COMBINED FINANCIAL STATEMENTS
Newport Television LLC Stations in Little
Rock, AR (“Little Rock Stations”)
For the Nine Months Ended September 30, 2012 and 2011 (Unaudited)
Contents
| | | Page |
| COMBINED FINANCIAL STATEMENTS |
| | BALANCE SHEETS | 1 |
| | STATEMENTS OF INCOME | 2 |
| | STATEMENT OF CHANGES IN OWNER’S EQUITY | 3 |
| | STATEMENTS OF CASH FLOWS | 4 |
| | NOTES TO FINANCIAL STATEMENTS | 5 |
| |
| | |
| COMBINED BALANCE SHEETS | |
| (In thousands) | |
| | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2012 | | | 2011 | |
| | | (Unaudited) | | | | |
| Current Assets | | | | | | |
| Accounts receivable, less allowance of $37 and $41 at September 30, 2012 and December 31, 2011, respectively | | $ | 2,638 | | | $ | 3,029 | |
| Program rights | | | 583 | | | | 503 | |
| Prepaid expenses and other assets | | | 74 | | | | 50 | |
| Total current assets | | | 3,295 | | | | 3,582 | |
| Property and Equipment | | | | | | | | |
| Land, buildings and improvements | | | 494 | | | | 494 | |
| Towers, transmitters and studio equipment | | | 13,520 | | | | 13,540 | |
| Furniture and other equipment | | | 662 | | | | 624 | |
| | | | 14,676 | | | | 14,658 | |
| Less accumulated depreciation | | | 5,887 | | | | 4,800 | |
| | | | 8,789 | | | | 9,858 | |
| Intangible Assets | | | | | | | | |
| Definite-lived intangibles, net of accumulated amortization of $537 and $449 at September 30, 2012 and December 31, 2011, respectively | | | 635 | | | | 723 | |
| Indefinite-lived intangibles - licenses | | | 5,450 | | | | 5,450 | |
| Goodwill | | | 3,139 | | | | 3,139 | |
| Other Noncurrent Assets | | | | | | | | |
| Program rights | | | 455 | | | | 428 | |
| Other noncurrent assets | | | 7 | | | | 7 | |
| Total assets | | $ | 21,770 | | | $ | 23,187 | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 102 | | | $ | 286 | |
| Accrued expenses | | | 647 | | | | 421 | |
| Program rights payable | | | 1,011 | | | | 942 | |
| Total current liabilities | | | 1,760 | | | | 1,649 | |
| Noncurrent Liabilities | | | | | | | | |
| Program rights payable | | | 552 | | | | 680 | |
| Total liabilities | | | 2,312 | | | | 2,329 | |
| Commitments and contingencies | | | | | | | | |
| Owner's Equity | | | 19,458 | | | | 20,858 | |
| Total liabilities and owner's equity | | $ | 21,770 | | | $ | 23,187 | |
The accompanying notes are an integral part of these combined financial statements.
| Little Rock Stations | |
| | | | | | | | | | | |
| COMBINED STATEMENTS OF INCOME | |
| (In thousands) | |
| (Unaudited) | |
| | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | | | | | | | | | | | |
| | | September 30, | | | September 30, | | | September 30, | | | September 30, | |
| | | 2012 | | | 2011 | | | 2012 | | | 2011 | |
| | | | | | | | | | | | | |
| Net revenue | | $ | 4,057 | | | $ | 3,957 | | | $ | 12,909 | | | $ | 12,261 | |
| Operating expenses | | | | | | | | | | | | | | | | |
| Direct operating expenses | | | 1,304 | | | | 1,323 | | | | 3,995 | | | | 3,616 | |
| Selling, general & administrative expenses | | | 1,052 | | | | 1,010 | | | | 3,312 | | | | 3,112 | |
| Corporate expense allocation | | | 245 | | | | 178 | | | | 641 | | | | 579 | |
| Depreciation & amortization | | | 413 | | | | 370 | | | | 1,242 | | | | 1,137 | |
| Loss on disposal of property and equipment | | | 13 | | | | 319 | | | | 16 | | | | 319 | |
| Total operating expenses | | | 3,027 | | | | 3,200 | | | | 9,206 | | | | 8,763 | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 1,030 | | | $ | 757 | | | $ | 3,703 | | | $ | 3,498 | |
The accompanying notes are an integral part of these combined financial statements.
| Little Rock Stations | |
| | | | |
| COMBINED STATEMENT OF CHANGES IN OWNER'S EQUITY | |
| (In thousands) | |
| (Unaudited) | |
| | | | |
| | | Owner's Equity | |
| | | | |
| | | | |
| Balance at December 31, 2011 | | $ | 20,858 | |
| | | | | |
| Net income | | | 3,703 | |
| Net distribution to owner | | | (5,103 | ) |
| | | | | |
| Balance at September 30, 2012 | | $ | 19,458 | |
The accompanying notes are an integral part of these combined financial statements.
| |
| | | | | |
| COMBINED STATEMENTS OF CASH FLOWS | |
| (In thousands) | |
| (Unaudited) | |
| | | | | | | |
| | |
| | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2012 | | | 2011 | |
| | | | | | | |
| Cash flows from operating activities | | | | | | |
| Net income | | $ | 3,703 | | | $ | 3,498 | |
| Reconciling items | | | | | | | | |
| Depreciation and intangible amortization | | | 1,242 | | | | 1,137 | |
| Amortization of program rights | | | 447 | | | | 380 | |
| Provision for doubtful accounts | | | 77 | | | | 16 | |
| Loss on disposal of property and equipment | | | 16 | | | | 319 | |
| Payments for program rights | | | (613 | ) | | | (599 | ) |
| Changes in operating assets and liabilities | | | | | | | | |
| Accounts receivable | | | 314 | | | | (28 | ) |
| Prepaid expenses and other assets | | | (24 | ) | | | (32 | ) |
| Accounts payable, accrued expenses and other liabilities | | | 42 | | | | (505 | ) |
| Net cash provided by operating activities | | | 5,204 | | | | 4,186 | |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Purchases of property and equipment | | | (101 | ) | | | (715 | ) |
| | | | | | | | | |
| Cash flows from financing activities | | | | | | | | |
| Net distributions to owner | | | (5,103 | ) | | | (3,471 | ) |
| | | | | | | | | |
| Net change in cash and cash equivalents | | | - | | | | - | |
| Cash and cash equivalents at beginning of period | | | - | | | | - | |
| Cash and cash equivalents at end of period | | $ | - | | | $ | - | |
The accompanying notes are an integral part of these combined financial statements.
Little Rock Stations
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
September 30, 2012 and 2011
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of presentation and nature of business
Newport Television LLC (a wholly owned subsidiary of Newport Television Holdings LLC, which is a wholly owned subsidiary of Newport TV Holdco LLC, hereafter referred to as “Newport”) owns and operates television stations across the United States of America.
On July 18, 2012, Newport entered into an asset purchase agreement with Mission Broadcasting, Inc. (“Mission”) to sell substantially all of the assets (excluding working capital) of 4 television stations, including 2 stations distributed as digital multicast stations, for $60 million. The 4 television stations are located in Little Rock, Arkansas (collectively, the “Little Rock Stations” or “Little Rock”). The transaction is expected to close upon receipt of regulatory approval.
These financial statements represent the 4 stations, including 2 stations distributed as digital multicast stations included in the above transaction with Mission. These stations are affiliated with two major networks, FOX and the CW. These stations reach approximately 562,000 homes weekly and cover 0.5% of the television households in the United States. These stations operate in the 56th ranked demographic market area as defined by AC Nielsen.
A significant source of programming for FOX and CW affiliated television stations are their respective networks, which produce and distribute programming in exchange for commitments to air the programming at specified times and for commercial announcement time during the programming. Another source of programming is provided to each station by selecting and purchasing syndicated television programs. The stations compete with other television stations within each market for these programming rights. The majority of the stations produce local news programming.
The accompanying financial statements and related notes present the financial position, results of operations, cash flows and equity of the Little Rock Stations and reflect allocations of the cost of certain services provided by Newport for treasury, payroll, human resources, employee benefit services, legal and related services, and information systems and related information technology services. Management believes the allocation methodologies are reasonable. All credit facilities are recorded by Newport at the corporate level and as such, interest and financing activity costs have not been allocated to the Little Rock Stations. Substantially all of the assets of the Little Rock Stations serve as collateral to secure the aforementioned credit facilities.
Little Rock Stations
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
September 30, 2012 and 2011
(Unaudited)
1. Principles of combination
The financial statements have been derived from the financial statements and accounting records of Newport and combine the accounts of the operations previously described. All material intercompany accounts and transactions have been eliminated.
2. Interim financial statements
The financial statements do not include all disclosures normally included with the audited financial statements, and accordingly should be read together with the audited financial statements for the year ended December 31, 2011. In the opinion of management, the accompanying financial statements contain all adjustments necessary to fairly state Little Rock’s financial position, results of operations, and cash flows for the periods presented. The interim financial statements are not necessarily indicative of the results to be expected for the full year.
3. Use of estimates
The preparation of these financial statements requires management to make estimates, judgments, and assumptions that affect the amounts reported in the financial statements and accompanying notes. Little Rock bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.
4. Subsequent events
Little Rock evaluated and disclosed subsequent events, if any, through November 15, 2012, which represents the date as of which the financial statements were available to be issued.
NOTE B - RELATED PARTY AND OTHER TRANSACTIONS
Newport provides certain day-to-day management services to Little Rock. In addition to the day-to-day management of the stations, these services include treasury, payroll, human resources, employee benefit services, legal and related services, and information systems and related information technology services. As part of the treasury services, day-to-day net cash is swept to Newport’s bank accounts. The net cash flow generated by Little Rock is reflected as distributions to owner in the accompanying financial statements. The costs of these services are prorated to all stations based on the station’s broadcast cash flow and are reflected as corporate expense allocation in the accompanying financial statements. Management believes the allocation methodology is reasonable. Total corporate costs allocated to Little Rock for the three months ended September 30, 2012 and 2011 were $245,000 and $178,000, respectively, of which approximately $21,000 and $32,000 for the three months ended September 30, 2012 and 2011, respectively, was related to noncash compensation expense for restricted units issued to certain members of the corporate management team. Total corporate costs allocated to Little Rock for the nine months ended September 30, 2012 and 2011 were $641,000 and $579,000, respectively, of which approximately $80,000 and $98,000, respectively, was related to noncash compensation expense for restricted units issued to certain members of the corporate management team.
Little Rock Stations
NOTES TO COMBINED FINANCIAL STATEMENTS - CONTINUED
September 30, 2012 and 2011
(Unaudited)
NOTE B - RELATED PARTY AND OTHER TRANSACTIONS - Continued
Inergize Digital (a division of Newport) provides website hosting, website development, website content management, website related advertising support and certain sales support services to Little Rock. Total costs charged to Little Rock by Inergize Digital for the three months ended September 30, 2012 and 2011 were approximately $73,000 and $72,000 respectively. Total costs charged to Little Rock by Inergize Digital for the nine months ended September 30, 2012 and 2011 were approximately $231,000 and $218,000, respectively, and are included in the selling, general, and administrative expenses in the accompanying financial statements.
Newport has a management agreement with its equity partner which owns the majority of the equity interests of Newport. Under this management agreement, Newport is to pay its equity partner an annual management fee based on EBITDA, as defined in the agreement. This expense of $700,000 and $400,000 for the three months ended September 30, 2012 and 2011, respectively, and $1,800,000 and $1,400,000 for the nine months ended September 30, 2012 and 2011, respectively, has not been allocated to Little Rock.
Little Rock’s employees are eligible to participate in the Newport 401(k) Plan, a defined contribution plan (the “Plan”). Newport suspended any company match in 2009 and Little Rock did not recognize any expense related to the Plan for the three months and nine months ended September 30, 2012 and 2011.
Newport is currently self-insured up to certain stop-loss thresholds for health and welfare benefit plans and obtains insurance from various third parties for general liability, property, and casualty insurance. Newport charges Little Rock premiums based on one or more of the following: number of employees, historical claims, estimates of future claims, administrative costs, and applicable third party insurance premiums. The insurance premiums charged to Little Rock for the three months ended September 30, 2012 and 2011 were approximately $100,000 in both periods. The insurance premiums charged to Little Rock for the nine months ended September 30, 2012 and 2011 were approximately $300,000 in both periods and are included in the selling, general, and administrative expenses in the accompanying financial statements.
