- --------------------------------------------------------------------------------
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 September 29, 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 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 September 29, 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
September 29, 1996 (Unaudited) and December 31, 1995
(Audited) 3
Condensed Consolidated Statements of Operations for
the Three Months Ended September 29, 1996
(Unaudited) and October 1, 1995 (Unaudited) and
the Nine Months Ended September 29, 1996 (Unaudited)
and the Fiscal Periods from May 3, 1995 through
October 1, 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 Nine Months Ended September 29, 1996 (Unaudited)
and the Fiscal Periods from May 3, 1995 through
October 1, 1995 (Unaudited) and January 2, 1995
through May 2, 1995 (Audited) 7
Notes to Condensed Consolidated Financial Statements
(Unaudited) for the Nine Months Ended September 29, 1996 8
KOLN/KGIN, INC. (A Wholly-owned Subsidiary of Busse
Broadcasting Corporation)
Condensed Consolidated Balance Sheets as of
September 29, 1996 (Unaudited) and December 31, 1995
(Audited) 20
Condensed Consolidated Statements of Operations and
Stockholder's / Divisional Equity for the Three Months
Ended September 29, 1996 (Unaudited) and October 1,
1995 (Unaudited) and the Nine Months Ended
September 29, 1996 (Unaudited) and the Fiscal
Periods from May 3, 1995 through October 1, 1995
(Unaudited) and January 2, 1995 through
May 2, 1995 (Audited) 21
Condensed Consolidated Statements of Cash Flows for
the Nine Months Ended September 29, 1996 (Unaudited)
and the Fiscal Periods from May 3, 1995 through
October 1, 1995 (Unaudited) and January 2, 1995
through May 2, 1995 (Audited) 22
Notes to Condensed Consolidated Financial Statements
(Unaudited) for the Nine Months Ended September 29, 1996 23
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 28
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 36
ITEM 5 OTHER INFORMATION 36
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 36
SIGNATURES 37
2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Busse Broadcasting Corporation
Condensed Consolidated Balance Sheets
SEPTEMBER 29, 1996 DECEMBER 31, 1995
UNAUDITED AUDITED
---------------------------------------
ASSETS (NOTE 1 )
Current assets:
Cash and cash equivalents $ 7,154,863 $ 38,893,959
Receivables, net 4,030,910 4,589,784
Inventories 738,400 920,000
Other current assets 1,071,810 1,010,734
---------------------------------------
Total current assets 12,995,983 45,414,477
Property, plant and equipment, net 17,723,051 17,877,590
Deferred charges and other assets 2,516,053 2,791,788
Intangible assets and excess reorganization value 53,946,627 56,896,391
---------------------------------------
Total assets $87,181,714 $122,980,246
---------------------------------------
---------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 1)
Current liabilities:
Accounts payable and accrued expenses $ 5,468,025 $ 3,225,767
Current maturities of long-term debt (NOTE 3) 351,374 35,214,927
---------------------------------------
Total current liabilities 5,819,399 38,440,694
Long-term debt (NOTE 3) 60,700,569 77,525,774
Other long-term liabilities 819,981 476,176
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 September 29, 1996 17,330,660 --
Series A preferred stock dividends in arrears 3,457,858 --
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) (10,133,602) (2,649,247)
---------------------------------------
Total stockholders' equity 19,841,765 6,537,602
---------------------------------------
Total liabilities and stockholders' equity $87,181,714 $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 THREE MONTHS NINE MONTHS FROM MAY 3, FROM
ENDED ENDED ENDED 1995 THROUGH JANUARY 2,
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1, 1995 THROUGH
1996 1995 1996 1995 MAY 2, 1995
-------------------------------------------------------------------------------
Net revenue $6,118,368 $5,573,761 $18,695,414 $9,545,802 $ 14,510,895
Operating costs and expenses,
excluding depreciation and
amortization 3,603,102 3,457,720 10,783,141 5,845,242 8,509,977
Depreciation 584,656 600,929 1,729,740 995,263 1,307,271
Amortization of intangibles and
excess reorganization value 1,002,329 987,031 2,949,763 1,645,053 468,801
-------------------------------------------------------------------------------
Total operating costs and expenses 5,190,087 5,045,680 15,462,644 8,485,558 10,286,049
Corporate expenses 370,956 326,135 1,201,046 551,895 290,960
-------------------------------------------------------------------------------
Income from operations 557,325 201,946 2,031,724 508,349 3,933,886
Other income (expense):
Interest expense (2,077,039) (1,639,240) (6,349,360) (3,027,390) (7,472,473)
Interest income 55,513 84,448 211,888 410,108 85,525
Gain on disposition of assets 32,223 250 49,389 852 2,133
Other income (expense) 60,561 (31,676) 54,862 (30,539) 144,198
-------------------------------------------------------------------------------
Other expense (1,928,742) (1,586,218) (6,033,221) (2,646,969) (7,240,617)
-------------------------------------------------------------------------------
Loss before reorganization items,
income taxes and extraordinary item (1,371,417) (1,384,272) (4,001,497) (2,138,620) (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 (1,371,417) (1,384,272) (4,001,497) (2,138,620) 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 (1,371,417) (1,384,272) (4,026,497) (2,138,620) 100,061,676
Extraordinary item
Debt forgiveness related to
restructuring transactions (NOTE 1) -- -- -- -- 46,479,605
-------------------------------------------------------------------------------
Net income (loss) $(1,371,417) $(1,384,272) $(4,026,497) $(2,138,620) $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 THREE MONTHS NINE MONTHS FROM MAY 3, FROM
ENDED ENDED ENDED 1995 THROUGH JANUARY 2,
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1, 1995 THROUGH
1996 1995 1996 1995 MAY 2, 1995
-------------------------------------------------------------------------------
Charges to stockholders' equity
for Series A preferred stock
dividends in arrears $(1,205,613) $ -- $(3,457,858) $ -- $ --
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Income (loss) per common share:
Income (loss) before
extraordinary item and charges
for Series A preferred stock
dividends in arrears $ (12.74) $(12.85) $ (37.38) $(19.73) $ 990.71
Extraordinary item -- -- -- -- 460.19
Series A preferred stock
dividends in arrears (11.19) -- (32.11) -- --
-------------------------------------------------------------------------------
Net income (loss) $ (23.93) $(12.85) $ (69.49) $(19.73) $1,450.90
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Weighted average common shares
outstanding 107,700 107,700 107,700 108,370 101,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
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
September 29, 1996 -- -- -- -- -- --
Provisions for dividends in arrears -- -- -- -- -- 3,457,858
-----------------------------------------------------------------------------------------------
Balance September 29, 1996 -- $ -- $ -- 65,524.41 $17,330,660 $3,457,858
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
COMMON STOCK
--------------------------------------------------------------------------------
PRE-EFFECTIVE DATE SHARES ADDITIONAL
POST-EFFECTIVE -------------------------- PAID-IN
DATE SHARES CLASS A CLASS B AMOUNT CAPITAL
---------------------------------------------------------------------------------
Balance January 2, 1994 -- 1,000 100,000 $1,010 $1,008,990
Net loss -- -- -- -- --
Provisions for dividends in arrears -- -- -- -- --
---------------------------------------------------------------------------------
Balance January 1, 1995 -- 1,000 100,000 1,010 1,008,990
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 -- -- -- -- --
Cancellation of pre-effective
date common stock -- (1,000) (100,000) (1,010) (1,008,990)
Issuance of post-effective date
common stock and adoption of
fresh start accounting 110,000 -- -- 1,100 9,201,800
---------------------------------------------------------------------------------
Balance May 3, 1995 110,000 -- -- 1,100 9,201,800
Net loss for the period from May 3,
1995 through December 31, 1995 -- -- -- -- --
Purchase and cancellation of
Company's stock (2,300) -- -- (23) (16,028)
---------------------------------------------------------------------------------
Balance December 31, 1995 107,700 -- -- 1,077 9,185,772
Issuance of Series A preferred
stock in exchange for junior
subordinated pay-in-kind notes
on January 12, 1996 -- -- -- -- --
Net loss for the period from
January 1, 1996 through
September 29, 1996 -- -- -- -- --
Provisions for dividends in arrears -- -- -- -- --
---------------------------------------------------------------------------------
Balance September 29, 1996 107,700 -- -- $1,077 $9,185,772
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
---------------------------------
Balance January 2, 1994 $(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 (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 1,010,000 --
Issuance of post-effective date
common stock and adoption of
fresh start accounting (9,202,900) --
---------------------------------
Balance May 3, 1995 -- 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 -- (16,051)
---------------------------------
Balance December 31, 1995 (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
September 29, 1996 (4,026,497) (4,026,497)
Provisions for dividends in arrears (3,457,858) --
---------------------------------
Balance September 29, 1996 $ (10,133,602) $ 19,841,765
---------------------------------
---------------------------------
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
NINE MONTHS FISCAL PERIOD FROM
ENDED FROM MAY 3, JANUARY 2,1995
SEPTEMBER 29, 1995 THROUGH THROUGH
1996 OCTOBER 1, 1995 MAY 2, 1995
------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(4,026,497) $(2,138,620) $146,541,281
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,679,503 2,640,316 1,776,072
Noncash interest expense 339,571 2,651,955 6,743,397
Amortization of deferred financing charges 446,954 -- --
Program payments (over) under program amortization (17,855) (13,303) 20,063
Increase in other long-term liabilities 354,247 252,686 79,926
Gain on disposition of assets (49,389) (852) (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 558,874 (450,969) 596,984
Inventories and other current assets 357,928 131,928 185,403
Accounts payable and accrued expenses 2,023,969 54,362 (378,690)
Income taxes payable -- (1,673,112) --
------------------------------------------------------
Net cash provided by operating activities 4,667,305 1,454,391 2,953,781
INVESTING ACTIVITIES:
Proceeds from sale of television station, net -- 98,979,532 --
Additions to property, plant and equipment (1,575,201) (507,607) (497,728)
Proceeds from disposition of assets 49,389 348 4,089
(Increase) decrease in other assets (20,456) (146,826) 295
------------------------------------------------------
Net cash provided by (used in) investing activities (1,546,268) 98,325,447 (493,344)
FINANCING ACTIVITIES:
Issuance of indebtedness 580,000 -- --
Purchase and cancellation of Company's stock -- (16,051) --
Payments on indebtedness (131,230) -- (4,641,023)
Redemption of indebtedness (35,146,439) (96,069,676) --
Payment of deferred financing costs (162,464) -- --
------------------------------------------------------
Net cash used in financing activities (34,860,133) (96,085,727) (4,641,023)
Net increase (decrease) in cash and cash equivalents (31,739,096) 3,694,111 (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 $ 7,154,863 $ 5,848,936 $ 2,154,825
------------------------------------------------------
------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid during the period $ 3,655,487 $ 572,487 $ 742,020
------------------------------------------------------
------------------------------------------------------
Income taxes paid during the period $ -- $ 1,673,112 $ 100,000
------------------------------------------------------
------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
September 29, 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 19, 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:
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------------------------------
(a) Senior Secured Notes, net of unamortized original issue discount
of $2,168,958 and $2,454,185 at September 29, 1996 and
December 31, 1995, respectively $60,358,042 $ 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 143,987 245,131
(c) 1996 Promissory Note 549,914 --
------------------------------------
Total debt 61,051,943 112,740,701
Less current maturities 351,374 35,214,927
------------------------------------
Long term debt $60,700,569 $ 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 "Senior Subordinated Note Redemption"). 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.
1996 Promissory Note
On August 1, 1996 the Company issued a $580,000 promissory note (the "1996
Promissory Note") to finance the acquisition of certain digital pre-press
equipment which the Company acquired during June 1996. The 1996 Promissory Note
is (i) secured solely by the assets purchased, (ii) payable on the tenth day 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) is 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:
SEPTEMBER 29, DECEMBER 31,
1996 1995
-----------------------------
Deferred tax liabilities:
Property, plant and equipment basis differences $ 3,908,000 $ 4,208,000
Debt basis differences -- 18,852,000
-----------------------------
3,908,000 23,060,000
Deferred tax assets:
Federal net operating loss carryforwards 22,187,000 21,405,000
State net operating loss carryforwards 2,137,000 1,935,000
Other 71,000 124,000
-----------------------------
24,395,000 23,464,000
Valuation allowances (20,487,000) (404,000)
-----------------------------
3,908,000 23,060,000
-----------------------------
$ -- $ --
-----------------------------
-----------------------------
As of December 31, 1995 the Company had approximately $59.8 million of federal
net operating loss carryforwards ("NOL's"). As a result of the Plan (see Note 1)
the Company elected treatment under Section 382 (l)(5) of the Internal Revenue
Code, as amended (the "Code"). This treatment will allow the restructured
Company to utilize, subject to 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.
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.
16
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
5. SUBSIDIARY GUARANTORS (CONTINUED)
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.
SEPTEMBER 29, DECEMBER 31,
1996 1995
-----------------------------
ASSETS
Current assets $ 3,008,771 $ 3,129,038
Non-current assets 50,218,571 52,405,578
-----------------------------
$53,227,342 $55,534,616
-----------------------------
-----------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities $ 1,369,062 $ 1,116,223
Non-current liabilities 6,734,925 6,954,442
Stockholder's equity 45,123,355 47,463,951
-----------------------------
Total liabilities and stockholder's equity $53,227,342 $55,534,616
-----------------------------
-----------------------------
PRE-EFFECTIVE
POST-EFFECTIVE DATE DATE DATE
---------------------------------------------------------------------------
FISCAL PERIOD FISCAL PERIOD
THREE MONTHS THREE MONTHS NINE MONTHS FROM MAY 3, FROM
ENDED ENDED ENDED 1995 THROUGH JANUARY 2,
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1, 1995 THROUGH
1996 1995 1996 1995 MAY 2, 1995
---------------------------------------------------------------------------
Net revenue $2,730,567 $2,421,123 $8,547,279 $3,917,523 $ 3,489,390
Total operating costs and expenses 2,474,725 2,409,577 7,539,728 3,934,975 2,393,360
Income (loss) from operations 255,842 11,546 1,007,551 (17,452) 1,096,030
Reorganization item - gain on
restructuring transaction -- -- -- -- 34,831,263
Net income (loss) (1,284,191) (338,973) (2,340,596) (542,792) 36,308,787
17
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
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.
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.
18
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
6. CAPITAL STOCK (CONTINUED)
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 conversion 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.
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.
19
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Balance Sheets
SEPTEMBER 29, DECEMBER 31,
1996 1995
UNAUDITED AUDITED
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 123,796 $ 380,938
Receivables, net 1,955,168 2,149,310
Program contract rights 601,805 425,230
Other current assets -- 27,560
-----------------------------
Total current assets 2,680,769 2,983,038
Property, plant and equipment, net 8,177,752 8,612,289
Due from Parent 681,242 166,729
Deferred charges and other assets 14,540 27,125
Intangible assets and excess reorganization value 35,612,708 37,580,767
-----------------------------
Total assets $47,167,011 $49,369,948
-----------------------------
-----------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 584,199 $ 617,972
Program contracts payable 520,446 381,130
-----------------------------
Total current liabilities 1,104,645 999,102
Deferred income tax liabilities 1,919,000 2,064,000
Other long-term liabilities -- 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 (2,425,221) (272,183)
-----------------------------
Total stockholder's equity 44,143,366 46,296,404
-----------------------------
Total liabilities and stockholder's equity $47,167,011 $49,369,948
-----------------------------
-----------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
20
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Operations and Stockholder's/Divisional
Equity
PRE-EFFECTIVE
POST-EFFECTIVE DATE UNAUDITED DATE AUDITED
--------------------------------------------------------------------------
FISCAL PERIOD FISCAL PERIOD
THREE MONTHS THREE MONTHS NINE MONTHS FROM MAY 3, FROM
ENDED ENDED ENDED 1995 THROUGH JANUARY 2,
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1, 1995 THROUGH
1996 1995 1996 1995 MAY 2, 1995
--------------------------------------------------------------------------
Net revenue $2,552,567 $2,421,123 $8,013,279 $3,917,523 $ 3,489,390
Operating costs and expenses,
excluding depreciation and
amortization 1,217,714 1,236,093 3,828,089 1,976,168 1,741,340
Depreciation 286,110 273,799 818,170 456,332 486,000
Amortization of intangibles and
excess reorganization value 668,839 655,222 1,968,059 1,092,037 63,000
Corporate expenses 200,674 141,000 639,072 238,000 98,000
--------------------------------------------------------------------------
Total operating costs and expenses 2,373,337 2,306,114 7,253,390 3,762,537 2,388,340
--------------------------------------------------------------------------
Income from operations 179,230 115,009 759,889 154,986 1,101,050
Other income (expense):
Interest income 3,477 -- 15,334 -- --
Gain on disposition of assets -- -- -- -- 2,074
Other income (expense) (428) 4,712 (8,261) 6,449 (4,152)
--------------------------------------------------------------------------
Other income (expense) 3,049 4,712 7,073 6,449 (2,078)
--------------------------------------------------------------------------
182,279 119,721 766,962 161,435 1,098,972
Reorganization item - gain on
restructuring transaction (NOTE 1) -- -- -- -- 34,831,263
--------------------------------------------------------------------------
Income before income taxes 182,279 119,721 766,962 161,435 35,930,235
(Provision) benefit for income
taxes:
Current (1,000,000) (389,231) (3,065,000) (632,789) (582,000)
Deferred 51,000 34,000 145,000 101,000 1,466,000
--------------------------------------------------------------------------
(949,000) (355,231) (2,920,000) (531,789) 884,000
--------------------------------------------------------------------------
Net income (loss) (766,721) (235,510) (2,153,038) (370,354) 36,814,235
Stockholder's/divisional equity at
beginning of period 44,910,087 47,162,747 46,296,404 47,632,491 11,747,254
Net intercompany transactions -- (344,523) -- (679,423) (928,998)
--------------------------------------------------------------------------
Stockholder's/divisional equity at
end of period $44,143,366 $46,582,714 $44,143,366 $46,582,714 $47,632,491
--------------------------------------------------------------------------
--------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
KOLN/KGIN-TV
(A Division of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Cash Flows
PRE-EFFECTIVE
POST-EFFECTIVE DATE UNAUDITED DATE AUDITED
---------------------------------------------------------
NINE MONTHS FISCAL PERIOD FISCAL PERIOD
ENDED FROM MAY 3, 1995 FROM JANUARY 2,
SEPTEMBER 29, THROUGH 1995 THROUGH
1996 OCTOBER 1, 1995 MAY 2, 1995
---------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(2,153,038) $(370,354) $36,814,235
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 2,786,229 1,548,369 549,000
Program payments (over) under program amortization (19,273) (9,678) 4,056
Gain on disposition of assets -- -- (2,074)
Deferred income tax benefit (145,000) (101,000) (1,466,000)
Reorganization item - gain on restructuring transaction -- -- (34,831,263)
Change in current assets and liabilities:
Receivables 194,142 17,374 207,244
Other current assets 10,834 12,762 21,517
Accounts payable and accrued expenses (33,773) 97,539 (37,963)
---------------------------------------------------------
Net cash provided by operating activities 640,121 1,195,012 1,258,752
INVESTING ACTIVITIES
Additions to property, plant and equipment (383,633) (260,622) (209,259)
Proceeds from disposition of assets -- -- 2,798
Decrease in other assets 883 342 295
---------------------------------------------------------
Net cash used in investing activities (382,750) (260,280) (206,166)
FINANCING ACTIVITIES
Net intercompany transactions -- (679,423) (928,998)
Increase in due from Parent (514,513) -- --
---------------------------------------------------------
Net cash used in financing activities (514,513) (679,423) (928,998)
Net increase (decrease) in cash and cash equivalents (257,142) 255,309 123,588
Cash and cash equivalents at beginning of period 380,938 185,081 61,493
---------------------------------------------------------
Cash and cash equivalents at end of period $ 123,796 $440,390 $ 185,081
---------------------------------------------------------
---------------------------------------------------------
Supplemental information
Income taxes paid $3,065,000 $389,231 $ 582,000
---------------------------------------------------------
---------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
22
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements
Unaudited
September 29, 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, was zero at May 3, 1995, due to the adoption
of Fresh Start Accounting, $679,423 at October 1, 1995 and averaged $339,712
for the period from May 3, 1995 through October 1, 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 $423,985 due from the Parent during the period from
December 31, 1995 through September 29, 1996.
23
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.
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 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.
25
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.
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)
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.
27
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.
Certain information included in this quarterly report on Form 10-Q
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statements will
include words such as the Company "believes," "expects," "anticipates," or other
such similar words. Statements that describe the Company's future strategic
plans, goals, or objectives are also forward-looking statements. Such forward-
looking statements are subject to certain risks and uncertainties. Actual
results could differ materially from those currently anticipated. The forward-
looking statements included herein are only made as of the date of this report.
The Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
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 nine and/or three
month periods ended September 29, 1996 or October 1, 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 nine months
ended September 29, 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
28
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.
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 October 1, 1995.
In the discussion of operations which follows, the results of
operations for the periods from January 2, 1995 through May 2, 1995 (Pre-
Effective Date) and May 3, 1995 through October 1, 1995 (Post-Effective Date)
are combined for certain items of revenue and expense for purposes of comparison
to the nine months ended September 29, 1996. Revenue and expense items combined
in 1995 for the Pre- and Post-Effective Date periods are referred to as
"Combined 1995".
29
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. 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 SEPTEMBER 29, 1996
AND OCTOBER 1, 1995
Net revenue increased $544,607, or 9.8%, to $6,118,368 from $5,573,761
for the three months ended September 29, 1996 compared to the three months ended
October 1, 1995 as a result of increased revenues from both the Company's
television stations and Winnebago Color Press. For KOLN/KGIN-TV and WEAU-TV
(collectively, the "Stations"), net revenue for the third quarter of 1996
increased $345,019, or 8.5%, to $4,412,598 from $4,067,579 for the corresponding
1995 period. Net political revenue for the Stations during the three months
ended September 29, 1996 increased by approximately $162,000 to $169,000 from
$7,000 in the 1995 period reflecting issue orientated advertising placed by
political parties and political action committees and advertising placed on
behalf of candidates in connection with the 1996 elections associated with the
biannual election cycle. For the three months ended September 29, 1996 compared
to the three months ended October 1, 1995, net national advertising revenues,
excluding net political advertising revenues, for KOLN/KGIN-TV increased 1.5%
due to slightly increased national advertiser demand within that station's
market while for the same periods net local advertising revenues, excluding net
political advertising revenues, decreased 3.2% reflecting decreased local
advertiser demand within the station's market. For the three months ended
September 29, 1996 compared to the three months ended October 1, 1995, net
national advertising revenues, excluding net political advertising revenues, for
WEAU-TV decreased 6.5% due to decreased national advertiser demand within that
station's market while for the same periods net local advertising revenues,
excluding net political advertising revenues, increased 13.3% reflecting
increased local advertiser demand within the market including demand for
advertising time during the Olympic telecasts. Network compensation for the
Stations increased approximately $138,000 to $327,000 for the three months ended
September 29, 1996 compared to $189,000 for the three months ended October 1,
1995. Such increase reflects increased compensation pursuant to new long-term
network affiliation agreements for each station which became effective January
1, 1996.
Net revenue from Winnebago Color Press increased $199,578, or 13.3%,
to $1,705,770 for the three months ended September 29, 1996 from $1,506,192 for
the three months ended October 1, 1995 due to increased customer demand for
printed carton labels for products associated with the calendar year end retail
sales season. The Company currently believes that competitive pressures on
product pricing continues to negatively impact revenues within this segment.
Operating expenses, excluding depreciation and amortization expenses,
increased $145,382 or 4.2%, to $3,603,102 for the three months ended September
29, 1996 from $3,457,720 for the corresponding 1995 period primarily as a result
of increased cost of sales in the Company's printing segment. Operating
expenses, excluding depreciation and amortization expenses, for the
30
Stations increased $19,723, or 1.0%, to $2,031,247, from $2,011,524 for the
corresponding 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
increased $185,602, or 13.4%, to $1,571,855 from $1,386,253 for the three months
ended October 1, 1995, with such increase attributable to greater cost of sales
due to the increased sales volume discussed above.
Depreciation and amortization expenses decreased $975, or 0.1% to
$1,586,985 from $1,587,960 for the three months ended September 29, 1996
compared to the corresponding 1995 period. Depreciation and amortization
expenses attributable to the Stations increased $37,891, or 2.6%, to $1,512,609
for the three months ended September 29, 1996 from $1,474,718 for the 1995
period reflecting depreciation relating to the Company's capital additions
during the 1996 period. Depreciation and amortization expenses for Winnebago
Color Press declined $43,295, or 39.6% to $65,979 from $109,274 between the
respective fiscal periods.
Corporate expenses increased $44,821, or 13.7%, to $370,956 during the
three months ended September 29, 1996 from $326,135 for the three months ended
October 1, 1995. The increase results primarily from increased professional
service charges during the 1996 period.
Income from operations increased $355,379, or 176.0%, to $557,325 for
the three months ended September 29, 1996 from $201,946 for the corresponding
1995 period reflecting the Company's increased net revenues being partially
offset by the increased operating costs as discussed above. Income from
operations attributable to the Stations increased $287,405, or 49.4%, to
$868,742 for the three months ended September 29, 1996 from $581,337 in the 1995
period. Such increase reflects the Stations' increased net revenues being
partially offset by increased costs of operations, including depreciation and
amortization charges. Income from operations for printing increased $57,271, or
537.0%, to $67,936 from $10,665 in the corresponding 1995 period due primarily
to decreased charges for depreciation and amortization as well as the increased
sales volume discussed above.
Interest expense increased $437,799, or 26.7%, to $2,077,039 for the
three months ended September 29, 1996 from $1,639,240 for the corresponding 1995
period reflecting the Company's Post-Effective Date capitalization, the issuance
of the Senior Notes, the Senior Subordinated Note Redemption and the Junior
Subordinated Note Redemption. See Note 3 to Notes to Condensed Consolidated
Financial Statements (Unaudited) included in Item 1, "Financial Statements."
Interest income decreased $28,935 or 34.3%, to $55,513 for the three
months ended September 29, 1996 from $84,448 for the 1995 period reflecting
interest earnings on the Company's cash balances which, after giving effect to
the issuance of the Senior Notes, the Senior Subordinated Note Redemption and
the Junior Subordinated Note Redemption, have been reduced. See Note 3 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
September 29, 1996.
31
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 29, 1996 (POST-EFFECTIVE DATE)
AND THE COMBINED PERIODS FROM JANUARY 2, 1995 THROUGH MAY 2, 1995
(PRE-EFFECTIVE DATE) AND MAY 3, 1995 THROUGH OCTOBER 1, 1995 (POST-EFFECTIVE
DATE)
Net revenue declined $5,361,283, or 22.3%, to $18,695,414 from
$24,056,697 for the nine months ended September 29, 1996 compared to the
Combined 1995 nine months ended October 1, 1995 primarily due to the exclusion
of results from WWMT from the 1996 period offset, in part, by increased net
revenue at the Stations. Net revenue for the Stations for the nine months ended
September 29, 1996 increased $1,099,882 or 8.6%, to $13,832,003 from $12,732,121
for the corresponding Combined 1995 period. Net political revenue for the
Stations during the nine months ended September 29, 1996 increased by
approximately $380,000 to $481,000 from $101,000 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 the 1996 elections associated with the biannual election cycle.
For the nine months ended September 29, 1996 compared to the Combined 1995 nine
months ended October 1, 1995, net national advertising revenues, excluding net
political advertising revenues, for KOLN/KGIN-TV increased 5.9% due to increased
national advertiser demand within that station's market while for the same
periods net local advertising revenues, excluding net political advertising
revenues, decreased 2.0% reflecting decreased local advertiser demand within the
market. For the nine months ended September 29, 1996 compared to the Combined
1995 nine months ended October 1, 1995, net national advertising revenues,
excluding net political advertising revenues, for WEAU-TV increased 2.8% due to
increased advertiser demand within that station's market while for the same
periods net local advertising revenues, excluding net political advertising
revenues, increased 4.9% reflecting increased local advertiser demand within the
market. Network compensation for the Stations increased approximately $474,000
to $1,028,000 for the nine months ended September 29, 1996 compared to $554,000
for the Combined 1995 nine months ended October 1, 1995. Such increase reflects
increased compensation pursuant to new long-term network affiliation agreements
for each station which became effective January 1, 1996.
Net revenue from Winnebago Color Press decreased $226,641, or 4.5%, to
$4,863,411 for the nine months ended September 29, 1996 from $5,090,052 for the
corresponding Combined 1995 period due to reduced customer demand and strong
price competition within this segment.
Operating expenses, excluding depreciation and amortization expenses,
decreased $3,572,078, or 24.9%, to $10,783,141 for the nine months ended
September 29, 1996 from $14,355,219 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 $27,935, or 0.5%, to
$6,227,468, from $6,199,533 for the corresponding Combined 1995 period.
Operating expenses, excluding depreciation and amortization expenses, for
Winnebago Color Press decreased $122,946, or 2.7%, to $4,475,673 from $4,598,619
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 $263,115, or 6.0%, to
$4,679,503 for the nine months ended September 29, 1996 from $4,416,388 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
32
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 $1,005,318, or 29.3%, to $4,441,383 for the nine
months ended September 29, 1996 from $3,436,065 for the Combined 1995 period
primarily reflecting the adoption of Fresh Start Accounting. Depreciation and
amortization expenses for Winnebago Color Press decreased $108,393, or 33.7% to
$212,997 from $321,390 between the respective fiscal periods reflecting the
adoption of Fresh Start Accounting.
Corporate expenses increased $358,191, or 42.5%, to $1,201,046 during
the nine months ended September 29, 1996 from $842,855 for the Combined 1995
nine months ended October 1, 1995. The increase results primarily from (i)
increased professional service charges during the 1996 period, including $42,988
relating to certain litigation (see Part II, Item 1, "Legal Proceedings"), while
the corresponding Combined 1995 period included $11,470 of such charges and (ii)
charges of $274,265 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 $152,778 of such charges under the long term incentive
plan.
Income from operations decreased $2,410,511, or 54.3%, to $2,031,724
for the nine months ended September 29, 1996 from $4,442,235 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 increased
$66,629, or 2.2%, to $3,163,152 for the nine months ended September 29, 1996
from $3,096,523 for the Combined 1995 period as the Stations' increased net
revenues were partially offset by increased depreciation and amortization
charges resulting from the adoption of Fresh Start Accounting. Income from
operations for printing increased $4,698 or 2.8%, to $174,741 from $170,043 in
the corresponding Combined 1995 period due primarily to the lower sales being
offset by lower operating costs, as discussed above.
Interest expense decreased $4,150,503, or 39.5%, to $6,349,360 for the
nine months ended September 29, 1996 from $10,499,863 for the corresponding
Combined 1995 period reflecting the Company's Post-Effective Date
capitalization, the issuance of the Senior Notes, the Senior Subordinated Note
Redemption 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 $283,745 or 57.3%, to $211,888 for the nine
months ended September 29, 1996 from $495,633 for the Combined 1995 period which
decrease was primarily due to the inclusion of interest 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." In addition, the Company's cash balances, after giving effect to
the issuance of the Senior Notes, the Senior Subordinated Note Redemption and
the Junior Subordinated Note Redemption, have been reduced between the
respective fiscal periods and associated interest earnings thereon have
decreased.
33
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 nine months ended September 29, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at September 29, 1996 totaled
$7,154,863 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
nine months ended September 29, 1996.) Immediately following the Junior
Subordinated Note Redemption the Company had an available cash reserve of
$4,000,000. On October 15, 1996 the Company utilized cash on hand to pay, when
due, a semi-annual interest payment on the Senior Notes in the amount of
$3,634,382.
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 $4,667,305 and $4,408,172 for the nine months ended
September 29, 1996 and the Combined 1995 periods ending October 1, 1995,
respectively. The increase in net cash provided by operations is due primarily
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 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 currently anticipates expending an aggregate of
approximately $2,000,000 for capital expenditures during the 1996 fiscal year of
which approximately $1,000,000 will relate to the Stations and the balance of
which will relate to Winnebago Color Press. For the nine months ended September
29, 1996 the Company incurred capital expenditures of $1,575,201 of which
approximately $713,000 related to the Stations and $862,000 related to Winnebago
Color Press including the acquisition of certain digital pre-press equipment.
In conjunction with the acquisition of such digital pre-press equipment, the
Company issued a $580,000 promissory note to finance a portion of such
acquisition (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
34
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.
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 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 $59.8 million. The Company elected treatment under
Section 382(l)(5) (the "L5 Election") of the Internal Revenue Code, as amended
(the "Code") when it filed its 1995 federal income tax return. The L5 Election
allows the Company to utilize, subject to certain restrictions, its Pre-
Effective Date NOL to offset any taxable income incurred after the Effective
Date. The Company's use of its Post-Effective Date NOL is not restricted,
absent a future "ownership change" under Section 382 of the Code (see Note 4 of
Notes to Condensed Consolidated Financial Statements (Unaudited) included in
Item 1 "Financial Statements").
RETENTION OF A FINANCIAL ADVISOR BY CERTAIN STOCKHOLDERS
The holders of record of approximately 97.4% of the Company's
outstanding capital stock (the "Controlling Stockholders") engaged the
investment banking firm of Morgan Stanley & Co. Incorporated ("Morgan Stanley")
to act as a financial advisor in connection with matters relating to the
Company. On September 6, 1996 the Company was informed by the Controlling
Stockholders
35
that they had instructed Morgan Stanley to suspend the evaluation of strategic
transactions in connection with the possible sale of the Company. At this time,
there can be no assurance as to whether or when the Controlling Stockholders
will resume evaluation of strategic transactions relating to the possible sale
of the Company.
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 October 10, 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. On July 12, 1996 the Court of Appeals denied the
Company's appeal and dismissed its petition for review. The Company has
determined not 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 5. OTHER INFORMATION.
On October 15, 1996, by unanimous written consent of the then serving
directors, the Board of Directors of the Company was expanded from three to
four directors and Mr. Gary E. Hindes was elected to fill the newly created
directorship. Mr. Hindes currently is the Corporate Secretary and a Director of
SSP, Inc., a Delaware corporation, which is the general partner for the
Controlling Stockholders.
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
September 29, 1996
(b) REPORTS ON FORM 8-K
Form 8-K, dated September 6, 1996, filed with the Securities and
Exchange Commission incorporating the press release issued by the
Company announcing that the Controlling Stockholders had
instructed their financial advisor, Morgan Stanley, to suspend
the evaluation of strategic transactions in connection with the
possible sale of the Company.
36
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: November 12, 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)