- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____ Commission file number 33-99622
BUSSE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2750516
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 East Michigan Avenue, Suite 300
Kalamazoo, Michigan 49007
(Address of principal executive offices)
(616) 388-8019
(Registrant's telephone number, including area code)
---------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of June 30, 1996, 107,700 shares of the Common Stock of Busse
Broadcasting Corporation were outstanding.
- --------------------------------------------------------------------------------
BUSSE BROADCASTING CORPORATION
Form 10-Q Table of Contents
Page
Reference
---------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BUSSE BROADCASTING CORPORATION
Condensed Consolidated Balance Sheets as of
June 30, 1996 (Unaudited) and December 31, 1995
(Audited) 3
Condensed Consolidated Statements of Operations for
the Three Months and Six Months Ended June 30, 1996
(Unaudited) and the Fiscal Periods from May 3, 1995
through July 2, 1995 (Unaudited) and January 2, 1995
through May 2, 1995 (Audited) 4
Unaudited Condensed Consolidated Statements of
Stockholders' Equity (Deficit) 6
Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1996 (Unaudited) and
the Fiscal Periods from May 3, 1995 through July 2,
1995 (Unaudited) and January 2, 1995 through
May 2, 1995 (Audited) 7
Notes to Unaudited Condensed Consolidated Financial
Statements for the Six Months Ended June 30, 1996 8
KOLN/KGIN, INC. (A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
Condensed Consolidated Balance Sheets as of June 30,
1996 (Unaudited) and December 31, 1995 (Audited) 21
Condensed Consolidated Statements of Operations and
Stockholder's/Divisional Equity for the Three Months
and Six Months Ended June 30, 1996 (Unaudited) and the
Fiscal Periods from May 3, 1995 through July 2, 1995
(Unaudited) and January 2, 1995 through May 2, 1995
(Audited) 22
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1996 (Unaudited) and the Fiscal
Periods from May 3, 1995 through July 2, 1995 (Unaudited)
and January 2, 1995 through May 2, 1995 (Audited) 23
Notes to Unaudited Condensed Consolidated Financial
Statements for the Six Months Ended June 30, 1996 24
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 29
PART II OTHER INFORMATION
Item 1 Legal Proceedings 38
Item 6 Exhibits and Reports on Form 8-K 38
SIGNATURES 39
2
Part I Financial Information
Item 1 Financial Statements
Busse Broadcasting Corporation
Condensed Consolidated Balance Sheets
JUNE 30, 1996 DECEMBER 31, 1995
UNAUDITED AUDITED
-----------------------------------
ASSETS (NOTE 1)
Current assets:
Cash and cash equivalents $ 4,905,729 $ 38,893,959
Receivables, net 4,201,626 4,589,784
Inventories 726,300 920,000
Other current assets 403,792 1,010,734
-----------------------------------
Total current assets 10,237,447 45,414,477
Property, plant and equipment, net 17,865,633 17,877,590
Deferred charges and other assets 2,666,697 2,791,788
Intangible assets and excess reorganization
value 54,948,956 56,896,391
-----------------------------------
Total assets $85,718,733 $122,980,246
-----------------------------------
-----------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
(NOTE 1)
Current liabilities:
Accounts payable and accrued expenses $ 3,339,766 $ 3,225,767
Current maturities of long-term debt
(NOTE 3) 136,374 35,214,927
-----------------------------------
Total current liabilities 3,476,140 38,440,694
Long-term debt (NOTE 3) 60,299,353 77,525,774
Other long-term liabilities 730,058 476,176
Stockholders' equity (NOTES 3 AND 6):
Series A cumulative convertible preferred
stock (non-voting)--$.01 par value,
65,524.41 shares issued and outstanding
as of June 30, 1996 17,330,660 --
Series A preferred stock dividends in
arrears 2,252,245 --
Common stock (voting) - $.01 par value,
2,154,000 shares authorized, 107,700
shares issued and outstanding 1,077 1,077
Additional paid-in capital-common stock 9,185,772 9,185,772
Accumulated deficit (NOTE 1) (7,556,572) (2,649,247)
-----------------------------------
Total stockholders' equity 21,213,182 6,537,602
-----------------------------------
Total liabilities and stockholders' equity $85,718,733 $122,980,246
-----------------------------------
-----------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations
PRE-EFFECTIVE
POST-EFFECTIVE DATE UNAUDITED DATE AUDITED
-------------------------------------------------------------
FISCAL PERIOD FISCAL PERIOD
THREE MONTHS SIX MONTHS FROM MAY 3, FROM JANUARY 2,
ENDED JUNE 30, ENDED JUNE 30, 1995 THROUGH 1995 THROUGH
1996 1996 JULY 2, 1995 MAY 2, 1995
-------------------------------------------------------------
Net revenue $6,506,551 $12,577,046 $3,972,041 $14,510,895
Operating costs and expenses, excluding
depreciation and amortization 3,583,939 7,180,039 2,387,522 8,509,977
Depreciation 564,496 1,145,084 394,334 1,307,271
Amortization of intangibles and excess
reorganization value 966,153 1,947,434 658,022 468,801
-------------------------------------------------------------
Total operating costs and expenses 5,114,588 10,272,557 3,439,878 10,286,049
Corporate expenses 423,528 830,090 225,760 290,960
-------------------------------------------------------------
Income from operations 968,435 1,474,399 306,403 3,933,886
Other income (expense):
Interest expense (2,069,078) (4,272,321) (1,388,150) (7,472,473)
Interest income 56,608 156,375 325,660 85,525
Gain on disposition of assets 1,566 17,166 602 2,133
Other income (expense) 5,220 (5,699) 1,137 144,198
-------------------------------------------------------------
Other expense (2,005,684) (4,104,479) (1,060,751) (7,240,617)
-------------------------------------------------------------
Loss before reorganization items,
income taxes and extraordinary item (1,037,249) (2,630,080) (754,348) (3,306,731)
Reorganization items:
Gain on restructuring transaction
(NOTE 1) -- -- -- 103,810,917
Legal and professional fees -- -- -- (2,660,510)
-------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item (1,037,249) (2,630,080) (754,348) 97,843,676
Benefit (provision) for income taxes
(NOTE 4)
Current - State -- (25,000) -- (100,000)
Deferred -- -- -- 2,318,000
-------------------------------------------------------------
Income (loss) before extraordinary
item (1,037,249) (2,655,080) (754,348) 100,061,676
Extraordinary item
Debt forgiveness related to
restructuring transactions (NOTE 1) -- -- -- 46,479,605
-------------------------------------------------------------
Net income (loss) $(1,037,249) $(2,655,080) $(754,348) $146,541,281
-------------------------------------------------------------
-------------------------------------------------------------
4
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations (continued)
PRE-EFFECTIVE
POST-EFFECTIVE DATE UNAUDITED DATE AUDITED
-------------------------------------------------------------
FISCAL PERIOD FISCAL PERIOD
THREE MONTHS SIX MONTHS FROM MAY 3, FROM JANUARY 2,
ENDED JUNE 30, ENDED JUNE 30, 1995 THROUGH 1995 THROUGH
1996 1996 JULY 2, 1995 MAY 2, 1995
-------------------------------------------------------------
Charges to stockholders' equity (deficit)
for Series A preferred stock dividends
in arrears $(1,205,614) $(2,252,245) $ -- $ --
-------------------------------------------------------------
-------------------------------------------------------------
Income (loss) per common share:
Income (loss) before extraordinary
item and charges for Series A
preferred stock dividends in
arrears $ (9.63) $ (24.65) $ (6.90) $ 990.71
Extraordinary item -- -- -- 460.19
Series A preferred stock dividends
in arrears (11.19) (20.91) -- --
-------------------------------------------------------------
Net income (loss) $ (20.82) $ (45.56) $ (6.90) $1,450.90
-------------------------------------------------------------
-------------------------------------------------------------
Weighted average common shares
outstanding 107,700 107,700 109,387 101,000
-------------------------------------------------------------
-------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
Busse Broadcasting Corporation
Condensed Consolidated Statements of Stockholders' Equity (Deficit) (NOTE 1)
Unaudited
Preferred Stock
----------------------------------------------------------------------------------------
Pre-Effective Dividends in Post-Effective Dividends in
Date Shares Amount Arrears Date Shares Amount Arrears
----------------------------------------------------------------------------------------
Balance January 2, 1994 30 $3,000,000 $2,859,000 -- $ -- $ --
Net loss -- -- -- -- -- --
Provisions for dividends in arrears -- -- 450,000 -- -- --
----------------------------------------------------------------------------------------
Balance January 1, 1995 30 3,000,000 3,309,000 -- -- --
Net income for the period from
January 2, 1995 through May 2,
1995 -- -- -- -- -- --
Transactions pursuant to Plan of
Reorganization:
Cancellation of pre-effective
date preferred stock (30) (3,000,000) (3,309,000) -- -- --
Cancellation of pre-effective
date common stock -- -- -- -- -- --
Issuance of post-effective date
common stock and adoption
of fresh start accounting -- -- -- -- -- --
----------------------------------------------------------------------------------------
Balance May 3, 1995 -- -- -- -- -- --
Net loss for the period from May 3,
1995 through December 31, 1995 -- -- -- -- -- --
Purchase and cancellation of
Company's stock -- -- -- -- -- --
----------------------------------------------------------------------------------------
Balance December 31, 1995 -- -- -- -- -- --
Issuance of Series A preferred stock
in exchange for junior
subordinated pay-in-kind notes on
January 12, 1996 -- -- -- 65,524.41 17,330,660 --
Net loss for the period from
January 1, 1996 through
June 30, 1996 -- -- -- -- -- --
Provisions for dividends in arrears -- -- -- -- -- 2,252,245
----------------------------------------------------------------------------------------
Balance June 30, 1996 -- $ -- $ -- 65,524.41 $17,330,660 $2,252,245
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Common Stock
----------------------------------------------------------------- Total
Pre-Effective Date Shares Additional Stockholders'
Post-Effective ------------------------- Paid-in Accumulated Equity
Date Shares Class A Class B Amount Capital Deficit (Deficit)
----------------------------------------------------------------- -----------------------------
Balance January 2, 1994 -- 1,000 100,000 $1,010 $1,008,990 $(130,182,521) $(129,172,521)
Net loss -- -- -- -- -- (14,024,860) (14,024,860)
Provisions for dividends in arrears -- -- -- -- -- (450,000) (450,000)
----------------------------------------------------------------------------------------------
Balance January 1, 1995 -- 1,000 100,000 1,010 1,008,990 (144,657,381) (143,647,381)
Net income for the period from
January 2, 1995 through May 2,
1995 -- -- -- -- -- 146,541,281 146,541,281
Transactions pursuant to Plan of
Reorganization:
Cancellation of pre-effective
date preferred stock -- -- -- -- -- 6,309,000 6,309,000
Cancellation of pre-effective
date common stock -- (1,000) (100,000) (1,010) (1,008,990) 1,010,000 --
Issuance of post-effective date
common stock and adoption
of fresh start accounting 110,000 -- -- 1,100 9,201,800 (9,202,900) --
----------------------------------------------------------------------------------------------
Balance May 3, 1995 110,000 -- -- 1,100 9,201,800 -- 9,202,900
Net loss for the period from May 3,
1995 through December 31, 1995 -- -- -- -- -- (2,649,247) (2,649,247)
Purchase and cancellation of
Company's stock (2,300) -- -- (23) (16,028) -- (16,051)
----------------------------------------------------------------------------------------------
Balance December 31, 1995 107,700 -- -- 1,077 9,185,772 (2,649,247) 6,537,602
Issuance of Series A preferred stock
in exchange for junior
subordinated pay-in-kind notes on
January 12, 1996 -- -- -- -- -- -- 17,330,660
Net loss for the period from
January 1, 1996 through
June 30, 1996 -- -- -- -- -- (2,655,080) (2,655,080)
Provisions for dividends in arrears -- -- -- -- -- (2,252,245) --
----------------------------------------------------------------------------------------------
Balance June 30, 1996 107,700 -- -- $1,077 $9,185,772 $(7,556,572) $21,213,182
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
Busse Broadcasting Corporation
Condensed Consolidated Statements of Cash Flows
PRE-EFFECTIVE
POST-EFFECTIVE DATE UNAUDITED DATE AUDITED
-----------------------------------------------
FISCAL PERIOD
FISCAL PERIOD FROM
SIX MONTHS FROM MAY 3, JANUARY 2,1995
ENDED 1995 THROUGH THROUGH
JUNE 30, 1996 JULY 2, 1995 MAY 2, 1995
-----------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(2,655,080) $ (754,348) $146,541,281
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 3,092,518 1,052,356 1,776,072
Noncash interest expense 534,753 1,018,497 6,743,397
Program payments (over) under program
amortization (15,528) (13,519) 20,063
Increase in other long-term liabilities 262,830 101,075 79,926
Gain on disposition of assets (17,166) (602) (2,133)
Deferred income tax benefit (NOTE 4) -- -- (2,318,000)
Reorganization items:
Gain on restructuring transactions (NOTE 1) -- -- (103,810,917)
Debt forgiveness relating to restructuring
transactions (NOTE 1) -- -- (46,479,605)
Change in current assets and liabilities:
Receivables 388,158 (794,932) 596,984
Inventories and other current assets 307,994 314,931 185,403
Accounts payable and accrued expenses 620,518 (17,332) (378,690)
------------------------------------------------
Net cash provided by operating activities 2,518,997 906,126 2,953,781
INVESTING ACTIVITIES:
Proceeds from sale of television station, net -- 98,979,532 --
Additions to property, plant and equipment (1,132,977) (187,800) (497,728)
Proceeds from disposition of assets 17,016 602 4,089
Decrease in other assets 884 130 295
------------------------------------------------
Net cash provided by (used in) investing activities (1,115,077) 98,792,464 (493,344)
FINANCING ACTIVITIES:
Purchase and cancellation of Company's stock -- (16,051) --
Payments on indebtedness (66,777) -- (4,641,023)
Redemption of indebtedness (35,146,439) (96,037,880) --
Payment of deferred financing costs (178,934) -- --
------------------------------------------------
Net cash used in financing activities (35,392,150) (96,053,931) (4,641,023)
Net increase (decrease) in cash and cash equivalents (33,988,230) 3,644,659 (2,180,586)
Cash and cash equivalents at beginning of period 38,893,959 2,154,825 4,335,411
------------------------------------------------
Cash and cash equivalents at end of period $ 4,905,729 $ 5,799,484 $ 2,154,825
------------------------------------------------
------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid during the period $ 3,643,821 $ 651,153 $ 742,020
------------------------------------------------
------------------------------------------------
Income taxes paid during the period $ -- $ -- $ 100,000
------------------------------------------------
------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
June 30, 1996
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include Busse Broadcasting
Corporation and its wholly owned subsidiaries (collectively BBC or the Company)
engaged in the following businesses:
TELEVISION:
KOLN/KGIN-TV CBS Affiliate Lincoln/Grand Island, Nebraska
WEAU-TV NBC Affiliate Eau Claire/La Crosse, Wisconsin
WWMT-TV CBS Affiliate Kalamazoo/Grand Rapids, Michigan
(Sold June 1, 1995)
PRINTING:
Winnebago Color Press Menasha, Wisconsin
All intercompany accounts and transactions have been eliminated in
consolidation.
The Company and its wholly-owned subsidiary filed voluntary petitions for a
joint plan of reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Plan") on March 10, 1995. On April 20, 1995 the United States
Bankruptcy Court for the district of Delaware (the "Court") confirmed the Plan,
such Plan became effective May 3, 1995 (the "Effective Date") and the respective
Chapter 11 cases were closed by the Court on September 21, 1995.
The Plan provided for, among other things, the following as of the Effective
Date:
Creditors under the Bank Credit Agreement received, on a pro-rata basis,
immediately prior to the Effective Date $4,600,000 of cash (plus interest
of $23,000), and on the Effective Date received on a pro-rata basis, in
exchange, on a dollar for dollar basis, for 100% of the aggregate claims
held against the Company, Senior Secured Credit Agreement Notes (the
"Credit Agreement") in the aggregate principal amount of $10,400,000;
8
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
In exchange, on a dollar for dollar basis, for 100% of the aggregate claims
held against the Company, holders of the Zero Coupon Senior Notes (for
their aggregate claim as of May 2, 1995), Working Capital Advances,
Subordinated Note and Senior Subordinated Debentures (for their aggregate
claims as of March 9, 1995) received, on a pro-rata basis, $109,993,000
principal amount of 7.38% Secured Senior Subordinated Pay-in-Kind Notes due
December 31, 2014 (the "Senior PIK Notes") and new 7.38% Junior
Subordinated Pay-in-Kind Notes (the "Junior PIK Notes") due December 31,
2014 in the aggregate principal amount of $97,021,000 and cash in the
aggregate amount of $14,806 in lieu of fractional securities;
Holders of the Zero Coupon Senior Notes also received on a pro-rata basis
100% of the new common stock of the restructured Company. As a result of
the Plan, on May 3, 1995 98% of the new common stock was held by a group of
related investment funds, the "Southstreet Funds". On June 16, 1995 the
Company purchased and retired the 2,300 shares of common stock not
controlled by the Southstreet Funds;
Holders of the Promissory Note, and general unsecured claims were not
impaired by the Plan and, all rights and claims under the Preferred Stock,
Class A and Class B Common Stock and a certain Rights Agreement were
extinguished;
The American Institute of Certified Public Accountants issued Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial reporting
when companies operate under and emerge from the protection of Chapter 11. SOP
90-7 requires that if (a) the reorganization value of the company, as defined,
was less than the total of all post-petition liabilities and pre-petition
claims, and (b) the holders of voting shares immediately before confirmation of
the Plan received less than fifty percent of the voting shares of the emerging
entity, then Fresh Start Accounting must be adopted. Since the Company met both
of these conditions, it adopted Fresh Start Accounting on the Effective Date.
Fresh Start Accounting provides that liabilities be recorded at their fair
values, based upon market interest rates at the Effective Date. In addition,
assets are to be recorded based on an allocation of the reorganization value of
the Company, which approximates fair market value, and any retained earnings or
deficit balance is to be eliminated as of the Effective Date.
9
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The reorganization value of the Company as of the Effective Date was based, in
part, on the valuation information supplied to the bankruptcy court and, as
discussed below and in Note 2, the net cash proceeds the Company expected to
receive in conjunction with the sale of WWMT-TV. The reorganization value was
allocated based on appraisals which were performed by independent, third-party
appraisers and were based on traditional valuation methods used in the appraisal
industry.
The Company determined the Fresh Start Accounting balances for its liabilities
as follows:
Liabilities and indebtedness not impaired by the Plan were recorded at
their historical balances;
Indebtedness retired or expected to be retired with the proceeds of the
WWMT-TV sale was valued for financial reporting purposes at 100% of
aggregate principal amount at the date of issuance and included $10,400,000
of Credit Agreement notes, $84,437,000 of Senior PIK Notes and $1,180,000
of Junior PIK Notes;
Indebtedness which the Company reasonably expected to refinance in the near
future was valued for financial reporting purposes at 100% of aggregate
principal amount at the date of issuance and included $25,556,000 of Senior
PIK Notes and $40,000,000 of Junior PIK Notes;
Indebtedness which the Company did not anticipate refinancing on a current
basis was recorded for financial accounting purposes at its discounted
present value using a 17% discount rate which was indicative of market
interest rates for similar securities at the Effective Date. Accordingly,
$55,841,000 aggregate principal amount of Junior PIK Notes (the "Discounted
Junior PIK Notes") were recorded at an initial balance of $9,390,000 as of
May 3, 1995 and accrued interest for financial reporting purposes at 17%.
10
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The adjustments to adopt Fresh Start Accounting resulted in a total gain on
restructuring transactions of $150,290,522 in the accompanying statement of
operations for the period from January 2, 1995 through May 2, 1995. The
components of this gain are as follows:
Adjustments to assets and liabilities to reflect adoption of Fresh
Start Accounting $103,810,917
Debt forgiveness related to restructuring transactions
(classified as an extraordinary item in the accompanying
statement of operations) 46,479,605
--------------
Total gain on restructuring transactions $150,290,522
--------------
--------------
As a result of the effectiveness of the Plan and the adoption of Fresh Start
Accounting, the results for the Post-Effective Date periods are not comparable
to the Pre-Effective Date periods and accordingly, Pre-Effective Date and Post-
Effective Date financial statements are separated by a vertical line.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in the
opinion of the Company, all adjustments, consisting of only normal recurring
adjustments necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results for such
interim periods are not necessarily indicative of the results for the respective
entire years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
financial statements and notes thereto of Busse Broadcasting Corporation.
11
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. SALE OF WWMT-TV
On February 1, 1995 the Company formed a wholly-owned subsidiary, WWMT, Inc.
[renamed Busse Management Inc. ("BMI") on May 3, 1995 and further renamed
KOLN/KGIN, Inc. on October 20, 1995], and subsequently contributed substantially
all of the assets and current liabilities of television station WWMT-TV,
Kalamazoo, Michigan, to the subsidiary. On February 20, 1995 the Company and
WWMT, Inc. entered into an agreement with Granite Broadcasting Corporation
("Granite") to sell substantially all of the assets of WWMT for $95,000,000 plus
the net working capital as defined therein and Granite's assumption of certain
liabilities. The sale was completed as of the opening of business on June 1,
1995. Gross proceeds from the sale of approximately $99,400,000 were used, in
part, to redeem approximately $96,000,000 aggregate principal amount of certain
indebtedness issued by the Company pursuant to the Plan at 100% of face value,
plus accrued interest through the date of redemption.
In applying Fresh Start Accounting the Company accounted for its interest in
WWMT-TV as an investment held for sale pursuant to the guidance of EITF Issue
No. 87-11, "Allocation of Purchase Price to Assets to be Sold". The Company
valued the investment in WWMT-TV based on the expected sales proceeds, net of
selling costs, the incremental cash to be generated during the holding period
and interest charges relating to the debt to be retired with the net sale
proceeds.
3. DEBT
Debt is summarized as follows:
JUNE 30, DECEMBER 31,
1996 1995
---------------------------
(a) Senior Secured Notes, net of unamortized
original issue discount of $2,269,626 and
$2,454,185 at June 30, 1996 and December 31,
1995, respectively $60,257,374 $ 60,072,815
7.38% Junior Subordinated Pay-in-Kind Notes -- 41,960,647
17% Discounted Junior Subordinated Pay-in-Kind
Notes -- 10,462,108
(b) Promissory Note 178,353 245,131
(c) Term Loan Commitment -- --
---------------------------
Total debt 60,435,727 112,740,701
Less current maturities 136,374 35,214,927
---------------------------
Long term debt $60,299,353 $ 77,525,774
---------------------------
---------------------------
12
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
(a) Senior Secured Notes
On October 26, 1995 the Company issued $62,527,000 principal amount of 11 5/8%
Senior Secured Notes due October 15, 2000 (the "New Notes" and together with the
Exchange Notes, as defined herein, the "Senior Notes") at a price of 95.96% of
the aggregate principal amount thereof and received net proceeds of $58,125,099
after payment of underwriting discounts and commissions of $1,875,810.
A portion of the net proceeds from the issuance of the Senior Notes were used by
the Company on October 26, 1995 to redeem all of the outstanding 7.38% Secured
Senior Subordinated Pay-in-Kind Notes, at 100% of the principal amount thereof
plus accrued and unpaid interest thereon, for an aggregate cost of $26,469,445.
The remaining net proceeds of $31,655,654 were deposited in an escrow account
(the "Escrow Account") maintained by the trustee of the Senior Notes and used by
the Company on January 12, 1996 to effect, together with cash of approximately
$3,193,409 and the interest earned on the funds deposited in the Escrow Account,
the redemption of certain of the Junior Subordinated Notes, without penalty or
premium, at 100% of the principal amount of the Junior Subordinated Notes to be
redeemed for cash, plus accrued interest thereon to the date of redemption, at a
cost of $35,241,061. The outstanding principal amount of the Junior Subordinated
Notes immediately prior to the redemption was $100,765,475. The balance of the
Junior Subordinated Notes not redeemed for cash ($17,330,660 book value) was
redeemed for 65,524.41 shares of the Company's Series A Preferred Stock, at a
rate of one share for each $1,000 aggregate principal amount of, and accrued and
unpaid interest on, such Junior Subordinated Notes. The redemption of the Junior
Subordinated Notes for cash or Series A Preferred Stock is collectively referred
to as the "Junior Subordinated Note Redemption."
Interest on the Senior Notes is payable semiannually in arrears on April 15 and
October 15 of each year, commencing April 15, 1996. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months.
13
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all existing
and future senior indebtedness of the Company. The Senior Notes are secured by
all of the Company's equity interests in, and certain intercompany indebtedness
of, its subsidiaries, including the subsidiaries which hold the FCC licenses of
the Company's two television stations, certain agreements and contract rights
related to such television stations (including network affiliation agreements),
certain machinery, equipment and fixtures, certain general intangibles,
mortgages on substantially all of the owned and certain of the leased real
property of the Company and its subsidiaries, and proceeds thereof. In addition,
the Company's subsidiaries (collectively the "Guarantors") have fully and
unconditionally guaranteed the Senior Notes on a joint and several and senior
secured basis and each such guarantee ranks senior in right of payment to all
existing and future subordinated indebtedness of such Guarantor and ranks pari
passu with all existing and future senior indebtedness of such Guarantor (see
Note 5).
The Senior Notes may not, except in certain circumstances, be redeemed by the
Company before October 15, 1998. Thereafter, the Senior Notes will be subject to
redemption at the option of the Company, in whole or in part, at the redemption
prices of 106% and 103% (expressed as percentages of the face amount of the
Senior Notes), plus accrued and unpaid interest to the date of redemption, if
redeemed during the twelve-month period beginning on October 15 of 1998 and
1999, respectively.
The indenture relating the Senior Notes (the "Indenture") contains various
convenants and restrictions on the Company and its subsidiaries, including, but
not limited to, incurring additional indebtedness, issuing certain disqualified
capital stock, making dividend payments or certain other restricted payments,
consummating certain asset sales, incurring liens, entering into certain
transactions with affiliates, creating or acquiring additional subsidiaries,
merging or consolidating with any other person, or selling, assigning,
transferring, leasing, conveying or otherwise disposing of all or substantially
all of the assets of the Company or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends or
make loans or advances to the Company.
14
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
On March 14, 1996 the Company effected a registered exchange offer (the
"Exchange") and exchanged $1,000 in principal amount of its 11 5/8% Senior
Secured Notes due 2000 which were registered under the Securities Act of 1933
(the "Exchange Notes") for each $1,000 principal amount of the outstanding New
Notes. All of the outstanding New Notes were exchanged for Exchange Notes. The
sole purpose of the Exchange was to fulfill the obligations of the Company with
respect to the registration of the New Notes. Pursuant to a registration rights
agreement entered into by the Company in connection with the sale of the New
Notes, the Company agreed to file with the Securities and Exchange Commission a
registration statement relating to the Exchange pursuant to which the Exchange
Notes would be issued. The Exchange Notes contain substantially identical terms
as the New Notes including principal amount, interest rate, maturity, security
and ranking. The Exchange Notes are guaranteed by the Guarantors on the same
basis that the New Notes were guaranteed.
(b) Promissory Note
On October 6, 1992, the Company issued a $672,000 promissory note (the Note) to
finance the acquisition of a 5-color press and accessory equipment. The Note is
secured solely by the assets purchased. The Note is payable on the 16th of each
month through and including September 16, 1996 in equal monthly installments of
$12,525 inclusive of accrued interest at an annual rate of 7.59%. The
outstanding principal as of September 16, 1996 will be payable in 12 equal
monthly installments through and including September 16, 1997, the final payment
date, with the Company selecting between a variable or a fixed interest rate
option payable monthly in arrears.
(c) Term Loan Commitment
On May 10, 1996 the Company obtained a $645,000 term loan commitment (the
"Term Loan Commitment") from a financial institution to finance the
acquisition of certain digital pre-press equipment which the Company acquired
during June 1996. The Company expects to utilize the full amount of the Term
Loan Commitment during the third quarter of 1996 with the funds being
advanced to the Company in exchange for a promissory note. Such note, when
incurred, would be (i) secured solely by the assets purchased, (ii) payable
on the 10th of each month in equal installments so that the outstanding
principal balance would be $430,000 on May 10, 1997, plus accrued interest,
at an annual interest rate of 9.13%, and (iii) be payable after May 10, 1997
in thirty-six (36) equal monthly installments, plus accrued interest, with
the Company selecting between certain variable or a fixed interest rate
options.
15
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and income tax purposes. Significant components of the Company's
deferred tax assets and liabilities are as follows:
JUNE 30, DECEMBER 31,
1996 1995
------------------------------
Deferred tax liabilities:
Property, plant and equipment basis differences $ 4,014,000 $ 4,208,000
Debt basis differences -- 18,852,000
------------------------------
4,014,000 23,060,000
Deferred tax assets:
Federal net operating loss carryforwards 21,949,000 21,405,000
State net operating loss carryforwards 1,987,000 1,935,000
Other 82,000 124,000
------------------------------
24,018,000 23,464,000
Valuation allowances (20,004,000) (404,000)
------------------------------
4,014,000 23,060,000
------------------------------
$ -- $ --
------------------------------
------------------------------
As of December 31, 1995 the Company had approximately $58.1 million of federal
net operating loss carryforwards ("NOL's"). As a result of the Plan (see Note 1)
the Company believes it is eligible for treatment under Section 382 (l) (5) of
the Internal Revenue Code, as amended (the "Code"). This treatment will allow
the restructured Company to utilize, under certain restrictions, its NOL's to
offset taxable income incurred after the Effective Date. Utilization of a
portion of these NOL's are assumed in the Company's calculation of Post-
Effective Date deferred taxes.
16
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
4. INCOME TAXES (CONTINUED)
If the Company is unable, or if it is undesirable, to obtain treatment under
Section 382(l)(5), the Company may be able (prior to filing its 1995 tax return
by September 15, 1996) to elect an alternative treatment under Section 382(l)(6)
of the Code. Under Section 382(l)(6), the Company may utilize its NOL's under
certain circumstances, including generally to offset any "built-in" or
"inherent" gains as of the Effective Date which are recognized within five years
thereafter. However, the Company's ability to utilize its NOL's against its
operating income under Section 382(l)(6) will likely be severely limited.
5. SUBSIDIARY GUARANTORS
The Senior Notes are fully and unconditionally guaranteed, on a joint and
several and senior secured basis, by all of the Company's direct and indirect
subsidiaries, each of which is wholly-owned.
The following tables present summarized combined balance sheet and operating
statement information for (i) KOLN/KGIN, Inc., (ii) KOLN/KGIN License, Inc.
and (iii) WEAU License, Inc., or the respective prior operations as a
division of the Company. Separate financial statements of KOLN/KGIN, Inc.
immediately follow these Notes to condensed consolidated financial statements
of Busse Broadcasting Corporation. Separate financial statements and other
disclosures concerning KOLN/KGIN License, Inc. and WEAU License, Inc. have
not been presented because management has determined that such financial
statements would not be material to investors.
JUNE 30, DECEMBER 31,
1996 1995
------------------------------
ASSETS
Current assets $ 2,778,437 $ 3,129,038
Non-current assets 50,595,849 52,405,578
------------------------------
$53,374,286 $55,534,616
------------------------------
------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities $ 629,320 $ 1,116,223
Non-current liabilities 6,787,420 6,954,442
Stockholder's equity 45,957,546 47,463,951
------------------------------
Total liabilities and stockholder's equity $53,374,286 $55,534,616
------------------------------
------------------------------
17
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
5. SUBSIDIARY GUARANTORS (CONTINUED)
PRE-EFFECTIVE
POST-EFFECTIVE DATE DATE
-------------------------------------------------------------
FISCAL PERIOD FISCAL PERIOD
THREE MONTHS SIX MONTHS FROM MAY 3, FROM JANUARY 2,
ENDED ENDED 1995 THROUGH 1995 THROUGH
JUNE 30, 1996 JUNE 30, 1996 JULY 2, 1995 MAY 2, 1995
-------------------------------------------------------------
Net revenue $2,916,964 $5,816,712 $1,496,400 $ 3,489,390
Total operating costs and expenses 2,475,377 5,065,003 1,541,648 2,393,360
Income (loss) from operations 441,587 751,709 (45,248) 1,096,030
Reorganization item - gain on
restructuring transaction -- -- -- 34,831,263
Net income (loss) (243,869) (1,056,405) (220,069) 36,308,787
6. CAPITAL STOCK
On January 12, 1996 the Company amended its articles of incorporation to revise
its authorized shares of capital stock as discussed below.
COMMON STOCK
As of January 12, 1996 the authorized common capital stock of the Company
consists of 2,154,000 shares of Common Stock, of which 107,700 shares are issued
and outstanding as of the date thereof. Each share of Common Stock has an equal
and ratable right to receive dividends when and as declared by the Board of
Directors of the Company out of assets legally available therefor. The
declaration and payment of cash dividends on Common Stock are restricted by the
provisions of the Indenture and the Company's Long Term Incentive Plan. In the
event of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock would be entitled to share ratably in the assets available for
distribution after payments to creditors and liquidation preference payments to
holders of the Series A Preferred Stock.
18
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
6. CAPITAL STOCK (CONTINUED)
SERIES A PREFERRED STOCK
As of January 12, 1996 the authorized preferred capital stock of the Company
consists of 65,524.41 shares of Series A Preferred Stock, all of which are
issued and outstanding as of the date thereof. Dividends on the Series A
Preferred Stock accrue at an annual rate of $73.80 per share until such shares
are redeemed or converted, whether or not any funds are legally available
therefor. Such dividends are payable only upon the conversion of the Series A
Preferred Stock into Common Stock or the redemption thereof, unless any Senior
Notes are then outstanding or if such payment is then prohibited by any other
debt instruments of the Company or applicable law. In the event that payment of
any accrued dividends is not so permitted, such dividends will remain an
obligation of the Company and be payable at the earliest date on which both (i)
no Senior Notes remain outstanding and (ii) such payment is not prohibited by
the other debt instruments of the Company or by applicable law.
In the event of any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, any holder of the Series A Preferred Stock
will, for each share of Series A Preferred Stock, be entitled to receive a
distribution of $1,000, plus any accrued and unpaid dividends, out of the assets
of the Company prior to any distribution of assets with respect to any other
shares of capital stock of the Company as a result of such liquidation,
distribution or winding-up of the Company.
Each share of Series A Preferred Stock may be converted at any time at the
option of the holder into fully paid, nonassessable shares of Common Stock at
the rate of 31.22958299 shares of Common Stock per share of Series A Preferred
Stock, except that, if the Series A Preferred Stock is called for redemption,
the conversion right will terminate at the close of business on the date fixed
for redemption. Provision will be made for adjustment of the conversation rate,
under certain conditions, in order to protect the conversion rights against
dilution.
The Series A Preferred Stock is redeemable at the option of the Company at any
time, in whole or in part, out of funds legally available therefor, at a per
share redemption price equal to the per share liquidation preference per share
($1,000), plus in each case an amount equal to accrued and unpaid dividends, if
any, to (and including) the redemption date, whether or not declared.
19
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
6. CAPITAL STOCK (CONTINUED)
The holders of the Series A Preferred Stock have no voting rights except to the
extent required by the Delaware General Corporation Law and the Series A
Preferred Stock is entitled to no preemptive rights.
20
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Balance Sheets
DECEMBER 31,
JUNE 30, 1996 1995
UNAUDITED AUDITED
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 483,494 $ 380,938
Receivables, net 2,033,867 2,149,310
Program contract rights 126,252 425,230
Other current assets -- 27,560
-----------------------------
Total current assets 2,643,613 2,983,038
Property, plant and equipment, net 8,300,040 8,612,289
Due from Parent 161,596 166,729
Deferred charges and other assets 18,949 27,125
Intangible assets and excess reorganization value 36,281,547 37,580,767
-----------------------------
Total assets $47,405,745 $49,369,948
-----------------------------
-----------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 458,311 $ 617,972
Program contracts payable 65,855 381,130
-----------------------------
Total current liabilities 524,166 999,102
Deferred income tax liabilities 1,970,000 2,064,000
Other long-term liabilities 1,492 10,442
Stockholder's equity:
Common stock (voting) - $.01 par value, 1,000
shares authorized, issued and outstanding 10 10
Additional paid-in capital 46,568,577 46,568,577
Accumulated deficit (1,658,500) (272,183)
-----------------------------
Total stockholder's equity 44,910,087 46,296,404
-----------------------------
Total liabilities and stockholder's equity $47,405,745 $49,369,948
-----------------------------
-----------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
21
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Consolidated Statements of Operations and Stockholder's/Divisional Equity
PRE-EFFECTIVE
POST-EFFECTIVE DATE UNAUDITED DATE AUDITED
-------------------------------------------------------------
FISCAL PERIOD FISCAL PERIOD
THREE MONTHS SIX MONTHS FROM MAY 3, FROM JANUARY 2,
ENDED ENDED 1995 THROUGH 1995 THROUGH
JUNE 30, 1996 JUNE 30, 1996 JULY 2, 1995 MAY 2, 1995
-------------------------------------------------------------
Net revenue $ 2,736,964 $ 5,460,712 $ 1,496,400 $ 3,489,390
Operating costs and expenses, excluding
depreciation and amortization 1,265,677 2,610,375 756,325 1,741,340
Depreciation 265,950 532,060 182,533 486,000
Amortization of intangibles and
excess reorganization value 649,610 1,299,220 436,815 63,000
Corporate expenses 211,810 438,398 97,000 98,000
-------------------------------------------------------------
Total operating costs and expenses 2,393,047 4,880,053 1,472,673 2,388,340
-------------------------------------------------------------
Income from operations 343,917 580,659 23,727 1,101,050
Other income (expense):
Interest income 6,360 11,857 1,737 --
Gain on disposition of assets -- -- -- 2,074
Other income (expense) (73) (7,833) -- (4,152)
-------------------------------------------------------------
Other income (expense) 6,287 4,024 1,737 (2,078)
-------------------------------------------------------------
350,204 584,683 25,464 1,098,972
Reorganization item - gain on
restructuring transaction (NOTE 1) -- -- -- 34,831,263
-------------------------------------------------------------
Income before income taxes 350,204 584,683 25,464 35,930,235
(Provision) benefit for income taxes:
Current (1,065,000) (2,065,000) (243,558) (582,000)
Deferred 70,000 94,000 67,000 1,466,000
-------------------------------------------------------------
(995,000) (1,971,000) (176,558) 884,000
-------------------------------------------------------------
Net income (loss) (644,796) (1,386,317) (151,094) 36,814,235
Stockholder's/divisional equity at
beginning of period 45,554,883 46,296,404 47,632,491 11,747,254
Net intercompany transactions -- -- (334,900) (928,998)
-------------------------------------------------------------
Stockholder's/divisional equity at
end of period $44,910,087 $44,910,087 $47,146,497 $47,632,491
-------------------------------------------------------------
-------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
22
KOLN/KGIN-TV
(A Division of Busse Broadcasting Corporation)
Condensed Statements of Cash Flows
PRE-EFFECTIVE
POST-EFFECTIVE DATE UNAUDITED DATE AUDITED
-------------------------------------------------
FISCAL PERIOD FISCAL PERIOD
FROM MAY 3, 1995 FROM JANUARY 2,
SIX MONTHS ENDED THROUGH 1995 THROUGH
JUNE 30, 1996 JULY 2, 1995 MAY 2, 1995
-------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(1,386,317) $(151,094) $36,814,235
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,831,280 619,348 549,000
Program payments (over) under program
amortization (17,953) (9,269) 4,056
Gain on disposition of assets -- -- (2,074)
Deferred income tax benefit (94,000) (67,000) (1,466,000)
Reorganization item - gain on restructuring
transaction -- -- (34,831,263)
Change in current assets and liabilities:
Receivables 115,443 (48,807) 207,244
Other current assets 27,560 4,503 21,517
Accounts payable and accrued expenses (159,661) 5,332 (37,963)
-------------------------------------------------
Net cash provided by operating activities 316,352 353,013 1,258,752
INVESTING ACTIVITIES
Additions to property, plant and equipment (219,811) (99,348) (209,259)
Proceeds from disposition of assets -- -- 2,798
Decrease in other assets 882 130 295
-------------------------------------------------
Net cash used in investing activities (218,929) (99,218) (206,166)
FINANCING ACTIVITIES
Net intercompany transactions -- (334,900) (928,998)
Decrease in due from parent 5,133 -- --
-------------------------------------------------
Net cash provided by financing activities 5,133 (334,900) (928,998)
-------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 102,556 (81,105) 123,588
Cash and cash equivalents at beginning of period 380,938 185,081 61,493
-------------------------------------------------
Cash and cash equivalents at end of period $ 483,494 $103,976 $ 185,081
-------------------------------------------------
-------------------------------------------------
Supplemental information
Income taxes paid $2,065,000 $243,558 $ 582,000
-------------------------------------------------
-------------------------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
23
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements
Unaudited
June 30, 1996
1. BASIS OF PRESENTATION
The financial statements present the financial position, results of operations
and stockholder's/divisional equity, and cash flows of KOLN/KGIN-TV which was a
division of Busse Broadcasting Corporation (the Company or Parent) until
October 20, 1995. KOLN/KGIN-TV had no separate legal status or existence and was
an operating division of the Company through that date. KOLN/KGIN-TV is a CBS
affiliate operating channels 10 and 11 in the Lincoln - Hastings - Kearney,
Nebraska television market.
As further discussed in Note 2, the assets and liabilities of KOLN/KGIN-TV were
contributed to KOLN/KGIN, Inc., a wholly owned subsidiary of Busse Broadcasting
Corporation, on October 20, 1995. Accordingly, the accompanying financial
statements reflect the operations of KOLN/KGIN-TV as a separate legal entity
since that date. The accompanying financial statements also include, since
October 20, 1995, the accounts of KOLN/KGIN License, Inc., a wholly owned
subsidiary of KOLN/KGIN, Inc. All intercompany accounts and transactions have
been eliminated in consolidation.
Divisional equity balances through October 20, 1995 include net intercompany
balances that result from various transactions between KOLN/KGIN-TV and the
Company. There are no terms of settlement or interest charges associated with
these balances. The balances are primarily the result of KOLN/KGIN-TV's
participation in the Company's central cash management program, wherein the
month-end cash balances in excess of certain levels are remitted to the Company.
Other transactions include the allocation of corporate expenses to KOLN/KGIN-TV
and the current income taxes that would have been due to the Company. KOLN/KGIN-
TV's receivable from the Company, which has been netted in the divisional equity
balance, totaled $27,583,738 at May 2, 1995 and averaged $27,369,452 for the
period from January 2, 1995 through May 2, 1995. Such balance was zero at May 3,
1995, due to the adoption of Fresh Start Accounting, $334,900 at July 2, 1995
and averaged $167,450 for the period from May 3, 1995 through July 2, 1995.
Subsequent to October 20, 1995 these transactions have flowed through the due
from Parent account. There are no terms of settlement or interest related to
these balances which averaged $164,162 due from the Parent during the period
from December 31, 1995 through June 30, 1996.
24
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The Company and KOLN/KGIN, Inc. (then named WWMT, Inc.) filed voluntary
petitions for a joint plan of reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Plan") on March 10, 1995. On April 20, 1995 the
United States Bankruptcy Court (the "Court") for the district of Delaware
confirmed the Plan, such Plan became effective May 3, 1995 (the "Effective
Date") and the respective Chapter 11 cases were closed by the Court on
September 21, 1995.
The American Institute of Certified Public Accountants issued Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial reporting
when companies operate under and emerge from the protection of Chapter 11. SOP
90-7 requires that if (a) the reorganization value of the company, as defined,
was less than the total of all post-petition liabilities and pre-petition
claims, and (b) the holders of voting shares immediately before confirmation of
the Plan received less than fifty percent of the voting shares of the emerging
entity, then Fresh Start Accounting must be adopted. Since the Company met both
of these conditions, it adopted Fresh Start Accounting on the Effective Date.
Fresh Start Accounting provides that liabilities be recorded at their fair
values, based upon market interest rates at the Effective Date. In addition,
assets are to be recorded based on an allocation of the reorganization value of
the Company, which approximates fair market value, and any retained earnings or
deficit balance is to be eliminated as of the Effective Date.
The reorganization value of KOLN/KGIN-TV as of the Effective Date was based, in
part, on the valuation information supplied to the bankruptcy court. The
reorganization value was allocated based on appraisals which were performed by
independent, third-party appraisers and were based on traditional valuation
methods used in the appraisal industry.
The Company determined the Fresh Start Accounting balances for KOLN/KGIN-TV's
liabilities were not impaired by the Plan and accordingly were recorded at their
historical balances.
As a result of the effectiveness of the Plan and the adoption of Fresh Start
Accounting, the results for the Post-Effective Date periods are not comparable
to the Pre-Effective Date periods and accordingly, Pre-Effective date and Post-
Effective date financial statements are separated by a vertical line.
25
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in the
opinion of the Company, all adjustments, consisting of only normal recurring
adjustments necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results for such
interim periods are not necessarily indicative of the results for the respective
entire years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
financial statements and notes thereto of KOLN/KGIN, Inc.
2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV
On February 1, 1995 the Company formed a wholly-owned subsidiary, WWMT, Inc.
(renamed Busse Management Inc. ("BMI") on May 3, 1995), and subsequently
contributed to the subsidiary substantially all of the assets and current
liabilities of television station WWMT-TV, Kalamazoo, Michigan, which were sold
June 1, 1995. The proceeds from the sale of WWMT-TV were transferred by BMI to
the Company in the form of a dividend or a note. The note receivable of BMI (now
KOLN/KGIN, Inc.) from the Company has been reflected as a constructive dividend
in the accompanying financial statements and accordingly, no interest income
from the Company has been recorded.
The subsidiary conducted immaterial incidental corporate activities from June 2,
1995 through October 19, 1995. On October 19, 1995 the name of the subsidiary
was changed from BMI to KOLN/KGIN, Inc.
On October 26, 1995 the Company issued $62,527,000 principal amount of 11 5/8%
Senior Secured Notes due October 15, 2000 ("Senior Notes") at a price of 95.96%
of the aggregate principal amount thereof.
26
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV (CONTINUED)
To facilitate the collateral arrangements required by the Senior Notes the
Company effected the following transactions on October 20, 1995:
1. The assets and liabilities relating to the operation of KOLN-TV and KGIN-TV
were conveyed to KOLN/KGIN, Inc.
2. KOLN/KGIN, Inc. transferred the FCC licenses relating to the operation of
KOLN-TV and KGIN-TV to its wholly-owned subsidiary KOLN/KGIN License, Inc.
in exchange for all of the capital stock of the subsidiary.
Interest on the Senior Notes is payable semiannually in arrears on April 15 and
October 15 of each year, commencing April 15, 1996. Interest is computed on the
basis of 360-day year comprised of twelve 30-day months.
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all existing
and future senior indebtedness of the Company. The Senior Notes are secured by
all of the Company's equity interests in, and certain intercompany indebtedness
of, its subsidiaries, including the respective subsidiaries which own KOLN/KGIN-
TV and hold the FCC licenses of KOLN/KGIN-TV, certain agreements and contract
rights related to such television station (including network affiliation
agreements), certain machinery, equipment and fixtures, certain general
intangibles, mortgages on substantially all of the owned and certain of the
leased real property of the Company and its subsidiaries, and proceeds thereof.
In addition, the Company's subsidiaries (collectively the "Guarantors") have
fully and unconditionally guaranteed, on a joint and several and senior secured
basis, the Senior Notes and each such guarantee ranks senior in right of payment
to all existing and future subordinated indebtedness of such Guarantor and ranks
pari passu with all existing and future senior indebtedness of such Guarantor.
27
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV (CONTINUED)
The indenture relating to the Senior Notes (the "Indenture") contains various
covenants and restrictions on the Company and its subsidiaries, including, but
not limited to, incurring additional indebtedness, issuing certain disqualified
capital stock, making dividend payments or certain other restricted payments,
consummating certain asset sales, incurring liens, entering into certain
transactions with affiliates, creating or acquiring additional subsidiaries,
merging or consolidating with any other person, or selling, assigning,
transferring, leasing, conveying or otherwise disposing of all or substantially
all of the assets of the Company or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends or
make loans or advances to the Company.
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements of the Company and notes thereto included at
Item 1, "Financial Statements," which provide additional information regarding
the Company's financial activities and condition. The accompanying unaudited
Condensed Consolidated Financial Statements, together with the related notes to
such financial statements, reflect, in the opinion of the Company, all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the Company's financial position and results of operations for
the unaudited interim periods. Results of such interim periods are not
necessarily indicative of the results for the respective entire fiscal years.
The Company's fiscal year is the 52/53 week period ending on the Sunday
nearest to December 31 of each year. The Company's first three fiscal quarters
are each comprised of 13 consecutive weeks. Unless otherwise indicated,
references herein to 1996 and/or 1995 refer to the six and/or three month
periods ended June 30, 1996 or July 2, 1995, respectively.
The Company and its then existing wholly-owned subsidiary filed voluntary
petitions for a joint plan of reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Plan") on March 10, 1995. The Plan was effected
and the Company emerged from Chapter 11 bankruptcy reorganization (the
"Restructuring") on May 3, 1995 (the "Effective Date"). The transactions
comprising the Restructuring are summarized in Note 1 to Notes to Condensed
Consolidated Financial Statements (Unaudited) of the Company for the six months
ended June 30, 1996. The primary effects of the Restructuring on results of
operations and liquidity are summarized below.
The American Institute of Certified Public Accountants has issued
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial
reporting when companies operate under the protection of Chapter 11 and as they
emerge from Chapter 11. SOP 90-7 requires that if (i) the reorganization value
of the company, as defined, was less than the total of all post-petition
liabilities and pre-petition claims and (ii) holders of voting shares
immediately before confirmation of the Plan received less than 50% of the voting
shares of the emerging entity, then Fresh Start Accounting must be adopted.
Because the Company met both of these conditions, it adopted Fresh Start
Accounting on the Effective Date. Fresh Start Accounting provides that
liabilities be recorded at their fair values, based upon market interest rates
at the Effective Date. In addition, assets are to be recorded based on an
allocation of the reorganization value of the Company, which approximates fair
market value, and any retained earnings or deficit balance is to be eliminated
as of the Effective Date.
29
As of the Effective Date, the Company recognized the following non-
recurring income and expense items relating to the Restructuring:
(i) As a consequence of the adoption of Fresh Start Accounting, the Company
revalued its assets and liabilities to fair value based on the estimated
reorganization value of the Company as of the Effective Date. Fresh Start
Accounting required an increase in the Company's net assets of $103,810,917
which was reported as a gain on restructuring transaction in the Company's
financial statements for the period ended May 2, 1995;
(ii) In accordance with SOP 90-7, the legal, professional and other costs and
expenses related to the Restructuring were charged to expense as incurred.
Accordingly, $2,660,510, $2,148,588 and $558,686 were reported as an expense of
the Restructuring in the Company's financial statements for the period ended May
2, 1995 and the fiscal years ended January 1, 1995 and January 2, 1994,
respectively; and
(iii) For financial reporting purposes, an extraordinary gain from forgiveness
of debt of $46,479,605 was reported in the financial statements for the period
ended May 2, 1995. This gain represents the total amount of debt eliminated for
financial reporting purposes relating to the adoption of Fresh Start Accounting.
RESULTS OF OPERATIONS
The financial statements of the Company for the Post-Effective Date fiscal
period(s) are not comparable to the Pre-Effective Date fiscal period(s)
principally in the following areas: (i) depreciation and amortization expense in
the Post-Effective Date financial statements reflects the restatement of assets
to estimated fair value as of the Effective Date, (ii) interest expense in the
Post-Effective Date financial statements reflects the new debt structure of the
Company and (iii) the Pre-Effective Date statement of operations includes
nonrecurring gains and expenses related to the Restructuring. In addition, as a
result of its adoption of Fresh Start Accounting the Company was required to
account for WWMT as an investment held for sale. Accordingly, results of
operations for WWMT from May 3, 1995 through the date of sale on June 1, 1995
are excluded from the Company's consolidated results of operations for the
fiscal period ended July 2, 1995.
In the discussion of operations which follows, the results of operations
for the periods (i) April 3, 1995 through May 2, 1995 (Pre-Effective Date) and
May 3, 1995 through July 2, 1995 (Post-Effective Date) and (ii) from January 2,
1995 through May 2, 1995 (Pre-Effective Date) and May 3, 1995 through July 2,
1995 (Post-Effective Date) are combined for certain items of revenue and expense
for purposes of comparison to the three and six months ended June 30, 1996.
Revenue and expense items combined in 1995 for the Pre- and Post-Effective Date
periods are referred to as "Combined 1995".
The advertising revenues of the Company's television stations are generally
highest in the second and fourth quarters of each year, due in part to increases
in consumer advertising in the spring and retail advertising in the period
leading up to and including the holiday season.
30
In addition, advertising revenues are generally higher during election years due
to spending by political candidates, which spending typically is heaviest during
the fourth quarter. Operating expenses of the Company's television stations
are generally consistent throughout the fiscal year. Revenues and expenses of
the printing operations are generally not subject to significant seasonal
fluctuations.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 (POST-EFFECTIVE DATE) AND
THE COMBINED PERIODS FROM APRIL 3, 1995 THROUGH MAY 2, 1995 (PRE-EFFECTIVE
DATE) AND MAY 3, 1995 THROUGH JULY 2, 1995 (POST-EFFECTIVE DATE)
Net revenue declined $1,888,091, or 22.5%, to $6,506,551 from $8,394,642
for the three months ended June 30, 1996 compared to the Combined 1995 three
months ended July 2, 1995 with all of such decline attributable to the exclusion
of results from WWMT from the 1996 period. For KOLN/KGIN-TV and WEAU-TV
(collectively, the "Stations"), net revenue for the second quarter of 1996
increased $279,527, or 6.0%, to $4,907,765, from $4,628,238 for the
corresponding Combined 1995 period. Net political revenue for the Stations
during the three months ended June 30, 1996 increased by approximately $156,000
to $213,000 from $57,000 in the Combined 1995 period reflecting issue orientated
advertising placed by political parties and political action committees and
advertising placed on behalf of candidates in connection with primary elections
associated with the biannual election cycle. For the three months ended June
30, 1996 compared to the Combined 1995 three months ended July 2, 1995, net
national revenues, excluding net political revenues, for KOLN/KGIN-TV increased
7.6% due to increased national advertiser demand within that station's market
while for the same periods net local revenues, excluding net political revenues,
decreased 6.8% reflecting decreased local advertiser demand within the station's
market. For the three months ended June 30, 1996 compared to the Combined 1995
three months ended July 2, 1995, net national revenues, excluding net political
revenues, for WEAU-TV increased 11.7% due to increased national advertiser
demand within that station's market and an increased share of the market's
revenue while for the same periods net local revenues, excluding net political
revenues, decreased 2.8% reflecting decreased local advertiser demand within the
market. Network compensation for the Stations increased approximately $171,000
to $359,000 for the three months ended June 30, 1996 compared to $188,000 for
the Combined 1995 three months ended July 2, 1995. Such increase reflects
increased compensation pursuant to new long-term affiliation agreements for each
station which became effective January 1, 1996.
Net revenue from Winnebago Color Press decreased $119,822, or 7.0% , to
$1,598,786 for the three months ended June 30, 1996 from $1,718,608 for the
Combined 1995 three months ended July 2, 1995 due to reduced demand and strong
price competition within this segment. The amount of net revenue generated by
the Company's commercial printing business is not expected to improve during the
third quarter of fiscal 1996 when compared to the similar period of 1995 due to
continuing reduced customer demand for finished product.
31
Operating expenses, excluding depreciation and amortization expenses,
decreased $1,216,241 or 25.3%, to $3,583,939 for the three months ended June 30,
1996 from $4,800,180 for the corresponding Combined 1995 period. Of such
decline, $1,037,992 is attributable to the exclusion of results for WWMT from
the 1996 period. Operating expenses, excluding depreciation and amortization
expenses, for the Stations decreased $73,436, or 3.5%, to $2,048,990, from
$2,122,426 for the corresponding Combined 1995 period reflecting, in part,
modest differences in the incurrence of services between the respective periods.
Operating expenses, excluding depreciation and amortization expenses, for
Winnebago Color Press decreased $84,937, or 5.4%, to $1,494,949 from $1,579,886
for the Combined three months ended July 2, 1995, with all of the decrease
attributable to a reduction in the cost of sales due to the lower sales volume
discussed above.
Depreciation and amortization expenses increased $30,549, or 2.0%, to
$1,530,649 for the three months ended June 30, 1996 from $1,500,100 for the
Combined 1995 period. This increase is primarily attributable to changes in
asset carrying amounts, useful lives and amortization periods related to the
adoption of Fresh Start Accounting, offset, in part, by including depreciation
and amortization expenses associated with WWMT of $102,103 only in the Combined
1995 period. Depreciation and amortization expenses attributable to the
Stations increased $203,361, or 16.2%, to $1,456,508 for the three months ended
June 30, 1996 from $1,253,147 for the Combined 1995 period reflecting the
adoption of Fresh Start Accounting.
Corporate expenses increased $145,743, or 52.5%, to $423,528 during the
three months ended June 30, 1996 from $277,785 for the Combined 1995 three
months ended July 2, 1995. The increase results primarily from (i) increased
professional service charges during the 1996 period, including $18,505 relating
to certain litigation (see Part II, Item 1, "Legal Proceedings") and (ii)
charges of $91,415 relating to the accrual of obligations under the Company's
long term incentive plan for the 1996 period while the corresponding Combined
1995 period included $61,111 of such charges under the long term incentive plan.
Income from operations decreased $848,142, or 46.7%, to $968,435 for the
three months ended June 30, 1996 from $1,816,577 for the corresponding Combined
1995 period, with the sale of WWMT and the exclusion of its results of
operations from the 1996 period accounting for all of such decrease. Income
from operations attributable to the Stations increased $149,602, or 11.9%, to
$1,402,267 for the three months ended June 30, 1996 from $1,252,665 in the
Combined 1995 period. Such increase reflects the Stations' increased net
revenues being partially offset by increased costs of operations, including
depreciation and amortization charges resulting from the adoption of Fresh Start
Accounting. Income from operations for printing increased $7,041, or 22.7%, to
$38,093 from $31,052 in the corresponding Combined 1995 period due primarily to
decreased depreciation charges during the 1996 period reflecting the adoption of
Fresh Start Accounting.
Interest expense decreased $697,254, or 25.2%, to $2,069,078 for the three
months ended June 30, 1996 from $2,766,332 for the corresponding Combined 1995
period reflecting the Company's Post-Effective Date capitalization, the issuance
of the Senior Notes and the
32
Junior Subordinated Note Redemption. See Note 3 to Notes to Condensed
Consolidated Financial Statements (Unaudited) included in Item 1, "Financial
Statements." In addition, pursuant to the Plan, the Company did not accrue
approximately $1,033,000 of interest on certain of its Pre-Effective Date
indebtedness for the period from April 3, 1995 through May 2, 1995.
Interest income decreased $289,458 or 83.6%, to $56,608 for the three
months ended June 30, 1996 from $346,066 for the Combined 1995 period which
decrease was primarily due to the inclusion of earnings on the WWMT sales
proceeds, prior to the redemption of certain indebtedness with such proceeds,
only in the Combined 1995 period. See Note 2 to Notes to Condensed Consolidated
Financial Statements (Unaudited) included in Item 1, "Financial Statements."
The Company has analyzed its deferred tax assets and liabilities and its
current state tax provision and has concluded that no provision for current
state or deferred federal or state taxes is required for the three months ended
June 30, 1996.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 (POST-EFFECTIVE DATE)
AND THE COMBINED PERIODS FROM JANUARY 2, 1995 THROUGH MAY 2, 1995 (PRE-EFFECTIVE
DATE) AND MAY 3, 1995 THROUGH JULY 2, 1995 (POST-EFFECTIVE DATE)
Net revenue declined $5,905,890, or 32.0%, to $12,577,046 from $18,482,936
for the six months ended June 30, 1996 compared to the Combined 1995 six months
ended July 2, 1995 with all of such decline attributable to the exclusion of
results from WWMT from the 1996 period. For the Stations, net revenue for the
first fiscal half of 1996 increased $754,863, or 8.7%, to $9,419,405, from
$8,664,542 for the corresponding Combined 1995 period. Net political revenue
for the Stations during the six months ended June 30, 1996 increased by
approximately $219,000 to $312,000 from $93,000 in the Combined 1995 period
reflecting issue orientated advertising placed by political parties and
political action committees and advertising placed on behalf of candidates in
connection with primary elections associated with the biannual election cycle.
For the six months ended June 30, 1996 compared to the Combined 1995 six months
ended July 2, 1995, net national revenues, excluding net political revenues, for
KOLN/KGIN-TV increased 8.0% due to increased national advertiser demand within
that station's market while for the same periods net local revenues, excluding
net political revenues, decreased 1.4% reflecting decreased local advertiser
demand within the market. For the six months ended June 30, 1996 compared to
the Combined 1995 six months ended July 2, 1995, net national and local
revenues, excluding net political revenues, for WEAU-TV increased 7.7% and 1.5%,
respectively, due to increased advertiser demand within that station's market
and an increased share of the market's revenue. Network compensation for the
Stations increased approximately $336,000 to $701,000 for the six months ended
June 30, 1996 compared to $365,000 for the Combined 1995 six months ended July
2, 1995. Such increase reflects increased compensation pursuant to new long-
term affiliation agreements for each station which became effective January 1,
1996.
33
Net revenue from Winnebago Color Press decreased $426,219, or 11.9% , to
$3,157,641 for the six months ended June 30, 1996 from $3,583,860 for the
corresponding Combined 1995 period due to reduced demand and strong price
competition within this segment. The amount of net revenue generated by the
Company's commercial printing business is not expected to improve during the
third quarter of fiscal 1996 when compared to the similar period of 1995 due to
continuing reduced customer demand for finished product.
Operating expenses, excluding depreciation and amortization expenses,
decreased $3,717,460, or 34.1%, to $7,180,039 for the six months ended June 30,
1996 from $10,897,499 for the corresponding Combined 1995 period. Of such
decline, $3,377,234 is attributable to the exclusion of results for WWMT from
the 1996 period. Operating expenses, excluding depreciation and amortization
expenses, for the Stations increased $8,212, or 0.2%, to $4,196,221, from
$4,188,009 for the corresponding Combined 1995 period reflecting, in part,
modest expansion of news services at KOLN/KGIN-TV. Operating expenses,
excluding depreciation and amortization expenses, for Winnebago Color Press
decreased $308,549, or 9.6%, to $2,903,818 from $3,212,367 with substantially
all of the decline attributable to a reduction in the cost of sales due to the
lower sales volume discussed above.
Depreciation and amortization expenses increased $264,090, or 9.3%, to
$3,092,518 for the six months ended June 30, 1996 from $2,828,428 for the
Combined 1995 period. This increase is primarily attributable to changes in
asset carrying amounts, useful lives and amortization periods related to the
adoption of Fresh Start Accounting, offset, in part, by including depreciation
and amortization expenses associated with WWMT of $511,307 only in the Combined
1995 period. Depreciation and amortization expenses attributable to the
Stations increased $967,427, or 49.3%, to $2,928,774 for the six months ended
June 30, 1996 from $1,961,347 for the Combined 1995 period reflecting the
adoption of Fresh Start Accounting.
Corporate expenses increased $313,370, or 60.6%, to $830,090 during the six
months ended June 30, 1996 from $516,720 for the Combined 1995 six months ended
July 2, 1995. The increase results primarily from (i) increased professional
service charges during the 1996 period, including $40,657 relating to certain
litigation (see Part II, Item 1, "Legal Proceedings") and (ii) charges of
$182,831 relating to the accrual of obligations under the Company's long term
incentive plan for the 1996 period while the corresponding Combined 1995 period
included $61,111 of such charges under the long term incentive plan.
Income from operations decreased $2,765,890, or 65.2%, to $1,474,399 for
the six months ended June 30, 1996 from $4,240,289 for the corresponding
Combined 1995 period, with the sale of WWMT and the exclusion of its results of
operations from the 1996 period accounting for $2,345,983 of such decrease.
Income from operations attributable to the Stations declined $220,776, or 8.8%,
to $2,294,410 for the six months ended June 30, 1996 from $2,515,186 for the
Combined 1995 period as the Stations' increased net revenues were offset by
increased depreciation and amortization charges resulting from the adoption of
Fresh Start Accounting. Income from operations for printing declined $52,573 or
33.0%, to
34
$106,805 from $159,378 in the corresponding Combined 1995 period due primarily
to the lower sales being partially offset by lower operating costs, as discussed
above.
Interest expense decreased $4,588,302, or 51.8%, to $4,272,321 for the six
months ended June 30, 1996 from $8,860,623 for the corresponding Combined 1995
period reflecting the Company's Post-Effective Date capitalization, the issuance
of the Senior Notes and the Junior Subordinated Note Redemption. See Note 3 to
Notes to Condensed Consolidated Financial Statements (Unaudited) included in
Item 1, "Financial Statements." In addition, pursuant to the Plan, the Company
did not accrue approximately $1.8 million of interest on certain of its Pre-
Effective Date indebtedness for the period from March 9, 1995 through May 2,
1995.
Interest income decreased $254,810 or 62.0%, to $156,375 for the six months
ended June 30, 1996 from $411,185 for the Combined 1995 period which decrease
was primarily due to the inclusion of earnings on the WWMT sales proceeds, prior
to the redemption of certain indebtedness with such proceeds, only in the
Combined 1995 period. See Note 2 to Notes to Condensed Consolidated Financial
Statements (Unaudited) included in Item 1, "Financial Statements."
The 1996 current income tax expense reflects current state tax expense.
The Company has analyzed its deferred tax assets and liabilities and has
concluded that no provision for deferred federal or state taxes is required for
the six months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at June 30, 1996 totaled $4,905,729
compared to $38,893,959 at December 31, 1995. The decrease in the Company's
cash position resulted primarily from the Company's use of approximately $35.2
million to effect the cash portion of the Junior Subordinated Note Redemption
which was completed on January 12, 1996. (See Note 3 of Notes to Condensed
Consolidated Financial Statements (Unaudited) for the six months ended June 30,
1996.) Immediately following the Junior Subordinated Note Redemption the
Company had an available cash reserve of $4,000,000.
The Company's primary source of liquidity is cash generated by operations.
There are no contractual restrictions on the ability of the Company's
subsidiaries to pay cash dividends or make loans or advances to the Company.
The Company's net cash provided by operations (including changes in working
capital) was $2,518,997 and $3,859,907 for the six months ended June 30, 1996
and the Combined 1995 periods ending July 2, 1995, respectively. The decrease
in net cash provided by operations is due primarily to an increase in the
Company's Post-Effective Date cash interest requirements and to changes in
certain working capital accounts.
The Company's cash interest requirements will increase significantly during
the 1996 fiscal year when compared to the 1995 fiscal year reflecting the semi-
annual cash interest payments of approximately $3,634,000 due with respect to
the Senior Notes, which were
35
issued in October 1995. Interest on a substantial portion of the indebtedness
issued pursuant to the Restructuring, which indebtedness was subsequently
redeemed in connection with the sale of WWMT, the issuance of the Senior Notes
and the Junior Subordinated Note Redemption, was payable through the issuance of
additional securities.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. For the 1995
fiscal year capital expenditures totaled $1,154,500, of which $943,796 related
to its existing broadcast operations and $137,572 related to the Company's
printing operations. The Company has budgeted up to $2,000,000 for capital
expenditures during 1996; approximately $1,000,000 has been allocated for the
Stations. The balance of the anticipated 1996 expenditures has been allocated
to Winnebago Color Press and includes $860,000 relating to the acquisition of
certain digital pre-press equipment. In conjunction with the acquisition of
such digital pre-press equipment, the Company has obtained a $645,000 Term Loan
Commitment (see Note 3(c) to Notes to Condensed Consolidated Financial
Statements (Unaudited) included at Item 1 "Financial Statements").
The Company anticipates aggregate capital expenditures for fiscal years
1997 and 1998 will approximate $1,200,000 in each year. It is anticipated that
significant capital expenditures may be required in the future to implement
advanced digital television systems, ("DTV") including high definition
television, at the Stations. The Federal Communications Commission ("FCC") has
not yet determined the technical standards for DTV nor has it established a
specific timetable for implementation of DTV. The Company cannot presently
predict the cost of implementing DTV in each of the Stations.
Although there can be no assurance that the Company will generate earnings
in the future sufficient to cover its fixed charges, including the debt service
obligations with respect to the Senior Notes, management believes that the cash
flow generated from the Company's operations and available cash on hand should
be sufficient to fund its interest requirements, working capital needs,
anticipated capital expenditures and other operating expenses through the end of
fiscal year 1998. The Company's high degree of leverage will have important
consequences, including the following: (i) the ability of the Company to obtain
additional financing for working capital, capital expenditures, debt service
requirements or other purposes may be impaired; (ii) a substantial portion of
the Company's operating cash flow will be required to be dedicated to the
payment of the Company's interest expense; (iii) the Company may be more highly
leveraged than companies with which it competes, which may place it at a
competitive disadvantage; and (iv) the Company may be more vulnerable in the
event of a downturn in its businesses. The Company's future operating
performance and ability to service or refinance the Senior Notes will be subject
to future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control.
Except for the Term Loan Commitment (see Note 3(c) to Notes to Condensed
Consolidated Financial Statements (Unaudited) included at Item 1 "Financial
Statements") the Company does not currently have additional credit availability
under any agreements and the indenture governing the Senior Notes (the
"Indenture") limits the Company's ability to
36
incur additional Indebtedness (as defined therein). The limitation in the
Indenture on the Company's ability to incur additional Indebtedness, together
with the highly leveraged nature of the Company, could limit corporate and
operating activities, including the Company's ability to respond to market
conditions, to provide for unanticipated capital investments or to take
advantage of business opportunities.
INCOME TAXES
The Company estimated that its federal NOL carryover as of December 31,
1995 was approximately $58.1 million. This NOL carryover is expected to be
sufficient, under certain circumstances, to shelter taxable income (except for
any alternative minimum tax) for the foreseeable future, absent a sale of any of
the Company's significant assets or an "ownership change" (an "Ownership
Change") under section 382 of the United States Internal Revenue Code, as
amended (the "Code"). If an Ownership Change occurs within two years of the
Effective Date, the Company's ability to utilize its NOL carryover to offset
operating income will likely be severely limited. However, if such Ownership
Change occurs, the Company may utilize its NOL carryover, under certain
circumstances, to offset any "built-in" or "inherent" gains as of the Effective
Date which are recognized within five years thereafter.
As discussed in "Retention of a Financial Advisor by Certain Shareholders"
below, certain holders of the Company's outstanding capital stock have engaged
an investment banking firm to act as a financial advisor in connection with the
possible sale of the Company. At this time, there can be no assurance as to
whether any transaction will result from such engagement or as to value, timing
or structure of any such transaction. However, a future transaction, if any,
might constitute an Ownership Change within two years of the Effective Date.
Accordingly, the Company currently believes it is eligible for and expects it
may elect treatment under Section 382(l)(6) of the Code when it files its 1995
federal income tax return on or before September 15, 1996. See Note 4 of Notes
to Condensed Consolidated Financial Statements (Unaudited) for the six months
ended June 30, 1996.
RETENTION OF A FINANCIAL ADVISOR BY CERTAIN STOCKHOLDERS
The Company has been advised that the holders of record of approximately
97.4% of the Company's outstanding capital stock have engaged the investment
banking firm of Morgan Stanley & Co. Incorporated to act as a financial advisor
in connection with the possible sale of the Company. At this time, there can be
no assurance as to whether any transaction will result from such engagement or
as to value, timing or structure of any such transaction.
37
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In 1993, the FCC allotted VHF Channel 8 to Lincoln, Nebraska, and modified
the license of Citadel Communications, Ltd. ("Citadel"), the licensee of station
KCAN-TV in Albion, Nebraska, to allow for operation of Channel 8 in Lincoln.
The Company opposed and sought reconsideration of such action, but on June 27,
1995 the FCC denied the Company's objections. On July 20, 1995 the Company
filed with the United States Court of Appeals for the District of Columbia (the
"Court of Appeals") a Notice of Appeal and Petition for Review in respect of
this matter. The grounds asserted as a basis for reviewing the FCC's action in
the appeal include, among others, that the FCC violated its own procedures and
precedents in authorizing the move of Channel 8 from Albion to Lincoln,
Nebraska, that the waiver of local ownership rules which the FCC granted to
Citadel was inconsistent with precedent and public interest and that the FCC
improperly disregarded the loss of service to Albion that would result from
Citadel's relocation. The Court of Appeals heard oral arguments in this case
on March 26, 1996 and on July 12, 1996 denied the Company's appeal and dismissed
its petition for review. The Company is presently considering whether to appeal
the Court of Appeals decision.
Citadel has changed the station call letters of Channel 8 to KLKN, and in
June, 1996, commenced full power over-the-air broadcast operations. The
Company cannot predict the impact of the KLKN operations upon the Company's
future operations.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
27 Financial Data Schedule for the Quarter ended
June 30, 1996
(b) REPORTS ON FORM 8-K
None.
38
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSSE BROADCASTING CORPORATION
-------------------------------
(Registrant)
DATED: August 13, 1996 BY: /s/ James C. Ryan
--------------------------
JAMES C. RYAN
Chief Financial Officer
(chief accounting officer and officer duly
authorized to sign on behalf of the
Registrant)
39