 Entertainment 147,512 161,588 129,122 Security 24,584 16,750 10,262 Total operating revenues 630,483 611,891 553,440 Operating costs and expenses: Production 229,390 229,385 202,865 Selling, general and administrative 158,248 147,903 134,488 Depreciation and amortization 53,402 50,200 42,982 Total operating costs and expenses 441,040 427,488 380,335 Operating profit 189,443 184,403 173,105 Interest expense 59,142 61,996 71,820 Other income (expense), net 25,584 1,494 (447) Earnings before income taxes, minority interest and cumulative effect of changes in accounting principles 155,885 123,901 100,838 Income taxes 64,693 38,703 41,343 Minority interest in subsidiaries'losses (income), net (1,163) 320 1,009 Earnings before cumulative effect of changes in accounting principles 90,029 85,518 60,504 Cumulative effect of changes in accounting principles 14,332 Net earnings $ 90,029 99,850 60,504 Earnings per share before cumulative effect of changes in accounting principles $ 2.35 2.23 1.61 Cumulative effect of changes in accounting principles .37 Earnings per share $ 2.35 2.60 1.61 Weighted average shares 38,279 38,374 37,593
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. MULTIMEDIA, INC. AND SUBSIDIARIES 24 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(In thousands) 1994 1993 1992 Common Stock: Balance at beginning of year $ 3,721 3,680 3,507 Stock options exercised 41 41 173 Balance at end of year 3,762 3,721 3,680 Additional paid-in capital: Balance at beginning of year 177,689 164,367 140,435 Stock options exercised 4,453 6,882 7,676 Tax benefit from exercise of employee stock options 2,691 2,084 12,875 Amortization of stock options 3,391 4,356 3,381 Balance at end of year 188,224 177,689 164,367 Retained earnings (deficit): Balance at beginning of year (358,930) (458,780) (519,284) Net earnings 90,029 99,850 60,504 Balance at end of year (268,901) (358,930) (458,780) $ (76,915) (177,520) (290,733)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. MULTIMEDIA, INC. AND SUBSIDIARIES 25 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(In thousands) 1994 1993 1992 Cash flows from operating activities: Net earnings $ 90,029 99,850 60,504 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 53,402 50,200 42,982 Amortization of program rights 13,189 14,035 18,277 Amortization of debt issue costs 1,112 1,117 1,058 Cumulative effect of changes in accounting principles (14,332) Minority interest in subsidiaries'(losses) income, net 1,163 (320) (1,009) Amortization of stock options 3,391 4,356 3,381 Gain on disposal of assets, net (25,001) (739) Increase (decrease) in deferred income taxes 9,559 (3,516) 788 (Increase) decrease in current assets: Trade accounts receivable (9,075) (6,276) (6,830) Inventories, deferred income tax benefits, deferred program costs and prepaid expenses and other (4,670) (7,972) 12 Increase (decrease) in current liabilities: Accounts payable, accrued payroll and accrued expenses 10,514 8,144 6,133 Accrued interest (328) (5,412) (1,887) Income taxes payable (2,539) 17,199 7,884 Unearned income 1,354 1,714 1,299 Net cash flows provided by operating activities 142,100 158,048 132,592 Cash flows from investing activities: Additions to property, plant and equipment (83,028) (47,378) (37,493) Proceeds from disposal of assets 48,475 4,678 Acquisitions of properties (11,045) (13,170) (78,710) Other (1,077) (4,485) 1,224 Net cash (used for) investing activities (46,675) (60,355) (114,979) Cash flows from financing activities: Addition (reduction) in revolving credit, net (28,000) (59,000) 20,500 Long-term debt retired (64,440) (21,998) (31,630) Program rights payments (12,777) (17,454) (16,463) Proceeds from exercise of employee stock options 4,363 6,923 7,849 Other 597 272 10 Net cash (used for) financing activities (100,257) (91,257) (19,734) Increase (decrease) in cash and cash equivalents (4,832) 6,436 (2,121) Cash and cash equivalents, beginning of year 11,034 4,598 6,719 Cash and cash equivalents, end of year $ 6,202 11,034 4,598
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. MULTIMEDIA, INC. AND SUBSIDIARIES 26 CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1993
(In thousands except share data) 1994 1993 ASSETS Current assets: Cash and cash equivalents $ 6,202 11,034 Trade accounts receivable, less allowances for discounts and uncollectible accounts of $4,818 in1994 and $3,713 in1993 93,426 85,756 Inventories 4,643 4,408 Deferred income tax benefits 9,581 8,856 Program rights 7,570 8,476 Deferred program costs 10,923 9,670 Prepaid expenses and other 6,795 5,516 Total current assets 139,140 133,716 Property , plant and equipment, at cost: Land and land improvements 5,295 5,313 Buildings 42,701 39,155 Broadcasting equipment 52,294 53,898 Publishing equipment 60,857 58,599 Cable equipment 309,718 272,899 Other equipment and fixtures 83,698 68,559 Construction in progress 4,186 1,710 558,749 500,133 Less accumulated depreciation 283,522 259,371 Net property, plant and equipment 275,227 240,762 Intangible assets, net 242,078 251,356 Other assets 27,533 29,340 $ 683,978 655,174 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current installments of long-term debt $ 30,254 393 Accounts payable 24,512 20,557 Accrued interest 2,671 2,999 Accrued payroll 8,386 5,884 Accrued expenses 38,148 30,465 Income taxes payable 10,202 15,432 Program rights payable 7,793 8,540 Unearned income 20,556 19,416 Total current liabilities 142,522 103,686 Long-term debt, excluding current installments 542,303 664,604 Deferred income taxes 54,090 44,046 Other liabilities 3,294 2,837 Minority interest 18,684 17,521 Stockholders'equity (deficit): Common stock of $.10 par value per share. Authorized100,000,000 shares and issued 37,620,000 shares in1994 and 37,210,000 shares in1993 3,762 3,721 Additional paid-in capital 188,224 177,689 Retained earnings (deficit) (268,901) (358,930) Total stockholders'equity (deficit) (76,915) (177,520) $ 683,978 655,174
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. MULTIMEDIA, INC. AND SUBSIDIARIES 27 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 inter- company 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 origi- nal maturities of three months or less. Cash investments totaled $11,345,000 at December 31, 1994. Cash investments with banks totaled $11,135,000 at December 31, 1993. 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 a straight-line basis over the estimated useful lives of the respective assets. Depreciation expense for 1994, 1993 and 1992 was $39,025,000, $35,422,000 and $31,710,000, 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. PROGRAM RIGHTS Program rights represent agreements with programming 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 correspond- ing 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 is 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 acqui- sitions 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. The Company assesses the recoverability of these intangible assets by determining whether the amortization of the balance over its remaining life can be recovered through projected undiscounted future cash flows. 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 an adjustment to interest expense in the period incurred. The net swap settlement amounts for 1994, 1993 and 1992 resulted in charges to interest expense of $1.1 million, $2.1 million and $7.8 million, respectively. The interest rate swap and cap agreements expire at various times from 1995 through 1997. The Company believes that the sellers of the swap and cap agreements will be able to meet their obligations under the agreements. The purpose of the Company's involvement in interest rate swaps and caps is to minimize the Company's exposure to interest rate fluctuations on its floating rate debt. The Company believes that it has no material concentration of credit or market risks with respect to these interest rate protection agreements. INCOME TAXES Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes." 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 MULTIMEDIA, INC. AND SUBSIDIARIES 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS rates in effect for the year in which those temporary differ- ences are expected to be recovered or settled. 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. In 1992, pursuant to APB Opinion 11, deferred income taxes were recognized for income and expense items that were reported in different years for financial reporting purposes and income tax purposes using the tax rate applic- able for the year of the calculation. 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. 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. ACCOUNTING CHANGES Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 required a change from the deferred method, under APB Opinion 11, to the asset and liability method of accounting for income taxes. The cumulative effect of this change in accounting ($15.4 million) was determined as of January 1, 1993. 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. The net cumulative effect of the above changes ($14.3 million) is reported separately in the 1993 consoli- dated statement of earnings.The effect of these changes on earnings before cumulative effect of changes in accounting principles in 1993 was not material. Financial statements for years prior to 1993 have not been restated. Beginning January 1, 1994, the Company began reporting operating revenues for its television and radio stations net of agency commissions and national represen- ation fees. The prior years' consolidated statements of earnings have been restated to reflect this change. This change has no impact on net earnings or earnings per share. (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 1994, the Company purchased the accounts of existing security alarm monitoring companies for approximately $7,200,000 in cash. The purchase price has been assigned to property, plant and equipment ($3,500,000) and other assets ($3,700,000). Other acquisitions for 1994 included a small cable television system and the purchase of the remaining 20% interest in certain Illinois cable franchises. The purchase price of these other acquisitions is considered immaterial. In 1993, the Company purchased the accounts of existing security alarm monitoring companies for approx- imately $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 on January 1, 1992, 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 MULTIMEDIA, INC. AND SUBSIDIARIES 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) ACQUISITIONS (CONTINUED) 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 Total operating revenues $585,878 Net earnings 58,105 Earnings per share 1.55
In February 1992, the Company also purchased an Illinois cable television system with approximately 5,000 subscribers for approximately $9,500,000 in cash. The pur- chase price has been assigned to property, plant and equipment ($8,400,000) and intangibles ($1,100,000). In 1992, the Company also purchased the accounts of existing security alarm monitoring companies for approx- imately $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. The operations of all acquired businesses for the three year period ended December 31, 1994, have been included in the consolidated statements of earnings since the dates of acquisition. Other than the Indiana cable tele- vision 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) 1994 1993 Deferred loan costs, net of accumulated amortization of $5,505 in1994 and $4,372 in 1993 $ 5,646 6,780 Deferred costs, net of accumulated amortization of $12,232 in 1994 and $9,995 in1993 14,740 14,376 Program rights 56 318 Other 7,091 7,866 Total $27,533 29,340
(5) INTANGIBLE ASSETS Intangible assets include:
(In thousands) 1994 1993 Excess of cost over net tangible assets: 30-40 year life $205,597 209,149 10-20 year life 7,810 7,804 Franchise costs: 30-40 year life 43,986 41,266 10-20 year life 38,867 37,899 Less accumulated amortization (73,038) (63,803) Amounts not being amortized 18,856 19,041 Total $242,078 251,356
(6) LONG-TERM DEBT A summary of long-term debt follows:
(In thousands) 1994 1993 Bank credit facility: Term loan $102,000 166,000 Revolving credit 33,500 61,500 Senior notes 400,000 400,000 Note payable 36,750 36,750 Notes payable in quarterly or annual installments through June 1998 307 747 Total long-term debt 572,557 664,997 Less current installments 30,254 393 Long-term debt, excluding current installments $542,303 664,604
BANK CREDIT FACILITY The bank credit facility is comprised of a $355 million revolving credit line and a $102 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 31,1994 $355,000 102,000 457,000 December 31,1995 290,000 76,000 366,000 December 31,1996 225,000 50,000 275,000 December 31,1997 160,000 24,000 184,000 December 31,1998 90,000 90,000 December 31,1999 30,000 30,000 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, 1994, the interest rate (approx- imately 6.8%) 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 MULTIMEDIA, INC. AND SUBSIDIARIES 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 effec- tively fix the LIBOR rate on $75 million of its floating rate debt at approximately 5.7%. These interest rate swap agree- ments expire at various times between June 1996 and November 1996. The Company also has an interest rate cap agreement which effectively caps LIBOR on $25 million of its floating rate debt at approximately 7.0%, which expires in December 1995. In addition, the Company has an inter- est 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 aver- age life of 10 years and bear interest at a composite rate of approximately 10.7%. The remaining average life is 5.5 years. Information regarding each series follows:
Principal Interest (In thousands) Due Dates Amount Rate2 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 E1 June 29,1999 240,000 10.92% through June 29, 2005 $400,000
1One-seventh of the principal amount due each June 29 for the years 1999 to 2005. 2Interest 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) incur- rence of indebtedness; (iv) acquisitions outside of the Company's current lines of business; (v) liens; (vi) invest- ments; (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 1990, 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 that note ($36.8 million), which bears interest at a rate of 10% payable semi-annually on January 15 and July 15. The principal amount is due in full on December 26, 1997. OTHER The other notes payable include a $20,000,000 commit- ment to the Company which expires on July 28, 1995. There were no outstanding borrowings at December 31, 1994, under this commitment. The interest rate on this commitment is the overnight Federal Funds rate plus 1.50% or competitive bid rates, as available. A commit- ment 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%. The minimum aggregate annual repayments of long-term debt during the next five years, excluding the bank credit facility, are as follows (in thousands): 1995, $30,254; 1996, $30,062; 1997, $66,777; 1998, $70,012; 1999, $34,286. (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 and on the current rates offered to the Company for debt of the same remaining maturities. The fair value of program rights payable is the present value of the future obligations. MULTIMEDIA, INC. AND SUBSIDIARIES 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (7) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) Estimated fair values of the Company's financial instruments are as follows:
(In thousands) 1994 Carrying Fair Assets: Amount Value Interest rate cap agreements $ 524 654 Interest rate swap agreements - 2,564 Liabilities: Long-term debt: Bank credit facility 135,500 135,500 Senior notes 400,000 429,638 Note payable 36,750 37,856 Other notes payable 307 307 Program rights payable 7,793 7,514
(8) INCOME TAXES Total income tax expense for the years ended December 31, 1994 and 1993 was allocated as follows:
(In thousands) 1994 1993 Income from continuing operations $64,693 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 (2,691) (2,084) Total income tax expense $62,002 35,864
Income tax expense (benefit) includes: (In thousands) 1994 1993 1992 Federal: Current $46,260 28,905 33,821 Deferred 7,827 1,844 263 54,087 30,749 34,084 State: Current 9,114 7,783 7,369 Deferred 1,492 171 (110) 10,606 7,954 7,259 Total $64,693 38,703 41,343
The items comprising the difference in taxes on income computed at the U.S. statutory rates (35% in 1994 and 1993 and 34% in 1992) and the amounts provided follow: (In thousands) 1994 1993 1992 [S] [C] [C] [C] Computed expected tax expense $54,560 43,365 34,285 Increase (reduction) in tax expense resulting from: State income taxes, net of Federal income tax benefit 6,894 5,170 4,791 Amortization 1,822 1,796 1,756 Reduction for settlement of IRS exam (12,372) Additional provision for (reduction in) income taxes 902 (365) 799 Other, net 515 1,109 (288) Actual tax expense $64,693 38,703 41,343 The significant components of deferred income tax expense attributable to income from continuing opera- tions for the years ended December 31, 1994 and 1993 are as follows:
(In thousands) 1994 1993 Deferred tax expense (exclusive of the effect of the f ollowing item) $9,319 1,195 Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates 820 $9,319 2,015
For the year ended December 31, 1992, deferred income tax expense (benefit) of $153,000 resulted 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 Accelerated depreciation $ 304 Amortization (1,108) Accrued expenses and allowances (717) Other, net 1,674
$ 153 MULTIMEDIA, INC. AND SUBSIDIARIES 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993 are presented below:
(In thousands) 1994 1993 Deferred tax assets: Amortization of stock options $ 4,225 3,214 Accrued expenses and allowances 10,249 10,294 Total gross deferred tax assets 14,474 13,508 Less-valuation allowance Net deferred tax assets 14,474 13,508 Deferred tax liabilities: Accelerated depreciation 51,661 38,911 Amortization 6,856 9,018 Other, net 466 769 Total gross deferred tax liabilities 58,983 48,698 Net deferred tax liability $44,509 35,190
Management believes that a valuation allowance is not necessary based upon the level of historical tax- able 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 involved purchase price alloca- tions related to cable acquisitions and characterization of professional fees incurred in 1985 and was less than the amounts previously accrued. This agreement resulted in a reduction in income taxes. The IRS has issued notices of deficiency with regard to the Company's tax returns for 1987through 1989. The Company is contesting these deficiencies. The deficien- cies principally involve various acquisition issues related primarily to the cable division. The Company is continu- ing to vigorously contest the assessments, but the ultimate resolution of these matters cannot be ascertained at this time. The Company believes that it has adequately provided for agreed-upon and potential deficiencies, including interest. (9) COMMON STOCK, STOCK OPTIONS AND PREFERRED STOCK 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's 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 of the stock on the date of grant was $3.33 per share. Options for 679,810 shares were outstanding on December 31, 1991, all of which were exercised in 1992. No options remain outstand- ing under this plan. 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 of the stock 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. Options for 264,555 shares were outstanding on December 31, 1991. Options for 64,555 shares were exercised in 1992, and options for 200,000 shares were exercised in 1994. No options remain outstanding under this plan. 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's 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 or a committee thereof, have been determined based on the market values on dates of grant, except for 1,542,400 options granted in 1987through 1992 at prices ranging from $3.33 to $23.00 per share. Information regarding options under the New Key Executive Plan, MULTIMEDIA, INC. AND SUBSIDIARIES 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) COMMON STOCK, STOCK OPTIONS AND PREFERRED STOCK (CONTINUED) 1991 Stock Option Plan, Director's Stock Option Plan and Donahue and Sally Jessy Raphael agreements follows:
1994 1993 1992 Outstanding at January 1: Options 2,555,640 2,755,700 3,340,173 Price $ 3.33- $ 3.33- $ 3.33- $ 35.00 $ 29.00 $ 28.67 Granted: Options 827,500 385,000 448,000 Price $ 26.25- $ 32.13- $ 15.00- $ 34.25 $ 35.00 $ 29.00 Forfeited or cancelled: Options 162,300 178,280 38,550 Price $ 15.00- $ 3.33- $ 15.21- $ 34.25 $ 35.00 $ 27.10 Exercised: Options 200,560 406,780 993,923 Price $ 9.92- $ 3.33- $ 3.33- $ 29.00 $ 27.10 $ 27.10 Outstanding at December 31: Options 3,020,280 2,555,640 2,755,700 Price $ 3.33- $ 3.33- $ 3.33- $ 35.00 $ 35.00 $ 29.00 Exercisable at December 31: Options 1,685,347 1,365,698 1,171,770 Price $ 3.33- $ 3.33- $ 3.33- $ 34.75 $ 35.00 $ 28.67
Compensation expense of $3,390,750, $4,356,000 and $3,381,000 is included in selling, general and admin- istrative expense in 1994, 1993 and 1992, 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. (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 share- holders, 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 combi- nation 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 bene- ficial 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 unexer- cised, the Rights expire September 6, 1999. (11) OTHER INCOME (EXPENSE) Other income (expense) includes:
(In thousands) 1994 1993 1992 Gain on disposal of assets , net $25,001 739 --- Interest income 779 904 82 Other, net (196) (149) (529) $25,584 1,494 (447)
In August 1994, the Company sold its wireless cable operations for $35.1 million resulting in a gain of $22.0 million before taxes. In addition, throughout 1994, the Company sold its radio properties in Milwaukee, Wisconsin; Shreveport, Louisiana; and Greenville, South Carolina. The proceeds from these transactions were $13.3 million resulting in gains of $8.1 million before taxes. The Company also discontinued its made-for-television movies business in 1994, resulting in losses of $3.4 million before taxes. 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, is net of approxi- mately $3.0 and $1.0 million in 1994 and 1993, respectively, in writeoffs of cable equipment related to rebuilds. Interest income includes $.5 and $.8 million, respectively, in 1994 and 1993, 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. MULTIMEDIA, INC. AND SUBSIDIARIES 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. Assets held by the pension plans include equity securities, corporate and government bonds, and cash and short term assets. The weighted average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obliga- tion were 8.0% and 6.5%, respectively, in 1994, and 7.25% and 6.5%, respectively, in 1993. The expected long-term rate of return on assets was 8% in 1994 and 1993. The following tables set forth the pension plans' funded status and amounts recognized in the Company's consolidated financial statements at December 31, 1994, 1993 and 1992:
(In thousands) 1994 1993 Actuarial present value of accumulated benefit obligation, including vested benefits of $35,218 in 1994 and $36,308 in 1993 $36,846 37,854 Projected benefit obligation $48,698 50,603 Plan assets at fair value 57,127 59,817 Excess of plan assets over the projected benefit obligation $ 8,429 9,214 Unrecognized net gain (2,341) (2,704) Unrecognized net asset being amortized over an average of 17 years (4,605) (5,180) Other (1,601) (1,298) Prepaid (accrued) pension costs included in other assets $ (118) 32
(In thousands) 1994 1993 1992 Net pension expense (income) included the following components: Service cost $ 2,183 2,206 1,942 Interest cost 3,528 3,312 3,029 Actual return on plan assets 583 (5,310) (3,547) Net deferral and amortization (6,099) 20 (1,654) Net pension expense (income) $ 195 228 (230)
THRIFT PLAN The Company and its subsidiaries have a salary deferral thrift plan for all eligible employees. The Company and its subsidiaries match contributions by employees up to 2% of their salaries. Company contributions charged to operations in 1994, 1993 and 1992 were $1,405,000, $1,359,000 and $1,216,000, 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 contribu- tions, co-insurance provisions, limitations on the Company's obligation and service-related eligibility requirements. The net postretirement benefit liability and periodic post- retirement benefit cost associated with these plans are not material. SUPPLEMENTAL RETIREMENT PROGRAM The Company has 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, 1994 and 1993 was $2,058,000 and $1,355,000, respectively. The expense for 1994, 1993 and 1992 was $703,000, $606,000 and $519,000, respectively. MULTIMEDIA, INC. AND SUBSIDIARIES 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (13) QUARTERLY OPERATING RESULTS (UNAUDITED) The Company's quarterly operating results for 1994 and 1993 are presented below.
(In thousands except per-share data) Quarter Ended March 31 June 30 September 30 December 31 1994 Operating revenues $146,419 159,231 152,650 172,183 Operating profit 40,918 49,851 47,713 50,961 Net earnings 17,334 19,443 30,469 22,783 Net earnings per share .45 .51 .80 .59 1993 Operating revenues $139,521 157,062 147,816 167,492 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 be ore cumulative effect of changes in accounting principles .40 .48 .79 .56 Net earnings per share .77 .48 .79 .56
(14) INDUSTRY SEGMENTS Financial information by industry segment for each of the years in the three-year period ended December 31, 1994, is summarized below:
(In thousands) 1994 1993 1992 Operating revenues: Newspapers $150,140 135,920 132,485 Broadcasting 142,841 133,035 137,188 Cable 165,406 164,598 144,383 Entertainment 147,512 161,588 129,122 Security 24,584 16,750 10,262 $630,483 611,891 553,440 Operating profit: Newspapers 45,427 37,667 37,698 Broadcasting 51,756 38,816 38,191 Cable 52,555 56,645 50,692 Entertainment 52,074 63,285 55,841 Security 3,048 1,838 1,818 204,860 198,251 184,240 Less corporate expenses (15,417) (13,848) (11,135) $189,443 184,403 173,105 Depreciation and amortization: Newspapers 5,868 6,049 5,962 Broadcasting 8,600 9,031 9,888 Cable 31,569 28,817 22,387 Entertainment 1,158 2,024 1,960 Security 6,050 4,140 2,640 53,245 50,061 42,837 Corporate 157 139 145 $ 53,402 50,200 42,982
(In thousands) 1994 1993 1992 Additions to property , plant and equipment: Newspapers 6,542 4,611 6,785 Broadcasting 4,892 4,025 5,142 Cable 57,724 32,413 22,159 Entertainment 1,603 497 574 Security 11,881 5,704 2,739 82,642 47,250 37,399 Corporate 386 128 94 $ 83,028 47,378 37,493 Identifiable assets: Newspapers 91,902 89,473 90,872 Broadcasting 189,344 192,596 200,679 Cable 278,168 256,990 251,700 Entertainment 51,840 50,222 35,792 Security 60,543 47,336 31,894 671,797 636,617 610,937 Corporate 12,181 18,557 17,008 $683,978 655,174 627,945
MULTIMEDIA, INC. AND SUBSIDIARIES 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 adver- tisers and network revenue. Cablevision operations involve the provision of broadcast signals of television and radio stations owned by others to subscribers whose monthly payments are the primary source of revenues. Entertainment operations generate revenue from program- ming, talent and production operations. Security operations involve the monitoring, installation and servicing of secu- rity systems. Operating profit is total revenues less operating expenses. Interest expense, net other income (expense) and income taxes have been excluded in comput- ing operating profit. Identifiable assets by industry segment represent those assets used in the Company's oper- ations in that segment. (15) CASH FLOW INFORMATION Net cash provided by operating activities is further analyzed as follows:
(In thousands) 1994 1993 1992 Operating profit plus depreciation, amortization and amortization of stock options: Newspapers $ 51,295 43,716 43,660 Broadcasting 60,356 47,847 48,079 Cable 84,124 85,462 73,079 Entertainment 53,232 65,309 57,801 Security 9,098 5,978 4,458 Corporate (11,869) (9,354) (7,609) 246,236 238,958 219,468 Cash payments for interest (58,358) (61,636) (72,649) Cash payments for taxes, net of refunds (58,431) (32,016) (33,275) Amortization of program rights 13,189 14,035 18,277 Other (536) (1,293) 771 Net cash flows provided by operating activities $142,100 158,048 132,592
The Company entered into contracts for program rights totalling $12,052,000, $12,977,000 and $14,218,000 for 1994, 1993 and 1992, respectively, which are not reflected in the consolidated statements of cash flows or the above schedule. (16) COMMITMENTS At December 31, 1994, the Company had commitments for purchases of syndicated television programming of $27.2 million through 2000 and commitments for purchases of property, plant and equipment of $17.0 million ($13.9 million relates to construction of a new production facility at the Company's Montgomery, Alabama, newspaper oper- ation). Commitments relating to rebuilds and upgrades to cable franchises to be performed through 1996 were approx- imately $12.7million at year-end. In addition, the Company periodically enters into contractual agreements with talent in the entertainment and broadcasting businesses. During the first quarter of 1995, the Company com- pleted the trade of certain of the Company's cable systems in Oklahoma and Illinois with 40,500 cable subscribers for Telecommunications, Inc.'s cable systems in Wichita, Kansas, with 50,400 subscribers. The Company paid $12.4 million in cash as part of this transaction. The transaction will be accounted for as a nonmonetary transaction. MULTIMEDIA, INC. AND SUBSIDIARIES 37 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, 1994 and 1993 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, 1994. These consolidated financial statements are the responsibility of the Company's manage- ment. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with gener- ally 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 assess- ing 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of account- ing 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 Note 1, the Company also adopted in 1993 the provisions of the Financial Accounting Standards Board's SFAS No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. (KPMG Peat Marwick LLP signature appears here) KPMG Peat Marwick LLP Greenville, South Carolina February 10, 1995 MULTIMEDIA, INC. AND SUBSIDIARIES 38 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 infor- mation 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 considera- tion 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 proce- dures are carefully followed. Because of inherent limitations in any system, there can be no absolute assurance that errors or irregularities will not occur. Nevertheless, manage- ment 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 con- duct of the Company's business. The Company's financial statements have been audited by KPMG Peat Marwick LLP, 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 presen- tation of the financial statements. In performing their audit, KPMG Peat Marwick LLP 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 inter- nal 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 unre- stricted access to the Audit Committee, with and without the presence of management, to discuss accounting, audit- ing 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 10, 1995 MULTIMEDIA, INC. AND SUBSIDIARIES 39 OFFICERS DONALD D.SBARRA Chairman of the Board and Chief Executive Officer DOUGLAS J.GREENLAW President and Chief Operating Officer ROBERT E.HAMBY JR. Senior Vice President-Finance and Administration, and Chief Financial Officer MICHAEL C.BURRUS Vice President; President, Multimedia Cablevision Co. JAMES M.HART Vice President; President, Multimedia Broadcasting Co. W.DEBERNIERE MEBANE Vice President; President, Multimedia Newspaper Co. ROBERT L.TURNER Vice President; President, Multimedia Entertainment Co. THOMAS L.MAGAHA Vice President-Development FREDERICK G.LOHMAN Vice President-Controller ALAN D.AUSTIN Treasurer J. CLYDE BAUCOM Vice President-Personnel and Benefits CLAUDIA I.PRICE Vice President-Taxes DAVID L.FREEMAN Secretary SANDRA W.HARBERT Assistant Secretary BOARD OF DIRECTORS DONALD D.SBARRA1 Chairman of the Board and Chief Executive Officer, Multimedia, Inc. GEORGE H.V.CECIL2,5 President, Biltmore Farms, Inc. RHEA T.ESKEW4,5 Consultant to the Company; former President, Multimedia Newspaper Company DAVID L.FREEMAN1,3,6 Secretary of the Company; attorney, partner, Parham, P.A. DOUGLAS J.GREENLAW1 President and Chief Operating Officer, Multimedia, Inc. ROBERT E.HAMBY JR.1 Senior Vice President-Finance and Administration, and Chief Financial Officer, Multimedia Inc. M.DEXTER HAGY1,2,5 President, Chairman, VAXA Corporation JOHN T.LAMACCHIA3,5 President and Chief Executive Officer, Cincinnati Bell Inc. LESLIE G.MCCRAW2,5 Chairman of the Board and Chief Executive Officer, Fluor Corporation DOROTHY P.RAMSAUR 4,5 Private investments ELIZABETH P.STALL3,4,5,6 Private investments WILLIAM C.STUTT1,3,5,6 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 MULTIMEDIA, INC. AND SUBSIDIARIES 40 SHAREHOLDER INFORMATION 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, 37,619,528 shares. On December 31, 1994, there were 1,181 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 1993 or 1994. Corporate Headquarters Multimedia, Inc. 305 S. Main St. Greenville, S.C. 29601 Mailing Address: P.O. Box 1688 Greenville, S.C. 29602 Investor Information Requests for the Form 10-K for the year ended December 31, 1994, and other financial information should be directed to the Corporate Communications Department at the above address, or telephone (803)298-4203. Annual Meeting The annual meeting of shareholders will be held at 2:00 p.m. on Wednesday, April 19, 1995, in the Roe Cabaret Theatre, Peace Center for the Performing Arts, 300 South Main Street, Greenville, South Carolina. All shareholders are cordially invited to attend. Auditors KPMG Peat Marwick LLP Greenville, S.C. Stock Transfer Agent and Registrar Wachovia National Bank of North Carolina, N.A. Corporate Trust Department P.O. Box 3001 Wintston-Salem, N.C. 27102 1(800)633-4236 (recycle logo appears here) Multimedia Inc. encourages the principle of recycling and advocates the use of recycled newsprint in the production of its publications. The 1994 Annual Report is printed entirely on recycled papers. Multimedia, Inc. P.O. Box 1688 (Multimedia logo appears here) Greenville, South Carolina 29602 (803) 298-4373 ***************************************************************************** APPENDIX On Page 1 there are three bar graphs that appear where noted with plot points as noted. On Page 2 there are 5 photos in the far left column as noted: paper on a press; a satelite dish; fiber optic wire; a hand holding a microphone; and a security keyboard. On Page 3 there are 10 bar graphs that appear where noted with plot points as noted. On Page 5 photos of Donald D. Sbarra, Douglas J. Greenlaw and Robert E. Hamby, Jr. appear in the far right column as noted. On Page 6 a photo of W. deBerniere Mebane appears as noted. On Page 7 there are 2 photos of presses printing newspaper; 1 appears across the top half of the page and 1 in the lower left corner, as noted. On Page 8 a photo of James M. Hart appears as noted. On Page 9 a photo of 3 newscaster taping a newscast appears across the top half of the page and a photo of a satellite dish appears in the lower left corner, as noted. On Page 10 a photo of Michael C. Burrus appears as noted. On Page 11 a photo of a TV studio with monitors and 2 people appears across the top half of the page and a close-up of fiber optic cable appears in the lower left corner, as noted. On Page 12 a photo of Robert L. Turner appears as noted. On Page 13 the top half of the page is divided into six photos, one of each talk show host: Phil Donahue, Sally Jessy Raphael, Jerry Springer, Rush Limbaugh, Susan Powter and Dennis Prager. A photo of a hand holding a micro- phone appears in the lower left corner. (All as noted.) On Page 14 a photo of Michael C. Burrus appears as noted. On Page 15 a photo of 2 people working in a security computer room appear across the top half of the page and a close-up photo of a security keyboard appears in the lower left corner, as noted. On Page 16 a map of the US appears with Multimedia headquarters and properties indicated. Below the map is a list of properties, as noted. On the back cover, the Multimedia logo appear half way down the page, at the left margin, with Multimedia's address and phone number to the right of it, as noted. EX-21 7
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 WMAZ-AM/WAYS-FM 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 Radio, Inc. SC Multimedia Productions, Inc. OH 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 MNC Direct, Inc. SC Multimedia Entertainment, Inc. SC WLWT TV Multimedia Entertainment Company Multimedia Entertainment of South Carolina Multimedia Programs, Inc. OH Multimedia of Cincinnati, Inc. OH Multimedia Motion Pictures, Inc. SC Multimedia Films, Inc. SC Multimedia Specials, Inc. SC Exhibit 21 (Continued) Multimedia, Inc. Subsidiaries of the Registrant Name of State of Names under which Corporation Incorporation does business MPPI, Inc. SC MPPI of South Carolina, Inc. Multimedia Cablevision, Inc. SC Multimedia Security Service Red Carpet Cable, Inc. OK Multimedia Service, Inc. SC Multimedia Security Service, Inc. SC Multimedia Cablevision of Batavia, Inc. IL Multimedia Cablevision of Evergreen Park, Inc. IL Multimedia Cablevision of Hometown, Inc. IL Multimedia Cablevision of Chicago Ridge, Inc. IL Multimedia Cablevision of Illinois, Inc. IL 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 Multimedia Entertainment Productions, Inc. SC Multimedia Home Video, Inc. DE Multimedia Talk Channel, Inc. DE NewsTalk Television
EX-23 8 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 10, 1995, relating to the consolidated balance sheets of Multimedia, Inc. and subsidiaries as of December 31, 1994 and 1993 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, 1994, and the related schedule which reports appear in the December 31, 1994 annual report on Form 10-K of Multimedia, Inc. [Signature of KPMG Peat Marwick LLP] Greenville, South Carolina March 23, 1995 EX-99 9 EXHIBIT 99 MULTIMEDIA, INC. 305 SOUTH MAIN STREET P.O. BOX 1688 GREENVILLE, SOUTH CAROLINA 29602 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 19, 1995 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 19, 1995, at the Roe Cabaret 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 LLP as independent auditors of the Company for 1995. 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, 1995, 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, 1995 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 19, 1995 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 19, 1995, at the Roe Cabaret 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, 1995. Only shareholders of record at the close of business on March 3, 1995, are entitled to notice of and to vote at the meeting. As of such date, there were outstanding 37,628,478 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. Except as otherwise noted below, the business address of each nominee is Multimedia, Inc., 305 South Main Street, Greenville, South Carolina 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 PRINCIPAL OCCUPATION SINCE OUTSTANDING) (20) George H. V. Cecil Chairman of Biltmore Farms, Inc., 1975 21,000 (*) P.O. Box 5355, Asheville, North Carolina 28813 (Real Estate Development and Investments), Age 70 (1)(15)(17) Rhea T. Eskew Consultant to the Company, 1979 19,400 (*) 400 Huntington Road Greenville, South Carolina 29615, Age 71 (2)(16)(17) David L. Freeman Secretary of the Company and a 1984 83,800 (*) member of the law firm of Wyche, Burgess, Freeman & Parham, P.A., 44 E. Camperdown Way, Greenville, South Carolina 29601, Age 70 (3)(13)(14)(18) Douglas J. Greenlaw President and Chief Operating 1994 -- (*) Officer of the Company, Age 50 (4)(13) M. Dexter Hagy President of Vaxa Corporation, 1994 7,000 (*) Nations Bank Plaza, Suite 606, Greenville, South Carolina 29601 (Investment Holding Company), Age 50 (5)(13)(15)(17) Robert E. Hamby, Jr. Senior Vice President Finance and 1990 141,231 (*) Administration and Chief Financial Officer of the Company, Age 48 (6)(13)
2
SHARES BENEFICIALLY DIRECTOR OWNED (% OF NAME PRINCIPAL OCCUPATION SINCE OUTSTANDING) (20) John T. LaMacchia President and Chief Executive 1989 6,600 (*) Officer and Director of Cincinnati Bell Inc., 201 East 4th Street, Cincinnati, Ohio 45202 (Telephone Company), Age 53 (7)(14)(17) Leslie G. McCraw Chairman of the Board and Chief 1990 6,600 (*) Executive Officer of Fluor Corporation, 3333 Michelson Drive, Irvine, California 92730 (Engineering and Construction), Age 60 (8)(15)(17) Dorothy P. Ramsaur Homemaker active in the supervision 1986 1,566,822 (4.16%) of personal and family investments, 1 Rockingham Road, Greenville, South Carolina 29607, Age 68 (9)(16)(17) Donald D. Sbarra Chairman of the Board and Chief 1988 31,200 (*) Executive Officer of the Company, Age 64 (10)(13) Elizabeth P. Stall Homemaker active in civic affairs 1986 63,382 (*) and in the supervision of personal and family investments, 11 Sirrine Drive, Greenville, South Carolina 29605, Age 63 (11)(14)(16)(17)(18) William C. Stutt Limited Partner of Goldman Sachs 1981 28,000 (*) Group, L.P., 85 Broad Street, New York, New York 10004 (Investment Banking), Age 67 (12)(13)(14)(17)(18) All Directors and Executive 2,289,804 (6.01%)(19) Officers as a Group (17 persons)
(*) Less than 1%. (1) Mr. Cecil is a Director of Carolina Power & Light Co. The number of shares shown as beneficially owned by Mr. Cecil includes 6,000 shares covered by options under the Director Stock Option Plan. (2) 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 1984. The number of shares shown as beneficially owned by Mr. Eskew includes 6,000 shares covered by options under the Director Stock Option Plan. (3) 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 3 number of shares shown as beneficially owned by Mr. Freeman includes 8,800 shares covered by options but does not include 8,200 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. (4) Mr. Greenlaw was elected President and Chief Operating Officer in August 1994. Mr. Greenlaw was Chairman and Chief Executive Officer of the Ventures Division of Whittle Communications, Ltd. from December 1991 until August 1994. He was Executive Vice President of MTV Networks, Inc., a subsidiary of Viacom, Inc., from 1987 until December 1991. The number of shares shown as beneficially owned by Mr. Greenlaw does not include 50,000 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. (5) From 1991 through 1993, Vaxa Corporation owned and Mr. Hagy operated Siteguard Security Holding Company, a security alarm business headquartered in Greenville, South Carolina. Mr. Hagy is a Director of Carolina First Corporation. The number of shares shown as beneficially owned by Mr. Hagy includes 5,000 shares covered by an option under the Director Stock Option Plan. Mr. Hagy's initial report on Form 3 under the Securities Exchange Act of 1934, as amended, was filed late. (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 123,000 shares covered by options but does not include 59,000 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, of 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 6,000 shares covered by options under 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 6,000 shares covered by options under 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 6,000 shares covered by options under the Director Stock Option Plan. 4 (10) Mr. Sbarra was elected Chairman of the Board and Chief Executive Officer of the Company in June 1994. He 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 April 1981 to April 1993. The number of shares shown as beneficially owned by Mr. Sbarra includes 25,000 shares covered by options. (11) Mrs. Stall is a Director of Carolina First Corporation. The number of shares shown as beneficially owned by Mrs. Stall includes 750 shares held by her as personal representative of her husband's estate, of which shares she disclaims beneficial ownership. The number of shares shown as beneficially owned by Mrs. Stall includes 6,000 shares covered by options under 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 also includes 6,000 shares covered by options under 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 of 481,900 shares covered by options which are or may become exercisable within 60 days; includes 11,106 shares held by the Company's Thrift Plan of which an executive officer may be deemed a beneficial owner, and excludes an aggregate of 402,600 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 nine times during the year ended December 31, 1994. The Executive Committee met seven times in 1994 for the purpose of acting for the Board between Board meetings. The Audit Committee met with representatives of KPMG Peat Marwick LLP two times during 1994 for the purpose of reviewing the firm's scope and results of their audit. The Compensation Committee met five times in 1994 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, established for the purpose of granting options for the Company's common stock to the Company's executive officers and employees, met three times in 1994. The Employee Benefits Committee, established for the purpose of reviewing new and amended employee benefit programs and personnel policies, did not meet in 1994. The Nominating Committee met twice in 1994 for the purpose of recommending to the Board nominees for election as directors. Nomination 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, other than Mrs. Ramsaur, 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, 1994 (except as noted below), 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 Heine Securities Corporation Michael F. Price 2,763,400 7.34% 51 John F. Kennedy Parkway Short Hills, New Jersey 07078 (1) Southeastern Asset Management, Inc. O. Mason Hawkins 3,813,000 10.13% 6075 Poplar Avenue, Suite 900 Memphis, Tennessee 38119 (2) Wachovia Corporation, as trustee 1,964,991 5.22% 301 North Main Street Winston-Salem, North Carolina 27150 (3) Wellington Management Company 2,701,215 7.18% 75 State Street Boston, Massachusetts 02109 (4)
6 (1) The number of shares shown as beneficially owned by Heine Securities Corporation ("HSC") is based on information provided as of December 31, 1994. One or more of HSC's advisory clients is the legal owner of 2,763,400 shares. Pursuant to investment advisory agreements with its advisory clients, HSC has sole investment discretion and voting authority with respect to such 2,763,400 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. (2) The number of shares shown as beneficially owned by Southeastern Asset Management, Inc. ("Southeastern") is based upon information provided as of February 28, 1995. These shares are owned by various investment advisory clients of Southeastern. Pursuant to investment advisory agreements with its clients, Southeastern has sole voting power with respect to 2,270,000 shares, shared voting power with respect to 1,403,400 shares, sole investment power with respect to 2,395,600 shares and shared investment power with respect to 1,403,400 shares. O. Mason Hawkins is Chairman of the Board and Chief Executive Officer of Southeastern. Mr. Hawkins disclaims beneficial ownership of the shares owned by Southeastern. (3) The number of shares shown as beneficially owned by Wachovia Corporation as trustee is based on information provided as of December 31, 1994, and are held by its subsidiary, Wachovia Bank of South Carolina, N.A., as trustee. With respect to these shares, Wachovia or its subsidiary has sole voting power with respect to 1,045,341 shares, shared voting power with respect to 110,064 shares, sole investment power with respect to 1,232,815 shares and shared investment power with respect to 720,486 shares. (4) The number of shares shown as beneficially owned by Wellington Management Company ("WMC") is based on information provided as of December 31, 1994. These shares are owned by various investment advisory clients of WMC or its subsidiary, Wellington Trust Company, N.A. Pursuant to investment advisory agreements with such clients, WMC or its subsidiary has shared voting power with respect to 1,099,240 shares and shared investment power with respect to all 2,701,215 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 POSITION OUTSTANDING)(7) Michael C. Burrus Vice President of the Company and President of 64,000 (*) Multimedia Cablevision Company, Age 40 (2) David L. Freeman Secretary of the Company, Age 70 (1) 83,800 (*) Douglas J. Greenlaw President and Chief Operating Officer of the -- (*) Company, Age 50 (1) Robert E. Hamby, Jr. Senior Vice President -- Finance and Adminis- 141,231 (*) tration and Chief Financial Officer of the Company, Age 48 (1) James M. Hart Vice President of the Company and President of 12,600 (*) Multimedia Broadcasting Company, Age 52 (3) Thomas L. Magaha Vice President -- Development of the Company, Age 38,643 (*) 42 (4) William deB. Mebane Vice President of the Company and President of 78,178 (*) Multimedia Newspaper Company, Age 46 (5) Donald D. Sbarra Chairman of the Board and Chief Executive Officer 31,200 (*) of the Company, Age 64 (1) Robert L. Turner Vice President of the Company and President of 121,348 (*) Multimedia Entertainment Company, Age 53 (6)
(*) 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 64,000 shares covered by options but does not include 84,100 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. (3) Mr. Hart joined the Company in April 1967 and was named Vice President of the Company and President of Multimedia Broadcasting Company in September 1994. He served as Vice President and General Manager of WBIR-TV (wholly owned by the Company) from November 1981 until September 1994. The number of shares shown as beneficially owned by 8 Mr. Hart includes 12,600 shares covered by options but does not include 80,000 shares covered by options, which excluded options become exercisable more than 60 days after the date of this Proxy Statement. Mr. Hart's initial report on Form 3 under the Exchange Act was filed late. (4) Mr. Magaha joined the Company in October 1979 and was named Vice President -- Development of the Company in September 1994. He served as Vice President -- Finance and Development/Controller of the Company from November 1993 until September 1994, Vice President and Controller from October 1990 until November 1993 and Controller from December 1985 until October 1990. The number of shares shown as beneficially owned by Mr. Magaha includes 26,700 shares covered by options but does not include 29,100 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. Magaha also includes 1,943 shares held by the Company's Thrift Plan, of which Mr. Magaha may be deemed a beneficial owner. (5) 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 (wholly owned by the Company). He served as Vice President of Multimedia Newspaper Company from June 1985 to February 1989. The number of shares shown as beneficially owned by Mr. Mebane includes 53,600 shares covered by options but does not include 45,400 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. 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. (6) 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 121,200 shares covered by options but does not include 46,800 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. (7) 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 1994, and the four other most highly compensated executive officers of the Company in 1994, for the fiscal years ended December 31, 1994, 1993 and 1992. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ANNUAL COMPENSATION (1) SECURITIES NAME AND UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($) Donald D. Sbarra 1994 $489,930 $ 431,250 25,000 $ 4,215 (2) Chairman and CEO 1993 323,680 125,000 -- 5,622 (2) 1992 323,680 187,961 -- 5,609 (2) Walter E. Bartlett 1994 290,178 -- -- 267,564 (3) Chairman, President and CEO 1993 533,676 236,000 -- 4,444 (2) (until June 1994) 1992 528,244 325,000 -- 2,739 (2) Robert L. Turner 1994 394,654 100,000 30,000 3,000 (2) President MEC 1993 383,776 169,725 -- 4,717 (2) 1992 371,710 213,150 18,000 4,468 (2) Robert E. Hamby, Jr. 1994 313,680 175,000 42,000 3,094 (2) Senior VP Finance and CFO 1993 298,680 164,691 -- 4,859 (2) 1992 283,680 182,023 20,000 4,644 (2) William deB. Mebane 1994 283,680 190,000 31,000 3,010 (2) President MNC 1993 273,680 96,195 -- 4,761 (2) 1992 260,680 165,236 14,000 4,531 (2) Douglas J. Greenlaw President and COO 1994 308,756 100,000 50,000 --
(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) Mr. Bartlett resigned as Chairman and Chief Executive Officer in June 1994. The 1994 amount for Mr. Bartlett includes $264,425 for consulting services subsequent to his retirement and $3,139 in amounts contributed by the Company under the Company's Thrift Plan. OPTION GRANTS IN THE LAST FISCAL YEAR The following table sets forth the options granted in 1994 to the named executive officers.
INDIVIDUAL GRANTS NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED GRANT DATE OPTIONS TO EMPLOYEES EXERCISE EXPIRATION PRESENT GRANTED (#) IN FISCAL YEAR PRICE ($/SH)(1) DATE (2) VALUE ($)(3) Donald D. Sbarra 25,000 3.3% $ 26.25 12/8/04 $ 390,250 Walter E. Bartlett None -- -- -- -- Robert L. Turner 15,000 2.0% 34.25 2/7/04 296,400 15,000 2.0% 26.25 12/8/04 234,150 Robert E. Hamby, Jr. 20,000 2.6% 34.25 2/7/04 395,200 22,000 2.9% 26.25 12/8/04 343,420 William deB. Mebane 15,000 2.0% 34.25 2/7/04 296,400 16,000 2.1% 26.25 12/8/04 249,760 Douglas J. Greenlaw 50,000 6.5% 29.75 7/19/04 896,500
(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 becomes exercisable for 20% of the shares covered thereby on the first anniversary and for an additional 20% of the shares covered thereby on each anniversary thereof. In addition, options granted to Mr. Sbarra become exercisable in full on his 65th birthday (May 1995). (3) The present value determination was made using the Black-Scholes option pricing model as measured at the date of each grant. The following assumptions were used in the Black-Scholes option pricing model: expected volatility based upon the most recent 180 trading days prior to the grant, expected risk-free rate of return based upon the yield of Treasury Securities maturing at the same time as the option, 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 1994 by the named executive officers and the value of such officers' unexercised options at December 31, 1994.
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY ACQUIRED ON OPTIONS OPTIONS EXERCISE VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(2) NAME (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE Donald D. Sbarra -- $ -- -- 25,000 $ -- $62,500 Walter E. Bartlett 200,000 5,208,400 -- -- -- -- Robert L. Turner -- -- 121,200 46,800 1,753,389 73,191 Robert E. Hamby, Jr. -- -- 123,000 59,000 1,057,149 90,691 William deB. Mebane -- -- 53,600 45,400 223,641 75,691 Douglas J. Greenlaw -- -- -- 50,000 -- --
(1) The value shown represents the excess of the stock's 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, 1994, over the exercise price of the shares covered by the 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, 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 Mr. Bartlett was $350,000. The specified dollar amount for Messrs. Sbarra, Turner, Hamby, Mebane and Greenlaw as of December 31, 1994, was $250,000 each. 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 1995, at age 65, based on selected periods of service. PENSION PLAN TABLE
AVERAGE ANNUAL YEARS OF SERVICE EARNINGS 15 20 25 30 35 $100,000 $ 18,750.00 $ 25,000.00 $ 31,250.00 $ 37,500.00 $ 43,750.00 200,000 (2) 37,500.00 50,000.00 62,500.00 75,000.00 87,500.00 300,000 (2) 56,250.00 75,000.00 93,750.00 112,500.00 131,250.00(1) 400,000 (2) 75,000.00 100,000.00 125,000.00(1) 150,000.00(1) 175,000.00(1) 500,000 (2) 93,750.00 125,000.00(1) 156,250.00(1) 187,500.00(1) 218,750.00(1) 600,000 (2) 112,500.00 150,000.00(1) 187,500.00(1) 225,000.00(1) 262,500.00(1) 700,000 (2) 131,250.00(1) 175,000.00(1) 218,750.00(1) 262,500.00(1) 306,250.00(1) 800,000 (2) 150,000.00(1) 200,000.00(1) 250,000.00(1) 300,000.00(1) 350,000.00(1)
(1) Exceeds the maximum annual amount payable under the Pension Plan of $120,000. (2) Exceeds the maximum annual cash compensation 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 10 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. Sbarra has 26 years of service; Mr. Bartlett had 27 years of service; Mr. Greenlaw has no years of service; Mr. Turner has four years of service; Mr. Hamby has 10 years of service, and Mr. Mebane has 24 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 10 years. The Program provided for monthly vesting on a pro-rata basis beginning July 1, 1991, through December 31, 1994. In connection with Mr. Bartlett's retirement in June 1994, the program was amended to provide that Mr. Bartlett would receive the full amount of the Program's Retirement benefit notwithstanding the termination of his employment prior to December 31, 1994. The fully vested annual supplemental retirement benefit is $200,000 for Mr. Bartlett and $100,000 for Mr. Sbarra. 13 OTHER Douglas J. Greenlaw has an agreement with the Company pursuant to which his base salary is at the annual rate of $400,000, and he received in 1994 a one time payment of $150,000 in addition to a bonus of $100,000. The agreement provides that for 1995 he will be entitled to a bonus equal to the greater of the bonus due as a participant in the Management Committee Incentive Compensation Plan or $100,000 plus one-half of the amount he would be due as a participant in the Management Committee Incentive Compensation Plan. If Mr. Greenlaw's employment is terminated without cause prior to July 31, 1996, he will receive a lump sum payment equal to his annual base salary then in effect. 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 (other than Executive Committee meetings) in addition to the directors' fees. Outside directors serving on the Executive Committee receive additional annual fees of $19,200 and attendance fees of $1,000 per Executive Committee meeting. 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. 14 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 of the Board of Directors (the "Compensation Committee") 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 of the Board (the "Stock Option Committee") grants options for the Company's common stock to the Company's executive officers and employees. These Committees provide the following joint report. 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 relating to operating cash flow (as defined by the Company) (1985 to 1990) to operating cash flow goals plus (beginning in 1991) individual performance objectives based on strategic and operational considerations. 15 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 75 companies (including 14 of the 18 companies in the Company's Peer Group Index). The base level of income is modified annually, based on subjective judgments, by the Compensation Committee, considering primarily cost of living increases and any change in the individual's responsibilities. The executive officers' 1994 base compensation was increased from the 1993 amounts by a cost of living adjustment in all cases except one where an additional increase was given to account for an enlargement of responsibilities. 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 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. Greenlaw and 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 1994, each division with the exception of the Entertainment Division achieved at least 95% of its budgeted cash flow goal, and the Company achieved 101.4% of its cash flow goal. Each of the officers covered by the MCIP achieved at least 90% of his key individual objectives during 1994. The 1994 bonus paid to Mr. Greenlaw was based, and any bonus to be paid to Mr. Greenlaw in 1995 will be based, upon his contractual agreement with the Company. 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. 16 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: (Bullet) Operating cash flow contribution (Bullet) Operating profit contribution (Bullet) Operating cash flow contribution less capital expenditures (Bullet) Number of business locations or staff functions managed (Bullet) Number of key executives managed (Bullet) 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 has not yet adopted a position with respect to whether or not the Company's cash bonus plans will be structured to cause them to be exempt from the $1 million limit of deductibility. In 1994, no executive officer's cash compensation exceeded $1,000,000. The Stock Option Committee believes, as a result of certain transition rules, that options granted prior to the Company's 1997 annual shareholders meeting under the Company's current stock option plans are not and will not be affected by the $1 million deductibility limitation. CHIEF EXECUTIVE OFFICER COMPENSATION Mr. Sbarra assumed the position of Chief Executive Officer of the Company in June 1994. Prior to that, Mr. Sbarra served as Senior Vice President of Operations of the Company. 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". The rate of Mr. Sbarra's 1994 base compensation was adjusted, upon his becoming Chief Executive Officer, to the rate of Mr. Bartlett's 1994 base compensation as Chief Executive Officer before his resignation. 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 generally considers subjective factors, such as the chief executive officer's leadership in strategic development of the Company, and specific corporate goals that should ultimately be reflected in higher stock prices, such as operating cash flow, net earnings and earnings per share. In addition, the Compensation Committee considers the amount of the cash bonus which the chief executive officer would have received had he been subject to the MCIP. 17 The cash bonus paid to Mr. Sbarra in 1994, $300,000, approximated the bonus he would have received had he been subject to the MCIP. No other factor was significant in determining Mr. Sbarra's 1994 cash bonus. In addition, Mr. Sbarra was given in 1994 a stock bonus of 5,000 shares (valued at $131,250 based upon the fair market value of the Company's stock on the date awarded) and a stock option grant of 25,000 shares. The exercise price of the stock options granted was the fair market value of the Company's common stock on the date of grant. The stock bonus and stock option grants were made based upon the Stock Option Committee's subjective recognition that Mr. Sbarra had taken on extraordinary responsibilities in stepping into the Chief Executive Officer position in mid-year. Mr. Bartlett, Chairman of the Board, President and Chief Executive Officer of the Company until his resignation in June 1994, was not granted a bonus at year-end because his resignation was prior to year-end. In view of the stock options which Mr. Bartlett received in connection with the Company's 1985 Recapitalization, he was not granted any stock options in 1994. The amount paid in 1994 to Mr. Bartlett for consulting services after his resignation was equal to the amount he would have received as base compensation during that period had he remained the Chief Executive Officer. 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 M. Dexter Hagy 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 ASSUMES $100 INVESTED ON JANUARY 1, 1990 AND DIVIDEND REINVESTMENT (The Performance Graph appears here. The plot points are listed as follows:) 1989 1990 1991 1992 1993 1994 MULTIMEDIA, INC. 100 72.68 73.28 103.55 109.13 90.81 PEER GROUP 100 80.72 90.08 106.83 133.85 128.34 BROAD MARKET 100 81.12 104.14 105.16 126.14 132.44 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. 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 1994 Proxy Statement included Scripps Howard Broadcasting Company, the stock of which ceased being publicly traded. 19 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The following directors served on the Compensation Committee during 1994: 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 1994: John T. LaMacchia, as Chair, George H. V. Cecil, Rhea T. Eskew, M. Dexter Hagy, Leslie G. McCraw, Dorothy P. Ramsaur, Elizabeth P. Stall and William C. Stutt. During 1994, 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 $528,000 by the Company in 1994 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 and from time to time provides other services for the Company. The Company announced on February 22, 1995, that its Board of Directors had authorized management, together with Goldman Sachs & Co. to explore strategic alternatives to enhance shareholder value. ELECTION OF AUDITORS The Board of Directors recommends the ratification of the appointment of KPMG Peat Marwick LLP, independent certified public accountants, as auditors for the Company and its subsidiaries for 1995 and to audit and report to the shareholders upon the financial statements as of and for the period ending on December 31, 1995. Representatives of KPMG Peat Marwick LLP will be present at the annual 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 LLP 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. 20 VOTING AND OTHER SHAREHOLDER RIGHTS Only holders of the Company's 37,628,478 shares of common stock of record at the close of business on March 3, 1995, will be entitled to vote at the Annual Meeting. The shareholders' common stock may not be voted cumulatively in the election of Directors. 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. PROPOSALS OF SECURITY HOLDERS Any shareholder of the Company who desires to present a proposal at the 1996 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 15, 1995. FINANCIAL INFORMATION THE COMPANY'S 1994 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, 1995, WHO SO REQUESTS IN WRITING, A COPY OF SUCH 1994 ANNUAL REPORT OR THE COMPANY'S 1994 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: CORPORATE COMMUNICATIONS. 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, 1995 22 ******************************************************************************* APPENDIX 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 Donald D. Sbarra 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, 1995 at the annual meeting of shareholders to be held April 19, 1995 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 G. H. V. Cecil, R. T. Eskew, D. L. Freeman, D. J. Greenlaw, 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 LLP as independent auditors of the Company for 1995. [ ] 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 , 1995 PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. EX-27 10
5 This schedule contains summary financial information extracted from SEC Form 10-K and qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-31-1994 DEC-31-1994 6,202 0 98,244 4,818 4,643 139,140 558,749 283,522 683,978 142,522 542,303 3,762 0 0 (80,677) 683,978 0 630,483 0 441,040 (25,584) 0 59,142 155,885 64,693 90,029 0 0 0 90,029 2.35 2.35 Bonds - Represents total long-term debt. Other-SE - Represents total paid-in-capital and retained earnings. Other Expenses - Represents net other (income)/expense.