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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 29, 1996 Commission file number 33-99622
BUSSE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2750516
(State of Incorporation or organization) (IRS Employer Identification No.)
141 East Michigan Avenue, Suite 300
Kalamazoo, Michigan 49007
(616) 388-8019
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
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As of March 28, 1997, 107,700 shares of Busse Broadcasting Corporation
Common Stock were outstanding. None of the outstanding shares were held by
non-affiliates.
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
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of Item 14 of Part IV are incorporated by reference to:
Busse Broadcasting Corproation's 1995 Registration Statement on Form S-1
(Commission File No. 33-99622) and certain exhibits to such 1995 Registration
Statement on Form S-1, Busse Broadcasting Corporation's Report on Form 8-K filed
on September 6, 1996 and Busse Broadcasting Corporation's Report on Form 8-K
filed on December 27, 1996.
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PART I
ITEM 1. BUSINESS.
Busse Broadcasting Corporation (the "Company" or "Busse"), directly or
through wholly-owned subsidiaries, owns and operates two network-affiliated very
high frequency ("VHF") television stations: KOLN/KGIN-TV, an integrated
broadcast station serving Lincoln and Grand Island, Nebraska, and WEAU-TV
serving Eau Claire and La Crosse, Wisconsin (collectively, the "Stations").
KOLN/KGIN-TV is affiliated with CBS, Inc. ("CBS") and WEAU-TV is affiliated with
National Broadcasting Company, Inc. ("NBC"). KOLN/KGIN-TV and WEAU-TV broadcast
in the 101st and 130th largest national media markets ("DMAs"), respectively.
The Company's operating strategy for the Stations is (i) to increase viewership
and advertising revenues and (ii) to maintain control of operating and
programming costs, working capital and capital expenditures without sacrificing
the quality of broadcasting services local audiences have come to expect from
the Stations.
CORPORATE HISTORY AND RESTRUCTURING
The Company was incorporated in June 1987 and acquired its initial
operations, consisting of five television stations, including the Stations, and
Winnebago Color Press ("Winnebago"), a commercial printing facility, in
August 1987 from Gillett Holdings, Inc. ("GHI") and various parties affiliated
with GHI for an aggregate purchase price of approximately $148.5 million (the
"Acquisition"). The Acquisition was financed primarily through the Company's
(i) issuance of $110.0 million face amount ($45.4 million in net proceeds) of
Zero Coupon Senior Notes due August 15, 1994 (the "Zero Coupon Notes") and
$30.0 million principal amount of Senior Subordinated Debentures due August 15,
1999 (the "Subordinated Debentures"), (ii) borrowing of approximately
$58.1 million under a credit facility with a bank group (the "Old Credit
Agreement") and (iii) assumption of a subordinated promissory note in the
principal amount of $15.0 million (the "Subordinated Note").
On September 15, 1988, the Company sold WRLH-TV, Richmond, Virginia, for
gross proceeds of approximately $7.9 million plus the assumption by the
purchaser of $3.9 million in liabilities associated with WRLH-TV. Approximately
$7.0 million of the net cash proceeds from the sale of WRLH-TV were used to
reduce certain of the Company's outstanding bank debt.
On February 12, 1991, the Company sold KOKH-TV, Oklahoma City, Oklahoma,
for net proceeds of approximately $7.0 million to an affiliate of a substantial
holder of the Company's then outstanding preferred stock. The net cash proceeds
from the sale of KOKH-TV were used to reduce certain of the Company's
outstanding indebtedness.
At the time of the Acquisition, the Company anticipated that the debt
incurred in connection therewith would be repaid through cash flow from
operations and the sale of one or more of its broadcast properties. Shortly
after the Acquisition, the television industry began a period of reduced growth
in revenues that reached a low point in 1991 when industry revenues experienced
an absolute decline for the first time since cigarette advertising on television
was banned in the early 1970's. The combined effect on the Company of declining
operating cash flows and reduced values for asset sales led management to
conclude that the Company would be unable to service its then existing
indebtedness. Accordingly, the Company commenced negotiations with its primary
creditors to restructure the Company's indebtedness. These negotiations resulted
in a series of amendments and waivers to the instruments governing such
indebtedness. The primary effects of these amendments and waivers were to
restructure the scheduled amortization of the indebtedness under the Old Credit
Agreement, and to defer or modify the interest payment obligations on certain of
its other indebtedness. As of October 1994, the Company was in default with
respect to approximately $196.9 million of the indebtedness incurred in
connection with the Acquisition and it became necessary for the Company to
explore a more permanent restructuring of its capitalization. The restructuring
negotiations initiated by the Company at that time principally involved lenders
under the Old Credit Agreement and Greycliff Partners, the investment adviser to
certain investment funds (the "South Street Investment Funds"), which,
immediately prior to the Restructuring (as defined herein), held approximately
98% of the Company's non-bank indebtedness.
As an outcome of such negotiations, on May 3, 1995 (the "Effective Date")
the Company completed a comprehensive restructuring of its debt and equity (the
"Restructuring") through the implementation of a prepackaged plan of
reorganization (the "Plan") that was confirmed on April 20, 1995 under Chapter
11 of the United States
Bankruptcy Code by the United States Bankruptcy Court for the district of
Delaware. The total outstanding debt of the Company immediately prior to the
Effective Date equaled approximately $222.4 million, including accrued interest.
On the Effective Date, the following transactions were consummated pursuant to
the Plan:
- Approximately $4.6 million of indebtedness outstanding under the Old
Credit Agreement was paid in cash and the balance of debt outstanding
thereunder, or $10.4 million, was exchanged for a like principal amount of term
notes accruing interest at 10.5% per annum under a credit agreement (the "Credit
Agreement").
- The Zero Coupon Notes, Subordinated Debentures, Subordinated Note and
certain other indebtedness (which evidenced claims aggregating approximately
$207.0 million as of the Effective Date) were exchanged for approximately
$110.0 million in principal amount of 7.38% Secured Senior Subordinated
Pay-In-Kind Notes (the "Secured Senior Subordinated Notes") and approximately
$97.0 million in principal amount of 7.38% Junior Subordinated Pay-In-Kind Notes
(the "Junior Subordinated Notes").
- All rights and claims of the holders of the Company's then outstanding
capital stock (or interests to acquire such stock) were extinguished.
- Substantially all other obligations of the Company, including trade
payables and other general unsecured obligations, were unaffected by the
Restructuring.
- The Company issued 100% of its common stock, $0.01 par value per share
(the "Common Stock") to holders of Zero Coupon Notes on a pro rata basis based
on the aggregate face amount of Zero Coupon Notes owned by such holders of
record. As a result of such issuance, the South Street Investment Funds acquired
approximately 98% of the Common Stock.
- Messrs. Lawrence A. Busse, W. Don Cornwell and Stuart J. Beck were
appointed as members of the Board of Directors of the Company. Under the terms
of the Plan, Messrs. Cornwell and Beck, each of whom is an executive officer,
director and stockholder of Granite Broadcasting Corporation ("Granite"), were
prohibited from voting on any matter pertaining to the WWMT Sale (as defined
herein).
On September 21, 1995, the United States Bankruptcy Court for the District
of Delaware issued an order closing the case pursuant to which the Restructuring
was effected.
WWMT SALE
On February 17, 1995 the Company contributed all of the assets and
liabilities related to WWMT-TV, Kalamazoo, Michigan ("WWMT") to a wholly-owned
subsidiary, WWMT, Inc. in exchange for all of the capital stock of the
subsidiary.
On June 1, 1995, the Company completed the sale of substantially all of the
assets of WWMT to Granite for gross proceeds of $99.4 million (the "WWMT
Sale"). The gain for federal income tax purposes attributable to the WWMT Sale
was offset against and reduced the Company's available net operating loss
("NOL") carryover. During June 1995, approximately $97.0 million of the net
proceeds from the WWMT Sale were used to (i) repay all outstanding borrowings
under the Credit Agreement in an amount equal to $10.4 million plus accrued and
unpaid interest through the date of redemption, (ii) purchase (and retire)
$1.3 million aggregate principal amount of Secured Senior Subordinated Notes,
$1.2 million aggregate principal amount of Junior Subordinated Notes and 2,300
shares of Common Stock, all held by an unaffiliated third party, for an
aggregate purchase price of $2.6 million including accrued and unpaid interest
through the date of purchase and (iii) redeem $83.1 million aggregate principal
amount of the Secured Senior Subordinated Notes held by the South Street
Investment Funds at 100% of the principal amount thereof, plus accrued and
unpaid interest thereon, for an aggregate redemption price of $84.0 million. As
a result of the foregoing transactions, the South Street Investment
Funds presently own 100% of the issued and outstanding Common Stock. WWMT, Inc.
changed its name to Busse Management, Inc. as of May 3, 1995 and further changed
its name to KOLN/KGIN, Inc. as of October 19, 1995.
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ISSUANCE OF SENIOR NOTES; REDEMPTION OF JUNIOR SUBORDINATED NOTES FOR CASH AND
SERIES A PREFERRED STOCK AND EXCHANGE OF SENIOR NOTES.
On October 26, 1995 the Company issued and sold $62,527,000 principal
amount of its 11-5/8% Senior Secured Notes due October 15, 2000 ("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. The Senior Notes are senior secured
obligations of the Company secured by all of the Company's equity interests
in and certain intercompany indebtedness of its subsidiaries, including the
License Subsidiaries (as defined herein) which hold the Federal Communication
Commission ("FCC") licenses of the Stations, certain agreements and contract
rights related to the Stations (including network affiliation agreements),
certain machinery, equipment and fixtures, certain general intangibles,
mortgages and substantially all of the owned and certain of the leased real
property of the Company and its Subsidiaries and proceeds thereof. The
Senior Notes rank senior in right of payment to all existing and future
subordinated indebtedness of the Company and PARI PASSU with all existing and
future senior indebtedness of the Company. The Senior Notes are fully and
unconditionally guaranteed (together with the guarantees of the Exchange
Notes (as defined herein), the "Guarantees") on a senior secured basis by all
of the subsidiaries of the Company (the "Guarantors") on a joint and several
basis. See Note 6 of Notes to Consolidated Financial Statements for the
period ended December 29, 1996 included herein.
A portion of the net proceeds from the issuance of the Senior Notes was
used by the Company on October 26, 1995 to redeem all of the outstanding 7.38%
Secured Senior Subordinated Notes, at 100% of the principal amount thereof plus
accrued and unpaid interest thereon, for an aggregate cost of $26,469,445. The
remaining net proceeds of $31,655,654 were deposited in an escrow account (the
"Escrow Account") maintained by the trustee of the Senior Notes. On January 12,
1996 the Company effected a redemption, without penalty or premium, of 100% of
the aggregate principal amount of the Junior Subordinated Notes, plus interest
accrued thereon to the date of redemption (the "Junior Subordinated Note
Redemption"), as follows: (i) cash on hand of approximately $3,193,409 (the
"Excess Cash") plus the funds deposited in the Escrow Account and interest
earned thereon, was used to redeem certain of the Junior Subordinated Notes at a
cost of $35,241,061 and (ii) the balance of the Junior Subordinated Notes not
redeemed for cash were 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 South Street Investment Funds beneficially own 100% of the Series A
Preferred Stock.
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 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.
CORPORATE REORGANIZATION
In connection with and prior to the issuance of the Senior Notes, the
Company completed a corporate reorganization (the "Corporate Reorganization")
pursuant to which (i) all of the assets and liabilities relating to the
ownership and operation of KOLN/KGIN-TV were contributed to KOLN/KGIN, Inc.
(formerly Busse Management, Inc. and previously WWMT, Inc.), a Delaware
corporation and a wholly owned subsidiary of the Company, (ii) KOLN/KGIN, Inc.,
in turn, transferred the FCC licenses relating to KOLN/KGIN-TV to KOLN/KGIN
License, Inc., a Delaware corporation, in exchange for all of the issued and
outstanding capital stock of KOLN/KGIN License, Inc. and (iii) the FCC licenses
relating to WEAU-TV were transferred to WEAU License, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company, in exchange for all of
the issued and outstanding capital stock of WEAU License, Inc. and a promissory
note that is subordinated to the Senior Notes, the Guarantees and all other
obligations
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under the Indenture and the related collateral agreements. In connection with
the Corporate Reorganization, KOLN/KGIN License, Inc. and WEAU License, Inc.,
(collectively, the "License Subsidiaries") also entered into agreements that
provide the Company and KOLN/KGIN, Inc. with the exclusive right to use the
Federal Communications Commission ("FCC") licenses relating to WEAU-TV and
KOLN/KGIN-TV, respectively. The Corporate Reorganization was effected, among
other things, to facilitate the collateral arrangements to be entered into in
connection with the issuance of the Senior Notes. The Senior Notes and the
Guarantees are secured by all of the Company's equity interests in, and
intercompany indebtedness of, its subsidiaries, including the License
Subsidiaries, certain agreements and contract rights related to the Stations,
certain machinery, equipment, fixtures and general intangibles of the Company
and its subsidiaries, mortgages on substantially all of the owned and certain of
the leased real property of the Company and its subsidiaries and proceeds
thereof.
WINNEBAGO SALE
On December 27, 1996, the Company entered into a Buy and Sell Agreement
(the "Buy and Sell Agreement"), with Winnebago Color Press, Inc. ("WCP"), a
Wisconsin corporation and a company affiliated with Mr. Lawrence A. Busse,
Chairman and Chief Executive Officer of the Company, pursuant to which the
Company sold substantially all of the assets of Winnebago, the Company's sole
operations within the printing segment, to WCP for aggregate consideration of
$3,327,856 in cash plus (i) the assumption by WCP of $369,638 of certain
current liabilities and (ii) the additional assumption by WCP of certain
other liabilities as set forth in the Buy and Sell Agreement (collectively,
the "Winnebago Asset Sale"). The Company received net proceeds from the
Winnebago Asset Sale of approximately $3,207,000 including a working capital
purchase price adjustment payment of approximately $102,857 received by the
Company in February 1997. In connection with the sale, the Company received
an opinion from an investment banking firm to confirm that the terms of the
sale were fair to the Company and its stockholders from a financial point of
view.
On February 12, 1997, pursuant to the indenture under which the Senior
Notes were issued (the "Indenture"), the Company commenced an offer to purchase
the maximum principal amount of Senior Notes that may be purchased with the
$3,207,000 of net proceeds from the Winnebago Asset Sale at an offer price in
cash per $1,000 principal amount equal to 100% of the Accreted Value (as defined
in the Indenture) (the "Winnebago Asset Sale Offer"). On March 14, 1997, the
Winnebago Asset Sale Offer expired by its terms. Upon such expiration, no
Senior Notes had been tendered by noteholders and consequently, no Senior Notes
were purchased by the Company pursuant to the Winnebago Asset Sale Offer.
Pursuant to the terms of the Indenture, the Company may only utilize the
$3,207,000 in net proceeds to make investments in or acquire properties and
assets directly related to television or radio broadcasting, all as more fully
described in the Indenture.
COMPANY AND INDUSTRY OVERVIEW
TELEVISION
INDUSTRY BACKGROUND
Commercial television broadcasting began in the United States on a regular
basis in the 1940s. Currently there are a limited number of channels available
for broadcasting in any one geographic area and the license to operate a
broadcast station is granted by the FCC. Television stations can be
distinguished by the frequency on which they broadcast. Historically, television
stations that have broadcast over the VHF band (channels 2-13) of the spectrum
generally have had some competitive advantage over television stations that
broadcast over the UHF band (channels above 13) of the spectrum because the
former usually have better signal coverage and operate at a lower transmission
cost. The improvement of UHF transmitters and receivers, the complete
elimination from the marketplace of VHF-only receivers and the expansion of
cable television systems have reduced the VHF signal advantage. Further, in
television markets in which all local stations are UHF stations, no competitive
disadvantage exists.
Television station revenues are primarily derived from local, regional and
national advertising and, to a lesser extent, from network compensation and
revenues from studio or transmission tower rentals and commercial production
activities. Advertising rates are based upon a program's popularity among the
viewers an advertiser wishes to attract, the number of advertisers competing for
the available time, the size and demographic make-up of the market served by
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the station and the availability of alternative advertising media in the market
area. Rates are also determined by a station's overall ratings and share in its
market, aggressive and knowledgeable sales forces and development of projects,
features and marketing programs that tie advertising messages to programming.
Since broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, adversely affect the
broadcast industry.
Historically, three major broadcast networks -- Capital Cities/ABC, Inc.
("ABC"), NBC and CBS -- dominated broadcast television. In recent years, the Fox
Broadcasting Company ("Fox") has effectively evolved into the fourth major
network, although the hours of network programming produced by Fox for its
affiliates are less than those produced by the other three major networks. In
addition, United Paramount Network ("UPN") and WB Television Network ("WB
Network") have been launched as new television networks.
Whether a station is affiliated with one of the four major networks, NBC,
ABC, CBS or Fox, has a significant impact on the composition of the station's
revenues, expenses and operations. A typical network affiliate receives a
significant portion of its programming each day from the network. This
programming, along with cash payments, is provided to the affiliate by the
network in exchange for a substantial majority of the advertising inventory
during network programs. The network then sells this advertising time and
retains the revenues so generated. The affiliate retains the revenues from time
sold during breaks in and between network programs and during programs produced
by the affiliate or purchased from non-network sources.
In acquiring programming to supplement programming supplied by the
affiliated network, network affiliates compete primarily with other affiliates
and independent stations in their markets. Cable systems generally compete with
local stations for programming, and various national cable networks from time to
time have acquired programs that would have otherwise been offered to local
television stations. Public broadcasting outlets in most communities compete
with commercial broadcasters for viewers, but, with the exception of the use of
"donor acknowledgments," not for advertising. In addition, a television station
may acquire programming through other arrangements. For instance, barter and
cash-plus-barter arrangements are becoming increasingly popular with both
network affiliates and independent stations. Under such arrangements, a national
program distributor typically retains up to 50% of the available advertising
time for programming it supplies in exchange for reduced fees for such
programming.
An affiliate of UPN or WB Network receives a smaller portion of each day's
programming from its network compared to an affiliate of a major network. As a
result of the smaller amount of programming provided by their network,
affiliates of UPN or WB Network must purchase or produce a greater amount of
their programming, resulting in generally higher programming costs. These
stations, however, retain a larger portion of the inventory of advertising time
and the revenues obtained therefrom compared to stations affiliated with the
major networks. In contrast, a fully independent station purchases or produces
all of the programming that it broadcasts, resulting in generally higher
programming costs, although the independent station is, in theory, able to
retain its entire inventory of advertising and all of the revenue obtained
therefrom.
Through the 1970s, prior to the advent of competing technologies for the
delivery of video programming to television viewers and the rise of independent
stations as viable competitors to network affiliates, television broadcasting
enjoyed virtual dominance of television viewership and television advertising
revenues, and network-affiliated stations competed primarily only with each
other in local markets. FCC regulation of the broadcast industry evolved to
address this environment consisting of only three commercial broadcast networks,
with the focus on encouraging increased competition and diversity of viewpoints
and programming in the television broadcasting industry.
Cable television systems were first installed in significant numbers in the
early 1970s and were initially used to retransmit broadcast television
programming to paid subscribers in areas with poor broadcast signal reception.
In contrast to broadcast television stations, the primary source of revenues for
cable systems is subscriber fees. As the technology of satellite program
delivery to cable systems advanced in the late 1970s, development of programming
for cable accelerated dramatically. The emergence of multiple, national-scale
program alternatives, in turn, fueled the rapid expansion of cable television
and produced high subscriber growth rates. Aggregate cable-originated
programming has emerged as a significant competitor for viewers of broadcast
television programming, although no single cable
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programming network regularly attains audience levels amounting to more than a
small fraction of any single major broadcast network.
Other developments have also affected television programming and delivery.
Independent stations, whose number has increased significantly over the past ten
years, have emerged as viable competitors for television viewership share and
have stimulated the development of new television networks, two of which, UPN
and WB Network, were launched in early 1995. In addition, there has been
substantial growth in the number of home satellite dish receivers, direct
broadcast satellite receivers, VCRs and other video delivery systems, which has
further expanded the number of programming alternatives for household audiences.
Further advances in technology may increase competition for household
audiences and video compression techniques, now in development, are expected to
reduce the bandwidth required for television signal transmission. These
compression techniques, as well as other technological developments, are
applicable to all video delivery systems and have the potential to provide
vastly expanded programming to highly targeted audiences. Reduction in the cost
of creating additional channel capacity could lower entry barriers for new
channels and encourage the development of increasingly specialized "niche"
programming. This ability to reach very defined audiences is expected to alter
the competitive dynamics for advertising expenditures. See "-- Competition".
THE STATIONS
The table below presents historical data regarding the television revenues,
homes and relative market rank for the Lincoln-Hastings-Kearney, Nebraska
(including Grand Island, Nebraska) and the LaCrosse-Eau Claire, Wisconsin
television markets. Additionally, individual station rank and audience share
within their respective markets are shown for KOLN/KGIN-TV and WEAU-TV.
1996 1995 1994 1993 1992 1991
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LINCOLN, HASTINGS, KEARNEY AND GRAND ISLAND, NEBRASKA
Market gross revenue in thousands (1). . . . . . . . . . . - $20,600 $19,600 $18,000 $17,400 $16,200
Market revenue growth (decline) from prior period. . . . . - 5.1% 8.9% 3.5% 7.4% (12.4)%
Market rank (DMA) (2). . . . . . . . . . . . . . . . . . . 101 101 101 100 98 97
Television homes (in thousands) (2). . . . . . . . . . . . 252 249 248 245 250 248
Total commercial competitors in market (3) . . . . . . . . 4 3 3 3 3 3
Station rank in market (4) . . . . . . . . . . . . . . . . 1 1 1 1 1 1
Station audience share (5) . . . . . . . . . . . . . . . . 24 25 29 29 30 29
LA CROSSE AND EAU CLAIRE, WISCONSIN
Market gross revenue in thousands (1). . . . . . . . . . . - $19,900 $19,400 $16,600 $16,700 $14,500
Market revenue growth (decline) from prior period. . . . . - 2.6% 16.9% (0.1%) 15.2% (10.5)%
Market rank (DMA) (2). . . . . . . . . . . . . . . . . . . 130 135 135 135 134 134
Television homes (in thousands) (2). . . . . . . . . . . . 177 165 165 164 162 160
Total commercial competitors in market (3) . . . . . . . . 4 4 4 4 4 4
Station rank in market (4) . . . . . . . . . . . . . . . . 1 1 1 1 1 1
Station audience share (6) . . . . . . . . . . . . . . . . 27 25 24 26 27 26
___________
(1) Total broadcast television revenues in the DMA, as estimated and reported
by BIA Publications Inc. in "Investing in Television 1996," 2nd Edition
(the "BIA Guide").
(2) Based on the Nielsen Station Index Report for the period indicated.
(3) Total number of commercial broadcast television stations in the DMA
delivering at least 1% of the 7am -1am Sunday through Saturday ("Sign-on to
Sign-off") audience.
(4) Station's rank in market based on its share of total viewing on commercial
broadcast television stations in the market, Sign-on to Sign-off.
(5) Station's share of total viewing of commercial broadcast television
stations, Sign-on to Sign-off, based on the (a) average derived from the
February, May, July and November Television Market Reports published by
Arbitron Company ("Arbitron") for 1991 and 1992, (b) average derived from
the February, May, July and November Nielsen Station Index Reports for
1993, 1994, 1995 and 1996.
(6) Station's share of total viewing of commercial broadcast television
stations, Sign-on to Sign-off, based on the average derived from the
February, May, July and November Nielsen Station Index Reports for each of
the periods indicated.
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KOLN/KGIN-TV, LINCOLN AND GRAND ISLAND, NEBRASKA
The Lincoln-Hastings-Kearney, Nebraska DMA is the 101st largest, which
includes an estimated 251,580 television households. The economy in the
Lincoln-Hastings-Kearney region is based primarily on state government, medical
services, agriculture and education including the University of Nebraska. As of
December 1996, unemployment in Nebraska was approximately 2.4%, one of the
lowest rates in the country. According to the BIA Guide, the average household
income in the Lincoln-Hastings-Kearney market in 1994 was $39,418, with
effective buying income projected to grow at an annual rate of 3.8% through
1999. Historically, retail sales growth has been closely correlated with
expenditures on broadcast television advertising in a given market. Retail sales
growth in this market is projected by the BIA Guide to average 6.2% annually
through 1999.
KOLN-TV began operations in 1953 and its satellite station KGIN-TV
commenced operations in 1961. KOLN/KGIN-TV is affiliated with CBS. The
Lincoln-Hastings-Kearney DMA is a geographically large market covering most of
the western two-thirds of Nebraska. KOLN/KGIN-TV, through its broadcast signal
translators across the state, provides coverage of the entire market. For the
February 1997 rating period, KOLN/KGIN-TV had an audience Sign-on to Sign-off
share of 24%, compared to 8% , 5% and 3% for its closest competitors.
On June 29, 1995, the Company entered into a letter agreement with McPike
Communications, Inc. ("McPike") to provide McPike with up to $1.9 million in
connection with its FCC application for, and construction of, Channel 45 in
Lincoln, Nebraska, a UHF channel. A principal officer of McPike was the
controller for KOLN/KGIN-TV at the time of the transaction and remained so
through August 4, 1995. The Company rehired the officer to serve as
controller for KOLN/KGIN-TV on December 3, 1996. Except for certain nominal
amounts, the Company intends to invest such funds only after receipt of
requisite FCC and other governmental approvals of the proposed transactions.
The funds are expected to be provided to McPike primarily in the form of a
secured loan, and the Company will acquire no ownership interest in McPike.
In exchange for such financial assistance McPike will, subject to the receipt
of requisite FCC and other governmental approvals, including the grant of the
Channel 45 license, enter into a local marketing agreement and a joint
facilities agreement (collectively, "LMA's") with the Company. No terms of
these agreements have yet been negotiated with McPike, but, in general, a
joint facilities agreement involves the sharing of certain facilities and/or
staff in exchange for a negotiated division of costs associated therewith and
a local marketing agreement involves the payment of a fee to and/or expenses
of a station licensee in exchange for the rights to provide programming to a
station and to retain revenues derived from the sale of advertising in such
programming. The Company intends (subject to requisite FCC and other
governmental approvals) to operate Channel 45 under such agreements but is
presently unable to predict whether the requisite FCC and other governmental
approvals will be received or the timing of such approvals. On November 6,
1995, Citadel Communications, Ltd. ("Citadel") filed with the FCC a petition
to deny McPike's application for Channel 45 in Lincoln. Citadel's petition
asserts, among other things, that the Company's proposed interest in Channel
45 is so substantial that it violates the FCC's multiple station ownership
restrictions. Although McPike has opposed Citadel's petition, the Company
cannot predict the outcome of this proceeding. Also on November 6, 1995,
Northwest Television, Inc. ("Northwest") and Larry A. Miller ("Miller"), an
individual, filed separate applications with the FCC for Channel 45 in
Lincoln, Nebraska. The Miller application indicates that the applicant
intends to enter into an LMA agreement with Pappas Telecasting of The
Midlands, a California Limited Partnership ("Pappas"). Pappas (or an
affiliate of Pappas) owns and operates KPTM-TV a Fox affiliate in the
adjacent Omaha, Nebraska television market. In addition, on November 7,
1995, Walnut Creek Telecasting ("Walnut Creek") filed an application with the
FCC for Channel 45. The McPike, Northwest, Miller and Walnut Creek
applications for Channel 45 are mutually exclusive. The FCC currently has no
procedures established to resolve mutually exclusive applications. On
December 14, 1995, Northwest, Miller and Walnut Creek filed a proposed
settlement agreement with the FCC pursuant to which, if approved by the FCC,
Northwest and Walnut Creek would withdraw their respective applications in
return for certain payments from Miller. Although McPike has advised the
Company that it intends to prosecute its application for Channel 45 fully,
the Company cannot predict the outcome of these competing applications.
On September 17, 1996 the Company entered into a letter agreement with Mr.
David M. Comisar ("Comisar") to provide Comisar with up to $1.8 million in
connection with its FCC application for and construction of Channel 51 in
Lincoln, Nebraska, a UHF channel. Except for certain nominal amounts, the
Company intends to invest such funds only after receipt of requisite FCC and
other governmental approvals of the proposed transactions. The funds are
expected to be provided to
-7-
Comisar primarily in the form of a secured loan, and the Company will acquire no
ownership interest in Channel 51. In exchange for such financial assistance
Comisar will, subject to the receipt of requisite FCC approvals, including the
grant of the Channel 51 license, enter into LMA's with the Company. No terms of
these agreements have been negotiated with Comisar. The Company intends
(subject to requisite FCC and other governmental approvals) to operate Channel
51 under LMA's. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity."
In 1993, the FCC allotted VHF Channel 8 to Lincoln, Nebraska, and modified
the license of 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 20, 1995 the Company filed with the United
States Court of Appeals for the District of Columbia (the "Court of Appeals") a
Notice of Appeal and Petition for Review in respect of this matter. 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 KLKN operations upon the Company's future
operations.
WEAU-TV, LA CROSSE AND EAU CLAIRE, WISCONSIN
The La Crosse-Eau Claire, Wisconsin DMA is the 130th largest, with an
estimated 177,490 television households. The economy in the La Crosse-Eau Claire
region is centered on skilled industry, medical services, agriculture, education
and retail businesses. The Eau Claire area had an unemployment rate in December
1996 of approximately 3.0%. According to the BIA Guide, the average household
income in the La Crosse-Eau Claire market in 1994 was $37,934, with effective
buying income projected to grow at an annual rate of 4.2% through 1999. Retail
business sales growth in this market is projected by the BIA Guide to average
5.4% annually during the same period.
WEAU-TV, the NBC affiliate in the La Crosse-Eau Claire market, began
operations in 1953. Although 90 miles apart, the cities of La Crosse and Eau
Claire are considered by Nielsen to be a single market that includes 12
counties, ten of which are located in Wisconsin and two of which are located in
Minnesota. WEAU-TV's signal covers the entire DMA and extends into 15 counties
adjacent to the DMA. WEAU-TV achieves this geographical coverage by utilizing a
2,000 foot tower for its broadcast antenna. There are four commercial stations
in the DMA with WEAU-TV constituting one of only two local VHF stations. For
the February 1997 rating period, WEAU-TV had a 24% share of the audience sign-on
to sign-off compared to a 15%, 13% and a 6% share, respectively, for its closest
competitors.
On February 9, 1996 the Company entered into a letter agreement with
McPike to provide McPike with up to $2.1 million in connection with its FCC
application for and construction of Channel 39 in Marshfield, Wisconsin, a
UHF channel. Except for certain nominal amounts, the Company intends to
invest such funds only after receipt of requisite FCC and other governmental
approvals of the proposed transactions. The funds are expected to be provided
to McPike primarily in the form of a secured loan, and the Company will
acquire no ownership interest in McPike. In exchange for such financial
assistance McPike will, subject to the receipt of requisite FCC and other
governmental approvals, including the grant of the Channel 39 license, enter
into LMA's with the Company. No terms of these agreements have yet been
negotiated with McPike. The Company intends (subject to FCC and other
governmental approvals) to operate Channel 39 under such LMA's. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."
NETWORK AFFILIATION
KOLN/KGIN-TV is affiliated with CBS. The affiliation agreement with CBS
relating to KOLN/KGIN-TV was renewed in July 1995, expires December 31, 2005 and
is subject to automatic renewal for successive five year terms unless either
party provides notice of its intent to terminate the agreement at least six
months prior to the end of the term. Beginning January 1, 1996, the aggregate
compensation under this agreement increased to approximately $800,000 per year.
WEAU-TV is affiliated with NBC. On April 8, 1996, the Company and WEAU License,
Inc. entered into an affiliation agreement with NBC effective as of January 1,
1996 and expiring in December 2005. This agreement provides for automatic
renewals of subsequent five year terms subject to each party's right to
terminate the agreement at the end
-8-
of any term upon at least 12 months prior written notice. The basic network
compensation under WEAU-TV's network affiliation agreement with NBC will be
approximately $300,000 per annum, but provides for certain additional quarterly
payments based in part on the number of hours of NBC "prime time" programming
broadcast by the Station.
Network affiliation agreements generally require an affiliate to carry a
significant amount of network-provided programming, and the networks undertake
to supply a certain amount of programming to the affiliate and to compensate the
affiliate for broadcasting network-provided programming. Although network
compensation payments to network affiliated stations generally account for only
4% to 6% of a station's net revenues, network affiliation is generally
advantageous because it provides the station with competitive programming at
lower cost than may otherwise be available. In addition, certain advertising
time in these programs is made available to the local affiliate for its sale to
local advertisers.
An affiliated station's competitive position in its market is somewhat
affected by the competitive strength of its network, but network strength does
not necessarily determine an individual station's audience or its financial
performance. Local programming, particularly local news coverage, community
involvement and promotion, are important competitive factors. The Company
anticipates that its stations' network affiliations with CBS and NBC will
continue to be advantageous, and that the national television networks will
remain highly competitive with each other.
ADVERTISING SALES
Television station revenues are primarily derived from local, regional and
national advertising and, to a modest extent, from network compensation and
revenues from tower rentals and commercial production activities. Advertising
rates are based upon numerous factors including a program's popularity among the
viewers an advertiser wishes to target, the number of advertisers competing for
the available time, the size and demographic composition of a program's audience
and the availability of competing or alternative advertising media in the market
area. Because broadcast television stations rely on advertising revenue,
declines in advertising budgets, particularly in recessionary periods, adversely
affect the broadcast industry and as a result may contribute to a decrease in
the revenues of broadcast television stations. The Company seeks to manage its
spot inventory efficiently, thereby maximizing advertising revenues.
Set forth below are the principal types of television gross revenues
(before agency and representative commissions) received by the Stations for the
periods indicated and the percentage contribution of each to the gross
television revenues of such Stations (dollars in thousands).
YEAR ENDED
-------------------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 31, JANUARY 1, JANUARY 2, JANUARY 3,
1996 1995 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Local & Regional (a) . . $12,343 55.36% $12,070 60.39% $11,937 55.92% $10,728 57.08% $10,491 55.46%
National (b) . . . . . . 6,527 29.27 6,434 32.19 6,562 30.74 6,309 33.57 6,411 33.89
Network Compensation (c) 1,371 6.15 735 3.68 753 3.53 835 4.44 848 4.48
Political (d) . . . . . 1,451 6.51 161 .80 1,456 6.82 381 2.03 626 3.31
Other Revenue (e) . . . 604 2.71 588 2.94 639 2.99 543 2.88 541 2.86
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total . . . . . . . $22,296 100.0% $19,988 100.0% $21,347 100.0% $18,796 100.0% $18,917 100.0%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
___________
(a) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers and other local sources.
(b) Represents sale of advertising time to agencies representing national
advertisers.
(c) Represents payment by networks for broadcasting network programming.
(d) Represents sale of advertising time to political advertisers.
(e) Represents miscellaneous revenue, including payment for production of
commercials.
Automobile advertising constitutes the Stations' single largest source of
gross revenues, accounting for approximately 17.9% of their total gross revenues
in 1996. Gross revenues from furniture, bedding, appliance and department
stores accounted for approximately 13.1%, gross revenues from restaurants
accounted for approximately 9.3%, gross revenues from other stores accounted for
approximately 3.1% and gross revenues from medical service providers accounted
for approximately 2.7% of the Company's total gross revenues in 1996. Each
other category of
-9-
advertising revenue represented less than 2.7% of the Stations' total gross
revenues. Political revenues in national or statewide election years, such as
1994 and 1996 generally are significantly greater than political revenues in
other years.
COMPETITION
Competition in the television industry exists on several levels, including
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors that are material to a
television station's competitive position include management experience, signal
coverage, local program acceptance, network affiliation, audience
characteristics, assigned frequency and strength of local competition. In
addition to the competition the Company faces from television stations in its
markets and other advertising supported media, leisure time activities, such as
sporting events and concerts, also compete for a television viewer's leisure
time. Some competitors are part of larger companies with substantially greater
financial resources than the Company.
The broadcasting industry is faced continually with technological change
and innovation, the possible rise of competing entertainment and communications
media and governmental restrictions or actions of the Congress and federal
regulatory bodies, including the FCC and the Federal Trade Commission, any of
which could have a material effect on the Company's operations. In addition,
since early 1994, there have been a number of network affiliation changes in
many of the top 100 television markets. As a result, the major networks have
sought longer terms in their affiliation agreements with local stations and
generally have increased the compensation payable to the local stations in
return for such longer term agreements. During the same time period, the rate of
change of ownership of local television stations has increased over past
periods. Since 1995 a change in ownership of at least one other
network-affiliated television station other than the Stations has occurred in
both the Lincoln and La Crosse-Eau Claire markets.
AUDIENCE. Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A substantial portion of the
daily programming on each of the Stations is supplied by the network with which
the Station is affiliated. During those periods, the Stations are totally
dependent upon the performance of the network programs to attract viewers. There
can be no assurance that such programming will achieve or maintain satisfactory
viewership levels in the future. Non-network time periods are programmed by the
Station with a combination of self-produced news, public affairs and other
entertainment programming, including news and syndicated programs purchased for
cash, cash and barter, or barter only.
Independent stations, whose number has increased significantly over the
past decade, have emerged as viable competitors for television viewership share.
In addition, WB Network and UPN each has been recently launched as a new
television network. See "-- Programming" below. The Company is unable to predict
the effect, if any, that such networks will have on the future results of the
Company's operations.
Conventional commercial television broadcasters also face competition from
other programming, entertainment and video distribution systems, the most common
of which is cable television, which has significantly increased competition.
These other programming, entertainment and video distribution systems can
increase competition for a broadcasting station by bringing into its market
distant broadcasting signals not otherwise available to the station's audience
and also serving as distribution systems for non-broadcast programming. Through
the 1970s, prior to the advent of competing technologies for the delivery of
video programming to television viewers and the rise of independent stations as
viable competitors to network affiliates, television broadcasting enjoyed
virtual dominance of television viewership and television advertising revenues,
and network-affiliated stations competed primarily only with each other in local
markets. Although cable television systems initially retransmitted broadcast
television programming to paying subscribers in areas with poor broadcast signal
reception, significant increases in cable television penetration in areas that
did not have signal reception problems occurred throughout the 1970s and 1980s.
Programming is now being distributed to cable television systems by both
terrestrial microwave systems and by satellite. As the technology of satellite
program delivery to cable systems advanced in the late 1970s, development of
programming for cable television accelerated dramatically, resulting in the
emergence of multiple, national-scale program alternatives and the rapid
expansion of cable television and higher subscriber growth rates. Historically,
cable operators have not sought to compete with broadcast stations for a share
of the local news audience. Recently, however, certain cable operators have
-10-
elected to compete for such audiences in certain markets other than the
Stations' markets. The Company cannot predict what, if any, effect the
increased competition could have on the Company's advertising revenues.
Other sources of competition include home entertainment systems (including
video cassette recorder and playback systems, video discs and television game
devices), "wireless cable" services, satellite master antenna television
systems, low power television stations, television translator stations,
multi-point distribution systems and multichannel multi-point distribution
systems and other video delivery systems. The Company's television stations also
face competition from direct broadcast satellite services which transmit
programming directly to homes equipped with special receiving antennas and
competition from video signals delivered over telephone lines. Public
broadcasting outlets in most communities compete with commercial television
stations for audience, but, with the exception of the use of "donor
acknowledgments," not for advertising dollars, although this may change as
Congress considers alternative means for the support of public television.
The broadcasting industry is continuously faced with technological change
and innovation, which could possibly have a material adverse effect on the
Company's operations and results. Video compression techniques are expected to
reduce the bandwidth required for television signal transmission. These
compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting,
and have the potential to provide vastly expanded programming to highly targeted
audiences. Reduction in the cost of creating additional channel capacity could
lower entry barriers for new channels and encourage the development of
increasingly specialized "niche" programming. This ability to reach very
narrowly defined audiences is expected to alter the competitive dynamics for
advertising expenditure. Commercial television broadcasting may face future
competition from interactive video and data services that may provide two-way
interaction with commercial video programming, along with information and data
services that may be delivered by commercial television stations, cable
television, direct broadcast satellites, multi-point distribution systems,
multichannel multi-point distribution systems or other video delivery systems.
The Company is unable to predict the effect that these or other technological
changes will have on the broadcast television industry or the future results of
the Company's operations. In addition, recent actions by the FCC, Congress and
the courts all presage significant future involvement in the provision of video
services by telephone companies. The 1996 Act (as defined herein) permits
telephone companies to provide cable service within their telephone service
areas; however, it prohibits buyouts of cable operators providing cable service
within the telephone company's telephone service area. Telephone companies may
provide video programming services using radio communication or may choose to be
regulated as a cable system, as a common carrier or as a newly created "open
video system." As a common carrier, a telephone company would be required to
establish channel capacity sufficient to meet all bona fide demand for carriage.
As an operator of an "open video system," a telephone company would have to make
channel capacity available to unaffiliated programmers without discrimination
and, if demand were to exceed capacity, it could not select programmers for more
than one-third of capacity. Open video systems, but not common carriers, would
be required to comply with rules governing the carriage of television stations
on cable systems, including network non-duplication, syndicated exclusivity,
must-carry and retransmission consent rules, but would not have to obtain a
local government franchise. It is not possible to predict the impact of any
future relaxation of the former statutory ban on the Company's television
stations; however, the further relaxation could increase the competition the
Company's television stations face from other distributors of video programming.
PROGRAMMING. Competition for programming involves negotiating with national
program distributors or syndicators that sell first-run and rerun packages of
programming. Each Station competes against the broadcast station competitors in
its market for exclusive access to off-network reruns (such as HOME IMPROVEMENT)
and first-run product (such as JEOPARDY). In addition, various national cable
networks compete for programming by acquiring programs that would have otherwise
been offered to local television stations. Competition exists for exclusive news
stories and features, as well.
WB Network announced its intention to establish separate affiliations with
independent television stations in 1994 and began broadcasting in January 1995.
During 1994, UPN established affiliations with independent stations and began
broadcasting in January 1995.
-11-
ADVERTISING. The financial success of the Stations is dependent on audience
ratings and revenues from advertisers within each Station's geographic market.
Advertising rates are based upon the size of the market in which the Station
operates, a program's popularity among the viewers that an advertiser wishes to
attract, the number of advertisers competing for the available time, the
demographic make-up of the market served by the Station, the availability of
alternative advertising media in the market area, aggressive and knowledgeable
sales forces and the development of projects, features and programs that tie
advertising messages to programming. Advertising revenues comprise the primary
source of revenues for the Stations. The Stations compete for such advertising
revenues with other television stations in their respective markets. Independent
stations may achieve a greater proportion of the television market advertising
revenues than network affiliated stations relative to their share of the
market's audience because independent stations have greater amounts of available
advertising time. The Stations also compete for advertising revenues with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail and local cable
systems.
Competition in the broadcasting industry occurs primarily in individual
markets. Generally, a television broadcasting station in one market does not
compete with stations in other market areas. The Company's television stations
are located in highly competitive markets. See the discussion of the allocation
of VHF Channel 8 to Citadel under Item 3, "Legal Proceedings."
RATING SERVICES DATA
Except as noted herein, all television audience share and aggregate
television audience information contained herein are based upon data compiled
from surveys conducted by Nielsen, a national audience measuring service. All
television stations in the country are grouped by Nielsen into approximately 210
generally recognized non-overlapping television markets, each called a
designated market area ("DMA"), that are ranked in size according to various
formulae based upon actual or potential audience. A DMA generally consists of
counties in which commercial television stations located in the same general
vicinity achieve the largest audience share. Nielsen periodically publishes data
on estimated audiences for the television stations in the various television
markets throughout the country. The estimates are expressed in terms of the
percentage of the total potential audience in the market viewing a station, a
rating, and of the percentage of the audience actually watching television, a
share. Nielsen provides such data on the basis of total television households
and selected demographic groupings in the market. Nielsen uses two methods of
determining a station's ability to attract viewers. In larger geographic
markets, ratings are determined by meters connected directly to selected
television sets, while in smaller markets, including the DMAs in which each
Station operates, weekly diaries of television viewing are completed by selected
households. Advertising rates charged by a television station are based in large
part on the number of households tuned to a particular station during a
particular time period, the demographic characteristics of those households, and
whether the station is a leading station in its geographic market area. In
addition, ratings information for periods that the Olympic Games are broadcast
by a network, including February 1994 and July 1996, are not considered by
broadcasters or advertisers to be indicative of future viewing trends. Certain
ratings for Olympic periods may be more or less favorable to the Stations than
ratings for other periods.
Television audience share and aggregate television audience share
information with respect to KOLN/KGIN-TV for 1991 and 1992 is based upon data
compiled from surveys conducted by Arbitron. During such periods, Arbitron
measured rankings within specific geographic markets called ADIs and published
its estimates of audience share data in periodic Television Market Reports. The
ADI designated for KOLN/KGIN-TV is roughly comparable to the
Lincoln-Hastings-Kearney, Nebraska DMA, and the methodology employed by Arbitron
to determine audience share data is generally similar to that used by Nielsen in
comparable markets. Since 1993, KOLN/KGIN-TV has relied on Nielsen for its
ratings data.
FEDERAL REGULATION OF TELEVISION BROADCASTING
EXISTING REGULATION. Television broadcasting is subject to the jurisdiction of
the FCC under the Communications Act. The Communications Act prohibits the
operation of television broadcasting stations unless under a license issued by
the FCC and empowers the FCC, among other things, to issue, revoke and modify
broadcasting licenses, determine the locations of stations, regulate the
equipment used by stations, adopt regulations to carry out the provisions of the
-12-
Communications Act and impose penalties for violation of such regulations. The
Communications Act prohibits the assignment of a license or the transfer of
control of a licensee or of an entity controlling a licensee without prior
approval of the FCC. The Telecommunications Act of 1996 ("1996 Act") was
signed into law by the President of the United States on February 8, 1996;
however, implementation of most of the 1996 Act's provisions which apply to the
Company's business require action by the FCC. Relevant provisions of the 1996
Act are discussed in the sections that follow.
LICENSE GRANT AND RENEWAL. Until implementation of the 1996 Act, television
broadcasting licenses generally were granted or renewed for a period of five
years, but may be renewed for a shorter period upon a finding by the FCC that
the "public interest, convenience, and necessity" would be served thereby.
Under earlier procedures, any person could have filed a competing application
for authority to operate the station and replace the incumbent licensee. In the
vast majority of cases, broadcast licenses were renewed by the FCC even when
petitions to deny or competing applications were filed against broadcast license
renewal applications. The 1996 Act extended the license term for television
stations from five to eight years and requires a broadcast license to be renewed
if the FCC finds that (i) the station has served the public interest,
convenience and necessity; (ii) there have been no serious violations of either
the Communications Act or the FCC's rules and regulations by the licensee; and
(iii) there have been no other violations of the Communications Act or the FCC's
rules and regulations which, taken together, would constitute a pattern of
abuse. Competing applications would be permitted only if an application for
renewal of license were denied after hearing. At the time an application was
made for renewal of a television license, parties in interest could file
petitions to deny, and such parties, including members of the public, could
comment upon the service the station has provided during the preceding license
term and urge denial of the application.
The FCC license renewal for WEAU-TV was granted for a five year term on
November 24, 1992 and was to expire on December 1, 1997. The FCC license
renewals for KOLN-TV and KGIN-TV were granted for five year terms on May 27,
1993 were to expire on June 1, 1998. The 1996 Act extends the license term of
WEAU-TV until December 1, 2000 and the term for KOLN-TV and KGIN-TV to June 1,
2001. Although there can be no assurance that the Company's licenses will be
renewed upon their expiration, the Company is not aware of any facts or
circumstances that would prevent the Company from having its licenses renewed.
MULTIPLE OWNERSHIP RESTRICTIONS. The FCC has promulgated rules that limit the
ability of individuals and entities to own or have an ownership interest above a
certain level (an "attributable" interest, as defined more fully below) in
broadcast stations, as well as certain other mass media entities. These
rules include limits on the number of radio and television stations that may be
owned both on a national and a local basis. On a national basis, the 1996 Act
generally limits any individual or entity from having an attributable interest
in television stations which have an aggregate natural audience reach in excess
of 35% of all U.S. households. This rule became effective on March 15, 1996.
The Company is unable to predict the effect of such changes.
On a local basis, FCC rules currently allow an entity to have an
attributable interest in only one television station in a market. In addition,
FCC rules, the Communications Act or both generally prohibit an individual or
entity from having an attributable interest in a television station and a radio
station, daily newspaper or cable television system that is located in the same
local market area served by the television station. Proposals currently before
the FCC would substantially alter these standards. For example, in a pending
rulemaking proceeding, the FCC suggests narrowing the geographic scope of the
local television cross-ownership rule from Grade B to Grade A contour overlap
but only if the stations are located in different DMAs, although existing
combinations might be grandfathered. In the same proceeding, the FCC also
proposes eliminating the TV/radio cross-ownership restriction entirely or at
least exempting larger markets. In addition, the FCC is seeking comment on
issues of control and attribution with respect to local marketing agreements
entered into by television stations. In addition, on June 1, 1995, the FCC
released an interim policy announcing that during the pendency of the foregoing
rulemaking, it will not approve assignments or transfers of control of
television licenses involving LMA's where the programmer owns an attributable
interest in another station in the same market and loans funds to a station and
holds an option to purchase the station. This interim policy does not apply to
the Company's arrangements with McPike and Comisar because such policy applies
only where (i) an option to purchase a station or (ii) an assignment or transfer
of control is involved. It is unlikely in any event that this rulemaking will be
concluded in the immediately foreseeable future, and there can be no assurance
that any of these rules will be changed or what will
-13-
be the effect of any such change. The 1996 Act permits existing and future LMAs
that are in compliance with FCC regulations. The 1996 Act requires the FCC to
conduct rulemaking to consider common ownership of more than one local TV
station, although it is possible that local VHF-VHF combinations would be
permitted only in compelling circumstances. The 1996 Act further waives the
TV/radio cross ownership restriction in the top 50 markets and facilitates a
change in the FCC rule barring common ownership of TV stations and local cable
systems by repealing the current statutory ban.
Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. At the same time, any relaxation of the
FCC's ownership rules may increase the level of competition in one or more of
the markets in which the Stations are located, particularly to the extent that
the Company's competitors may have greater resources and thereby be in a better
position to capitalize on such changes.
Under the FCC's ownership rules, a direct or indirect purchaser of certain
types of securities of the Company (but not including the Senior Notes) could
violate FCC regulations if that purchaser held or acquired an "attributable" or
"meaningful" interest in other media properties in the same areas as stations
owned by the Company or in a manner otherwise prohibited by the FCC. All
officers and directors of a licensee, as well as general partners, uninsulated
limited partners and stockholders who own five percent or more of the
outstanding voting stock of a licensee (either directly or indirectly),
generally will be deemed to have an "attributable" interest. Certain
institutional investors who exert no control or influence over a licensee may
own up to ten percent of such outstanding voting stock before attribution
occurs. Under current FCC regulations, debt instruments, non-voting stock,
certain limited partnership interests (provided the licensee certifies that the
limited partners are not "materially involved" in the management and operation
of the subject media property) and voting stock held by minority stockholders in
cases in which there is a single majority stockholder generally are not subject
to attribution. The FCC's cross-interest policy, which precludes an individual
or entity from having a "meaningful" but not "attributable" interest in one
media property and an "attributable" interest in a broadcast, cable or newspaper
property in the same area, may be invoked in certain circumstances to reach
interests not expressly covered by the multiple ownership rules.
In January 1995, the FCC released a Notice of Proposed Rule Making designed
to permit a "thorough review of [its] broadcast media attribution rules." Among
the issues on which comment is sought are (i) whether to change the voting stock
attribution benchmarks from five percent to ten percent and, for passive
investors, from ten percent to twenty percent; (ii) whether there are any
circumstances in which nonvoting stock interests, which are currently considered
non-attributable, should be considered attributable; (iii) whether the FCC
should restrict or eliminate its single majority shareholder exception (pursuant
to which voting interests in excess of five percent are not considered
cognizable if a single majority shareholder owns more than fifty percent of the
voting power); (iv) whether to relax insulation standards for business
development companies and other widely-held limited partnerships; (v) how to
treat limited liability companies and other new business forms for attribution
purposes; (vi) whether to eliminate or modify the cross-interest policy; and
(vii) whether to adopt a new policy which would consider whether multiple "cross
interests" or other significant business relationships (such as time brokerage
agreements, debt relationships or holdings of nonattributable interests), which
individually do not raise concerns, raise issues with respect to diversity and
competition. In November 1996, the FCC issued further proposals (i) that could
attribute television LMAs involving 15% or more of the brokered station's weekly
time; (ii) that could attribute joint sales agreements (agreements which do not
comprise LMAs, since they do not involve the provision of significant amounts of
programming, but which do provide for the joint sale of commercial time for
separately controlled stations); and (iii) that could adopt a new "equity or
debt plus" attribution rule which would attribute otherwise non-attributable
debt or equity interests in a license where the equity and/or debt holding
exceeded a specified numerical threshold or where the interest holder also held
certain other significant interests in or relationships to a licensee or media
outlet that could result in the ability to exercise significant influence.
There can be no assurance that any of these standards will be changed. Should
the attribution rules be changed, the Company is unable to predict what, if any,
effect it would have on the Company or its activities. To the best of the
Company's knowledge at present, no officer, director or five percent stockholder
of the Company holds an interest in another radio station, cable television
system or daily newspaper that is inconsistent with the FCC's ownership
rules and policies or with ownership of the Stations.
-14-
ALIEN OWNERSHIP RESTRICTIONS. The Communications Act restricts the ability of
foreign entities or individuals to own or hold interests in broadcast licenses.
Foreign governments, representatives of foreign governments, non-citizens,
representatives of non-citizens, and corporations or partnerships organized
under the laws of a foreign nation are barred from holding broadcast licenses.
Non-citizens, collectively, may directly or indirectly own or vote up to twenty
percent of the capital stock of a licensee. In addition, a broadcast license
may not be granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation more than one-fourth of whose capital stock
is owned or voted by non-citizens or their representatives, by foreign
governments or their representatives, or by non-U.S. corporations, if the FCC
finds that the public interest will be served by the refusal or revocation of
such license. The Company has been advised that the FCC staff has interpreted
this provision of the Communications Act to require an affirmative public
interest finding before a broadcast license may be granted to or held by any
such corporation and the FCC has made such an affirmative finding only in
limited circumstances. Accordingly, the Company, which will control each of the
License Subsidiaries, is restricted from having more than one-fourth of its
capital stock owned or voted by non-citizens.
RESTRICTIONS ON BROADCAST ADVERTISING. Advertising of cigarettes and certain
other tobacco products on broadcast stations has been banned for many years.
Various states restrict the advertising of alcoholic beverages. Congressional
committees have recently examined legislation proposals which may eliminate or
severely restrict the advertising of alcoholic beverages including beer and
wine. Although no prediction can be made as to whether any or all of the present
proposals will be enacted into law, the elimination of all beer and wine
advertising would have a significant adverse effect upon the revenues of the
Company's television stations, as well as the revenues of other stations which
carry beer and wine advertising.
The FCC has imposed commercial time limitations in children's programming
pursuant to legislation. In programs designed for viewing by children of
12 years of age and under, commercial matter is limited to 12 minutes per hour
on weekdays and 10.5 minutes per hour on weekends. All television stations are
required to broadcast some television programming designed to meet the
educational and informational needs of children 16 years of age and under. The
Company does not believe that these requirements will have a significant impact
on the Company's Stations because both of its Stations broadcast programming
designed to meet the educational and informational needs of children and have
already limited commercials in such programming.
PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." The FCC gradually has relaxed or eliminated many of
the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a station's
community of license. FCC licensees continue to be required, however, to present
programming that is responsive to community issues, and to maintain certain
records demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
renewal applications of a licensee, although such complaints may be filed at any
time and generally may be considered by the FCC at any time. The 1996 Act
requires a television renewal applicant to provide a summary of written
complaints which characterize any of its programming as violent. Stations also
must pay regulatory and application fees, and follow various rules promulgated
under the Communications Act that regulate, among other things, political
advertising, sponsorship identifications, the advertisement of contests and
lotteries, obscene and indecent broadcasts, and technical operations, including
limits on radio frequency radiation. In addition, licensees currently must
develop and implement affirmative action programs designed to promote equal
employment opportunities, and must submit reports to the FCC with respect to
these matters on an annual basis and in connection with a renewal application
and certain assignment of license and transfer of control applications. Failure
to observe these or other rules and policies can result in the imposition of
various sanctions, including monetary forfeitures, or the grant of "short" (less
than the full) renewal terms or, for particularly egregious violations, the
denial of a license renewal application or the revocation of a license.
The 1996 Act requires the broadcast industry to establish ratings for
sexual, violent or otherwise indecent programming, to inform parents of the
ratings for such programming prior to broadcast, and to broadcast signals which
would activate a so-called "V-chip" in newly manufactured receivers which would
permit parents to program television sets to bar the reception of certain rated
programming. In January 1997, an industry coalition voluntarily implemented a
rating system identifying two categories of children's programming (those
designed for all children and those directed
-15-
to children aged 7 and up) and four categories of programs designed for
various maturity levels of general audiences. The ratings are broadcast during
the first 15 seconds of each program in a corner of the screen and are beginning
to be included in program guides. The ratings have been the source of
controversy, and it is possible that the industry, Congress, courts or the FCC
may order changes. The Company is unable to predict the effect of the ratings
system upon its operations.
In November 1966, the FCC adopted a set of specific regulations relating to
children's programming which require television stations to (i) provide an
average of at least three hours per week of "core programming" that is
specifically designed to educate and inform children; (ii) identify core
programs on the air; (iii) provide information about children's programming to
program guides; (iv) prepare children's programming reports on a quarterly basis
for placement in the station's local public inspection file; and (v) file the
quarterly reports with the FCC on an annual basis in electronic form for an
experimental period of three years. In order to qualify as "core programming,"
a program must be at least 30 minutes long and aired on a regularly scheduled
weekly basis between 7 a.m. and 10 p.m.; its educational and informational
objective and its target child audience must also be specified in writing in the
licensee's quarterly children's television programming report. These
requirements became effective January 2, 1997. All renewals filed after
September 1, 1997 are to be evaluated for compliance with the children's
programming standard. Licensees airing less than three hours per week of core
programming may compensate for up to a thirty minute deficit through other
programming and non-programming efforts. The renewals of stations having a
deficit of more than 30 minutes per week could result in sanctions, including
possible denial. Although the Company is unable to predict the effect of these
regulations, it does not believe that they will have a significant impact on the
Company's stations.
RECENT DEVELOPMENTS; PROPOSED LEGISLATION AND REGULATION. The FCC eliminated
the prime time access rule ("PTAR"), effective August 30, 1995. PTAR had limited
a station's ability to broadcast network programming (including syndicated
programming previously broadcast over a network) during prime time hours. The
elimination of PTAR could increase the amount of network programming broadcast
over a station affiliated with ABC, NBC or CBS. Such elimination also could
result in (i) an increase in the compensation paid by the network (due to the
additional prime time during which network programming could be aired by a
network-affiliated station) and (ii) increased competition for syndicated
network programming that previously was unavailable for broadcast by network
affiliates during prime time.
Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and ownership
of the Company's broadcast properties. In addition to the changes noted above,
such matters include, for example, spectrum use fees, political advertising
rates, potential advertising restrictions on the advertising of certain products
(beer and wine, for example), the rules and policies to be applied in enforcing
the FCC's equal employment opportunity regulations, reinstitution of the
fairness doctrine (which requires broadcasters to air programming concerning
controversial issues of public importance and to afford a reasonable opportunity
for the expression of contrasting viewpoints), the standards to govern
evaluation of television programming directed toward children. Other matters
that could affect the Company's broadcast properties include technological
innovations and developments generally affecting competition in the mass
communications industry, such as the recent initiation of direct broadcast
satellite service, and the continued establishment of wireless cable systems and
low power television stations. In addition, the FCC already has lifted the
financial interest rules and restraints on foreign and domestic syndication.
The FCC presently is seeking comment on its policies designed to increase
minority ownership of mass media facilities. Congress also recently enacted
legislation that eliminated the minority tax certificate program. In addition, a
recent Supreme Court decision has cast into doubt the continued validity of many
of the programs designed to increase minority ownership of mass media
facilities.
DISTRIBUTION OF VIDEO SERVICES BY TELEPHONE COMPANIES. Recent actions by the
FCC and Congress presage significant future involvement in the provision of
video services by telephone companies. The Company cannot predict either the
timing or the extent of such involvement. This anticipated involvement results
from Congress' lifting of the statutory prohibition against a telephone company
providing video programming directly to subscribers within the company's
telephone service area, which prevented telephone companies from providing cable
service over either the telephone network or a cable system located within the
telephone service area.
-16-
Congress' lifting of the ban was preceded by successful telephone company
litigation over the constitutionality of the ban in various federal courts. The
Supreme Court agreed to consider the issue, but returned it to a lower court for
that court to reconsider whether the issue had been rendered moot by passage of
the 1996 Act. Also, the FCC interpreted the statutory ban in its 1992 "video
dialtone" ("VDT") decision so as to permit telephone company construction of a
transport "platform" on which the telephone company was required to grant
non-discriminatory access to multiple video programmers. The 1996 Act permits
telephone companies to provide cable service within their telephone service
areas, though it prohibits buyouts of cable operators providing cable service in
the telephone company telephone service area. Telephone companies may provide
video programming via radio based systems, such as wireless cable, pursuant to
Title III of the Act or may choose to provide such services as a cable operator,
as a common carrier or as an open video system ("OVS") operator. As a common
carrier, a telephone company would be required to establish channel capacity
sufficient to meet all bona fide demands for carriage. The FCC is currently
considering whether the common carrier provision of video programming on behalf
of a program distributor may render one or both entities the operator of a cable
system subject to the Act's local franchise requirement. As an operator of a
cable system, the telephone company would be subject to Title VI of the Act and
the FCC's implementing rules and policies, including the local government
franchise requirement. As an OVS operator, the telephone company has the
ability to program channels on the system; however, it is required to make
channel capacity available to unaffiliated programmers on a non-discriminatory
basis, and, if demand were to exceed capacity, could not select programming for
more than one third of such capacity. OVS operators are obligated to comply
with certain rules governing cable systems, including, but not limited to, rules
governing carriage of television stations, e.g. retransmission consent, must
carry, network non-duplication and syndicated exclusivity, but are not required
to obtain a local government franchise. On May 31, 1996, the FCC adopted rules
relevant to the operation of open video systems. An appeal of the FCC's rules
is currently pending. The FCC has also eliminated its rules implementing the
telephone-cable cross ownership restrictions, eliminated its VDT rules and
policies, terminated its proceeding which was to have established VDT rules and
policies and required all VDT systems to convert to another form of video
distribution.
THE 1992 CABLE ACT. On October 5, 1992, Congress enacted the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"). The FCC
began implementing the requirements of the 1992 Cable Act in 1993 and final
implementation proceedings remain pending regarding certain of the rules and
regulations previously adopted. Certain statutory provisions, such as signal
carriage, retransmission consent and equal employment opportunity requirements,
have a direct effect on television broadcasting. Other issues addressed in the
FCC rules were market designations, the scope of retransmission consent and
procedural requirements for implementing the signal carriage provisions. Other
provisions are focused exclusively on the regulation of cable television but can
still be expected to have an indirect effect on the Company because of the
competition between over-the-air television stations and cable systems.
The signal carriage, or "must carry," provisions of the 1992 Cable Act
require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
Systems with 12 or fewer usable activated channels and more than 300 subscribers
must carry the signals of at least three local commercial television stations. A
cable system with more than 12 usable activated channels, regardless of the
number of subscribers, must carry the signals of all local commercial television
stations, up to one-third of the aggregate number of usable activated channels
of such system. The 1992 Cable Act also includes a retransmission consent
provision that prohibits cable operators and other multichannel video
programming distributors from carrying broadcast stations without obtaining
their consent in certain circumstances. The "must carry" and retransmission
consent provisions are related in that a local television broadcaster, on a
cable system-by-cable system basis, must make a choice once every three years
whether or not to proceed under the "must carry" rules or to waive that right to
mandatory but uncompensated carriage and negotiate a grant of retransmission
consent to permit the cable system to carry the station's signal, in most cases
in exchange for some form of consideration from the cable operator. Cable
systems must obtain retransmission consent to carry all distant commercial
stations other than "super stations" delivered via satellite.
Under rules adopted to implement these "must carry" and retransmission
consent provisions, local television stations were required to make an initial
election of "must carry" or retransmission consent by June 17, 1993, with
subsequent elections to be made at three year intervals, E.G.: by October 1,
1996 for the three year period commencing on January 1, 1997 and concluding on
December 31, 1999. Stations that failed to elect were deemed to have elected
carriage under the "must carry" provisions. Stations electing to grant
retransmission authority were expected to conclude
-17-
their consent agreements with cable systems by October 6, 1993, the date on
which systems' authority to carry broadcast signals without consent expired. A
must carry election entitled the Stations to carriage on those systems until at
least December 31, 1996.
With respect to the October 1, 1996 election date, the Company granted
retransmission consents to cable systems representing approximately 87.8%, or
approximately 246,623, of the cable households within the Stations' markets and
provided for substantially all other cable households under "must carry"
elections. One of the Company's retransmission consent agreements (covering
approximately 18,000 households) expires on April 30, 1997 and the balance of
such agreements expire on or after December 31, 1999. The Company's revenue
derived from these agreements will not have a material impact on future results.
Although the Company expects to renew its current retransmission consent
agreements upon their expiration, there can be no assurance that such renewals
will be entered into.
On April 8, 1993, a special three judge panel of the U.S. District Court
for the District of Columbia upheld the constitutionality of the "must carry"
provisions of the 1992 Cable Act. However, on June 27, 1994 the United States
Supreme Court in a 5-4 decision vacated the lower court's judgment and remanded
the case to the District Court for further proceedings. Although the Supreme
Court found the "must carry" rules to be content-neutral and supported by
legitimate governmental interests under appropriate constitutional tests, it
also found that genuine issues of material fact still remained that must be
resolved in a more detailed evidentiary record. On December 12, 1995, a special
three-judge panel of the United States District Court for the District of
Columbia voted on remand to uphold the must-carry provisions. In January 1996,
the Supreme Court stated it would review the decision. The Supreme Court has
heard oral arguments and the parties are currently awaiting the court's
decision. In the meantime, however, the FCC's "must carry" regulations
implementing the 1992 Cable Act remain in effect. The Company cannot predict the
outcome of such challenges or the effect on the Company's business if the
must-carry or retransmission consent provisions of the Cable Act are found to be
unconstitutional or otherwise unlawful.
In addition, pursuant to the 1992 Cable Act's requirements, the FCC has
adopted new rules providing for a review of the equal employment opportunity
performance of each television station at the mid-point of its license term (in
addition to renewal time). Such a review will give the FCC an opportunity to
evaluate whether the licensee is in compliance with the FCC's processing
criteria and notify the licensee of any deficiency in its employment profile.
ADVANCED TELEVISION SERVICE. The FCC has proposed the adoption of rules for
implementing advanced television service ("ATV") in the United States.
Implementation of digital ATV will improve the technical quality of television
signals receivable by viewers and will provide broadcasters the flexibility to
offer new services, including high definition television ("HDTV"), which is
generally considered to have clarity of a quality comparable to 35 millimeter
projection film and the ability to provide simultaneous delivery of multiple
programs of standard definition television ("SDTV") and data broadcasting.
In December 1996, the FCC adopted technical standards for ATV which will
afford broadcasters the flexibility to respond to market demand by transmitting
a mix of HDTV, SDTV and perhaps other services. In August 1996, the FCC
proposed a table of ATV channel allotments, which are subject to further review.
The FCC must also adopt ATV service rules before broadcasters can provide the
services enabled by the new technology. The FCC currently expects to conclude
these matters by April 1997.
The FCC may assign all existing television licensees and permittees a
second channel on which to provide ATV simultaneously with their current "NTSC"
service. The 1996 Act limits eligibility for ATV licenses to current television
licensees and permittees. After a period of years to be determined by the FCC
(its 1992 proposal was for 15 years, although other FCC proposals have provided
for different timetables, some as early as 2002), broadcasters would be required
to cease either NTSC or ATV operations and return to the FCC their license for
that service. The 1996 Act permits ATV licensees to offer ancillary services,
provided such offerings do not degrade the quality of their ATV service and
otherwise meet public interest standards. A spectrum fee will be assessed upon
ancillary services which provide compensation to the licensee (other than from
advertising on non-subscription services). The FCC is required to reevaluate ATV
service within 10 years in light of consumer acceptance and spectrum efficiency.
-18-
Under certain circumstances, conversion to ATV operations could reduce a
station's geographical coverage area but some stations may obtain service areas
that match or exceed the limits of existing operations. Due to additional
equipment costs and increased operating expenses, implementation of ATV will
impose significant financial burdens on television stations providing the
service. At the same time, there is a potential for increased revenues to be
derived from ATV. Proposals being considered by Senate committees which might
result in an auction process for proposed ATV channels would require existing
broadcasters to submit a winning bid for a second channel in order to offer ATV
service. Although the Company believes the FCC will authorize ATV in the United
States, the Company cannot predict precisely when such authorization might be
given, whether ATV frequency auction procedures will be adopted, when NTSC
operations must cease, or the overall effect the transition to ATV might have on
the Company's business.
DIRECT BROADCAST SATELLITE SYSTEMS. The FCC has authorized DBS, a service which
provides video programming via satellite directly to home subscribers. Local
broadcast stations are not carried on DBS systems. In June 1994, DirecTV Inc., a
subsidiary of GM Hughes Electronics Corp., and United States Satellite
Broadcasting Company initiated DBS service. Other companies have also sought
authority to provide DBS service and may offer DBS service in the future.
The 1996 Act includes a prohibition on restrictions that inhibit a viewer's
ability to receive video programming through DBS services and vests the FCC with
exclusive jurisdiction over the regulation of DBS. Proposed legislation may also
affect state and local taxation of direct-to-home satellite services. The
Company cannot predict the impact of this new service upon the Company's
business.
NETWORK AFFILIATION RELATIONSHIPS. On June 15, 1995, the FCC adopted a Notice
of Proposed Rule Making seeking to re-examine five of the rules governing the
relationship between television networks and their affiliates. These are (i) the
right to reject rule (which provides that affiliation agreements between a
broadcast network and a broadcast licensee generally must permit the licensee to
reject programming provided by the network), (ii) the time option rule (which
prohibits arrangements whereby a network reserves an option to use specified
amounts of an affiliate's broadcast time), (iii) the exclusive affiliation rule
(which prohibits arrangements that forbid an affiliate from broadcasting the
programming of another network), (iv) the dual network rule (which prevents a
single entity from owning more than one broadcast television network) and
(v) the network territorial exclusivity rule (which proscribes arrangements
whereby a network affiliate may prevent other stations in its community from
broadcasting programming the affiliate rejects, and arrangements that inhibit
the ability of stations outside of the affiliate's community to broadcast
network programming). The 1996 Act relaxes the dual network rule, except for
mergers involving ABC, CBS, NBC and/or Fox.
SEASONALITY
The advertising revenues of the 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.
EMPLOYEES
At December 29, 1996, the Company had approximately 198 employees, all of
which were engaged in television broadcasting. Approximately 28 of the
employees are represented by a labor union. The Company's collective bargaining
agreement with such union expired on May 14, 1987; however, the union has not
officially withdrawn its representation of such employees. The Company believes
that its relations with its employees are satisfactory.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in Kalamazoo,
Michigan. The lease agreement for such office space expires in August 1999. The
types of properties required to support each of the Company's Stations include
offices, studios, transmitter and antenna sites. A Station's studios are
generally housed with its offices in downtown or
-19-
business districts. The transmitter sites are generally located so as to provide
maximum market coverage. The Company believes all of its facilities are
adequate and suitable for its business and operations as presently conducted.
The following table sets forth the principal operating properties owned or
leased by the Company:
LOCATION OWNERSHIP USE
-------- --------- ---
KOLN/KGIN-TV. . . .Lincoln, Nebraska Owned Office and Studio
KOLN/KGIN-TV. . . .Grand Island, Nebraska Leased Office
KOLN/KGIN-TV. . . .Hartwell, Nebraska Owned Tower
KOLN/KGIN-TV. . . .Beaver Island, Nebraska Owned Tower
WEAU-TV . . . . . .Eau Claire, Wisconsin Owned Office, Studio and Tower
WEAU-TV . . . . . .Fairchild, Wisconsin Permanent Tower
Easement
ITEM 3. LEGAL PROCEEDINGS.
In 1993, the FCC allotted VHF Channel 8 to Lincoln, Nebraska, and modified
the license of Citadel, the license 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 did not appeal the Court of Appeal's 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.
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not currently a party to any lawsuit or
proceeding which, in the opinion of the Company, could have a material adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 20, 1996, the Company sought and received the written consent
of the holders of record of approximately 97.4% of the Company's outstanding
capital stock (the "Controlling Shareholders") to consummate the Winnebago Asset
Sale. See Item I, "Business -- Winnebago Sale."
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's Common
Stock. As of December 29, 1996 the South Street Investment Funds beneficially
held 100% of the Company's Common Stock. Messrs. Salovaara and Eckert together
indirectly control 100% of the Company's Common Stock.
No dividends have been declared on the Company's Common Stock nor does the
Company intend to declare any such dividends in the forseeable future. Under
the terms of the Indenture related to the Senior Notes, no dividends may be paid
in respect of the Company's Common Stock prior to October 15, 1997. Subsequent
to that date, dividends are subject to certain limits based on, among other
things, the Company's operating cash flow and consolidated interest expense.
-20-
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial information presented below should be read in
conjunction with the consolidated financial statements of the Company and
notes thereto included elsewhere under Item 8, "Financial Statements and
Supplementary Data" and additional information under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Because of the Restructuring, the adoption of Fresh Start Accounting, the
WWMT Sale and accounting for Winnebago as a discontinued operation, the
selected data presented as of and for Post-Effective Date periods is not
comparable to Pre-Effective Date periods. The selected consolidated financial
data for the five years in the period ended December 29, 1996 are derived
from the Company's audited consolidated financial statements.
(DOLLARS AND SHARES OF COMMON STOCK IN THOUSANDS)
Post-Effective Date Pre-Effective Date
--------------------------- ---------------------------------------------------
Fiscal Year May 3, 1995 January 2, FISCAL YEAR ENDED
Ended Through 1995 -------------------------------------
December 29, December 31, through
1996 1995 May 2, January 1, January 2, January 3,
Note (b) Note (a&b) 1995 1995 1994 1993
------------ ----------- -------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Net revenue from continuing operations . . . . . $19,274 $11,358 $14,511 $44,727 $39,902 $38,370
Operating costs and expenses, excluding
depreciation and amortization. . . . . . . . . 8,407 5,152 8,510 23,676 22,756 21,608
Depreciation and amortization. . . . . . . . . . 5,714 3,967 1,776 5,646 6,948 7,455
Corporate expenses . . . . . . . . . . . . . . . 1,572 870 291 989 836 1,042
------- ------- ------- ------- ------- -------
Income from continuing operations: . . . . . . . 3,581 1,369 3,934 14,416 9,362 8,265
Interest expense, net. . . . . . . . . . . . . (8,113) (4,958) (7,387) (26,711) (24,640) (23,929)
Other income (expense) . . . . . . . . . . . . (54) 1 146 (537) (705) (660)
------- ------- ------- ------- ------- -------
(4,586) (3,588) (3,307) (12,832) (15,983) (16,324)
Reorganization items:
Gain on restructuring transaction. . . . . . . - - 103,811 - - -
Legal and professional fees. . . . . . . . . . - - (2,661) (2,149) (559) -
------- ------- ------- ------- ------- -------
Income (loss) from continuing operations
before income taxes and extraordinary
item . . . . . . . . . . . . . . . . . . . . . (4,586) (3,588) 97,843 (14,981) (16,542) (16,324)
Credit for income taxes from continuing
operations . . . . . . . . . . . . . . . . . . - 871 2,218 956 253 46
------- ------- ------- ------- ------- -------
Income (loss) from continuing operations
before discontinued operations and
extraordinary item . . . . . . . . . . . . . . (4,586) (2,717) 100,061 (14,025) (16,289) (16,278)
Discontinued operations:
Income from discontinued operations, net
of taxes . . . . . . . . . . . . . . . . . . 220 68
Loss on disposal of discontinued operations. . (1,929) -
Extraordinary item - debt forgiveness related to
restructuring transaction. . . . . . . . . . . - - 46,480 - - -
------- ------- ------- ------- ------- -------
Net income (loss) (6,295) (2,649) 146,541 (14,025) (16,289) (16,278)
Charges to stockholders' equity for Series A
preferred stock dividends in arrears . . . . . (4,663) - - (450) (450) (450)
------- ------- ------- ------- ------- -------
Net income (loss) attributable to common
stockholders . . . . . . . . . . . . . . . . . $(10,958) $(2,649) $146,541 $(14,475) $(16,739) $(16,728)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Net income (loss) per common share . . . . . . . $(101.75) $(24.50) $1,450.90 $(143.32) $(165.73) $(165.62)
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Weighted average common shares outstanding . . . 107.7 108.126 101 101 101 101
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
-21-
POST-EFFECTIVE DATE AS OF PRE-EFFECTIVE DATE AS OF
-------------------------------------- ----------------------------------------
DECEMBER DECEMBER MAY 3, JANUARY 1, JANUARY 2, JANUARY 3,
29, 1996 31, 1995 1995 1995 1994 1993
-------- -------- -------- ---------- ---------- ----------
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . $82,154 $122,980 $184,985 $87,794 $89,704 $94,761
Total debt . . . . . . . . . . . . 60,464 112,741 171,293 215,680 202,093 188,219
Stockholders' equity (deficit) . . 17,573 6,538 9,203 (143,647) (129,173) (112,433)
(a) Commencing on the Effective Date, the Company accounted for its interest
in WWMT as an investment held for sale. Accordingly, results of operations for
WWMT are not reflected in the historical statement of operations or other data
for periods after the Effective Date. See Note 5 to Notes to Consolidated
Financial Statements for the year ended December 29, 1996.
(b) Winnebago was sold December 27, 1996 and constituted the Company's only
operations within the printing segment. The sale of Winnebago has been
accounted for by the Company as a discontinued operation since the Effective
Date. See Note 4 to Notes to Consolidated Financial Statements for the year
ended December 29, 1996.
ITEM 7. 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 Consolidated Financial
Statements of the Company and notes thereto included in "Financial Statements
and Supplementary Data" which provide additional information regarding the
Company's financial activities and condition.
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, 1995 and/or 1994 refer to the fiscal years ended
December 29, 1996, December 31, 1995 and January 1, 1995, respectively.
On March 10, 1995, 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"). 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 Consolidated
Financial Statements of the Company for the year ended December 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 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
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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 and $2,148,588 were reported as an expense of the
Restructuring in the Company's financial statements for the period ended May 2,
1995 and the fiscal year ended January 1, 1995, 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.
The consolidated financial statements of the Company included in Item 8,
"Financial Statements and Supplementary Data," present the consolidated
financial position of Busse at December 29, 1996 and December 31, 1995
(Post-Effective Date) and the consolidated results of its operations and cash
flows for the fiscal year ended December 29, 1996, the period from May 3, 1995
through December 31, 1995 (Post-Effective Date) and the period from January 2,
1995 through May 2, 1995 and the fiscal year ended January 1, 1995
(Pre-Effective Date), in conformity with generally accepted accounting
principles.
The net revenue of KOLN/KGIN-TV and WEAU-TV (collectively, the "Stations")
are derived primarily from advertising revenues and, to a much lesser extent,
from compensation paid by the networks to the Stations for broadcasting network
programming. The Stations' primary operating expenses are employee compensation
and related benefits, news gathering and production, programming and promotions.
In general, television stations receive revenues for advertising sold for
placement within and adjoining its locally originated programming and adjoining
national network programming. Advertising is sold in time increments and is
priced primarily on the basis of a program's popularity within the demographic
group an advertiser desires to reach, as measured principally by quarterly
audience surveys. In addition, advertising rates are affected by the number of
advertisers competing for the available time, the size of the demographic
make-up of the markets served by the television station and the availability of
alternate advertising media in the market areas. Rates are highest during the
most desirable viewing hours with corresponding reductions during other hours.
The ratings of local television stations affiliated with a national television
network can be affected by the ratings of the network programming.
Most advertising contracts are short-term and generally run for only a few
weeks. A large portion of the Stations' revenues is generated from local and
regional advertising, which is sold primarily by the Stations' sales staff, and
the remainder of the advertising revenues are derived from national advertising,
which is sold by an independent national advertising sales representative. The
Stations generally pay commissions to advertising agencies on local, regional,
and national advertising, and on national advertising the Stations also
generally pay commissions to the national sales representative. The Stations'
advertising revenues 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 campaign advertising by political candidates, which spending typically is
heaviest during the fourth quarter of an election year. The operating expenses
of the Stations are generally consistent throughout the fiscal year.
RESULTS OF OPERATIONS
The consolidated 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
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through the date of its sale on June 1, 1995 are excluded from the Company's
consolidated results of operations for the fiscal period ended December 31,
1995. Furthermore, because the Company's sale of Winnebago on December 27, 1996
constituted a discontinuance of operations of the Company's printing segment,
the Post-Effective Date results of operations account for Winnebago as a
discontinued operation.
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 December 31, 1995 (Post-Effective Date) are combined for
certain items of revenue and expense for purposes of comparison to fiscal years
1996 and 1994. Revenue and expense items combined in 1995 for the Pre- and
Post-Effective Date periods are referred to as "Combined 1995" items.
COMPARISON OF THE YEAR ENDED DECEMBER 29, 1996 (POST-EFFECTIVE DATE) TO THE
PERIODS FROM JANUARY 2, 1995 THROUGH MAY 2, 1995 (PRE-EFFECTIVE DATE) AND MAY 3,
1995 THROUGH DECEMBER 31, 1995 (POST-EFFECTIVE DATE)
Net revenue declined $6,594,819, or 25.5%, to $19,274,171 from $25,868,990
for the year ended December 29, 1996 compared to the Combined 1995 year ended
December 31, 1995. Of such decline, $6,234,524 is attributable to the sale of
WWMT during the Combined 1995 period resulting in the inclusion of no results
from WWMT for the year ended December 29, 1996 and $2,368,909 is attributable to
accounting for Winnebago as a discontinued operation in the Post-Effective date
periods. The decline in net revenue was partially offset by increased net
revenue at the Stations as described in the next paragraph.
Net revenue for the Stations for the year ended December 29, 1996 increased
$2,008,616, or 11.6%, to $19,274,171 from $17,265,555 for the corresponding
Combined 1995 period. Net political advertising revenue for the Stations during
the year ended December 29, 1996 increased by approximately $1,033,000 to
$1,164,000 from $131,000 in the Combined 1995 period reflecting issue orientated
advertising purchased 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 year ended December 29,
1996 compared to the Combined 1995 year ended December 31, 1995, net national
advertising revenues, excluding net political advertising revenues, for
KOLN/KGIN-TV increased 4.2% 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, increased 0.5% reflecting
increased local advertiser demand within the market. For the year ended
December 29, 1996 compared to the Combined 1995 year ended December 31, 1995,
net national advertising revenues, excluding net political advertising revenues,
for WEAU-TV decreased 1.7% due to decreased 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 to
the Stations increased approximately $635,000 to $1,371,000 for the year ended
December 29, 1996 compared to $736,000 for the Combined 1995 year ended December
31, 1995. Such increase reflects increased compensation pursuant to new
long-term network affiliation agreements for each station which became effective
as of January 1, 1996. Such long-term network affiliation agreements, which
expire in 2005, generally do not provide for increases in network compensation
to the Stations above the 1996 compensation levels.
Operating expenses for the year ended December 29, 1996, excluding
depreciation and amortization expenses, decreased $5,253,848, or 38.5%, to
$8,407,679 from $13,661,527 for the corresponding Combined 1995 period. Of such
decline, $3,377,234 is attributable to the sale of WWMT during the Combined 1995
period resulting in the inclusion of no operating expenses attributable to WWMT
for the year ended December 29, 1996 and $2,100,921 is attributable to
accounting for Winnebago as a discontinued operation in the Post-Effective date
periods. In addition, operating expenses for the year ending December 29, 1996
contain charges of $129,507 for pension expenses while the corresponding
Combined 1995 period included a net gain of $150,041 resulting from the partial
curtailment of the Company's pension plan upon the sale of WWMT. Operating
expenses, excluding depreciation and amortization expenses, for the Stations
decreased $55,243, or 0.7%, to $8,278,172 from $8,333,415 for the corresponding
Combined 1995 period reflecting certain non-recurring sales promotion costs
incurred during the Combined 1995 period.
Depreciation and amortization expenses for the year ended December 29, 1996
decreased $29,516, or 0.5%, to $5,713,862 from $5,743,378 for the Combined 1995
period. Of such decline, $511,307 is attributable to the sale of
-24-
WWMT during the Combined 1995 period resulting in the inclusion of no
depreciation and amortization expenses relating to WWMT for the year ended
December 29, 1996 and $144,600 is attributable to accounting for Winnebago as a
discontinued operation in the Post-Effective date periods. Depreciation and
amortization expenses attributable to the Stations increased $626,391, or 12.3%,
to $5,713,862 for the year ended December 29, 1996 from $5,087,471 for the
Combined 1995 period. Of such aggregate increase in depreciation and
amortization charges for the Stations, depreciation charges decreased $360,173
and amortization charges increased $986,564 reflecting the changes in asset
carrying amounts, useful lives and amortization periods related to the adoption
of Fresh Start Accounting.
Corporate expenses increased $410,740, or 35.4%, to $1,571,772 during the
year ended December 29, 1996 from $1,161,032 for the Combined 1995 year ended
December 31, 1995. Such increase resulted primarily from increased professional
service charges incurred during fiscal year 1996 and charges during fiscal year
1996 of approximately $354,000 relating to the accrual of obligations under the
Company's long term incentive plan for 1996 as compared to the incurrence of
approximately $236,000 of such charges in the corresponding Combined 1995
period.
Income from operations decreased $1,722,195, or 32.5%, to $3,580,858 for
the year ended December 29, 1996 from $5,303,053 for the corresponding Combined
1995 period. Of such decline, $2,345,983 is attributable to the sale of WWMT
during the Combined 1995 period resulting in the inclusion of no income from
operations attributable to WWMT for the year ended December 29, 1996 and
$123,388 is attributable to accounting for Winnebago as a discontinued operation
in the Post-Effective date periods. Income from operations attributable to the
Stations increased $1,372,711, or 35.7%, to $5,217,384 for the year ended
December 29, 1996 from $3,844,673 for the Combined 1995 period because the
Stations' increased net revenues were partially offset by increased amortization
charges resulting from the adoption of Fresh Start Accounting.
Interest expense decreased $4,866,476, or 36.7%, to $8,400,340 for the year
ended December 29, 1996 from $13,266,816 for the corresponding Combined 1995
period in part 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 6 to Notes to Consolidated
Financial Statements included in "Financial Statements and Supplementary Data."
In addition, pursuant to the Plan, the Company did not incur the expense of
approximately $1.8 million of interest that otherwise would have accrued on
certain of its Pre-Effective Date indebtedness for the period from March 9, 1995
through May 2, 1995.
Interest income decreased $633,851, or 68.8%, to $287,793 for the year
ended December 29, 1996 from $921,644 for the Combined 1995 period. Such
decrease primarily reflects 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 Notes 5 and 6 to Notes to Consolidated
Financial Statements included in "Financial Statements and Supplementary Data."
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.
The Company has analyzed its current and deferred federal and state tax
assets and liabilities and has concluded that no provision is required for the
year ended December 29, 1996.
The increase in income from discontinued operations for the year ended
December 29, 1996 compared to the corresponding Combined 1995 period in part
reflects accounting for Winnebago as a discontinued operation for a full fiscal
year in the 1996 period compared to the eight months contained in the 1995
Post-Effective Date period. In addition, such increase reflects slightly
improved operating results at Winnebago as net revenue from Winnebago increased
$214,970, or 3.2%, to $6,896,484 for the year ended December 29, 1996 from
$6,681,514 for the corresponding Combined 1995 period, due to increased customer
demand. Operating expenses of the discontinued operation of Winnebago were
comparable, relative to the respective net sales, between the respective fiscal
periods.
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COMPARISON OF THE PERIODS FROM JANUARY 2, 1995 THROUGH MAY 2, 1995
(PRE-EFFECTIVE DATE) AND MAY 3, 1995 THROUGH DECEMBER 31, 1995 (POST-EFFECTIVE
DATE) TO THE YEAR ENDED JANUARY 1, 1995 (PRE-EFFECTIVE DATE)
Net revenue declined $18,857,765, or 42.2%, to $25,868,990 from $44,726,755
for the Combined 1995 fiscal year compared to the year ended January 1, 1995. Of
such decline, $12,848,968 is attributable to the sale of WWMT during the
Combined 1995 period resulting in the inclusion of only four month's results
from WWMT in the Combined 1995 period and $4,902,166 is attributable to
accounting for Winnebago as a discontinued operation in the Post-Effective date
periods.
Net revenue for the Stations for the Combined 1995 fiscal year decreased
approximately $1,106,000, or 6.0%, to approximately $17,266,000 from
approximately $18,372,000 for the year ending January 1, 1995. Net political
advertising revenue for the Stations during the Combined 1995 fiscal year
decreased by approximately $1,037,000 to $131,000 from $1,168,000 in fiscal year
1994 reflecting greater political advertising demand in fiscal year 1994
associated with the biannual election cycle. For the Combined 1995 fiscal year
compared to the year ended January 1, 1995, net national advertising revenues,
excluding net political advertising revenues, for KOLN/KGIN-TV decreased 17.3%
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, decreased 2.5% reflecting decreased local advertiser
demand within the market. For the Combined 1995 fiscal year compared to the
year ended January 1, 1995, net national advertising revenues, excluding net
political advertising revenues, for WEAU-TV increased 26.4% 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 5.9% reflecting increased local advertiser demand within the market
Operating expenses, excluding depreciation and amortization expenses,
decreased $10,014,842, or 42.3%, to $13,661,527 for the Combined 1995 fiscal
year from $23,676,369 for the corresponding year ended January 1, 1995. Of such
decline, $5,629,464 is attributable to the sale of WWMT during the Combined 1995
period resulting in the inclusion of only four months of operating expenses
attributable to WWMT in the Combined 1995 period and $4,298,851 is attributable
to accounting for Winnebago as a discontinued operation in the Post-Effective
date periods. In addition, the Combined 1995 period included a net gain of
$150,041 resulting from the partial curtailment of the Company's pension plan
upon the sale of WWMT while the corresponding fiscal 1994 period recorded a
charge for pension costs of $239,777. Operating expenses, excluding depreciation
and amortization expenses, for the Stations increased approximately $303,000, or
3.8%, to approximately $8,333,000, from approximately $8,030,000 for the
corresponding year ended January 1, 1995 due, in part, to a special sales
promotion at the Stations during the Combined 1995 period.
Depreciation and amortization expenses increased $98,005, or 1.7%, to
$5,743,378 for the Combined 1995 fiscal year from $5,645,373 for the year ended
January 1, 1995. This increase is offset, in part, by decreased depreciation
and amortization charges of $1,354,333 attributable to the sale of WWMT during
the Combined 1995 period, resulting in the inclusion of only four months of
depreciation and amortization expense relating to WWMT in the Combined 1995
period, and $317,547 attributable to accounting for Winnebago as a discontinued
operation in the Post-Effective Date periods. Depreciation and amortization
expenses attributable to the Stations increased $1,769,882, or 53.4%, to
$5,087,471 for the Combined 1995 fiscal year from $3,317,589 for the year ended
January 1, 1995. Of such aggregate increase in depreciation and amortization
charges for the Stations, depreciation charges decreased $178,400 and
amortization charges increased $1,948,282 reflecting the changes in asset
carrying amounts, useful lives and amortization periods related to the adoption
of Fresh Start Accounting.
Corporate expenses increased $172,374, or 17.4%, to $1,161,032 during the
Combined 1995 fiscal year from $988,658 for the year ended January 1, 1995. The
increase reflects, in part, charges of approximately $236,000 relating to the
accrual of obligations under the Company's long term incentive plan for the
Combined 1995 fiscal year while the corresponding year ended January 1, 1995
included no such charges under the long term incentive plan.
Income from operations decreased $9,113,302, or 63.2%, to $5,303,053 for
the Combined 1995 fiscal year from $14,416,355 for the corresponding year ended
January 1, 1995. Of such decline, $5,865,174 is attributable to the sale of
WWMT during the Combined 1995 period resulting in the inclusion of only four
months of income from operations attributable to WWMT in the Combined 1995
period and $285,768 is attributable to accounting for Winnebago as a
-26-
discontinued operation in the Post-Effective date periods. Income from
operations attributable to the Stations decreased $3,179,804, or 45.3%, to
$3,844,673 for the Combined 1995 fiscal year from $7,024,477 for the year ended
January 1, 1995 reflecting the decline in net revenues and increased operating
costs, including increased amortization charges resulting from the adoption of
Fresh Start Accounting, discussed above.
Interest expense decreased $13,662,395, or 50.7%, to $13,266,816 for the
Combined 1995 fiscal year from $26,929,211 for the corresponding year ended
January 1, 1995 reflecting in part 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 6 to Notes to
Consolidated Financial Statements included in "Financial Statements and
Supplementary Data." In addition, pursuant to the Plan, the Company did not
incur the expense of approximately $1.8 million of interest that otherwise
would have accrued on certain of its Pre-Effective Date indebtedness for the
period from March 9, 1995 through May 2, 1995.
Interest income increased $703,745 or 323.0%, to $921,644 for the Combined
1995 fiscal year from $217,899 for the year ended January 1, 1995. This
increase was primarily due to the inclusion, only in the Combined 1995 period,
of interest earnings on the WWMT sales proceeds, prior to the redemption of
certain indebtedness with such proceeds, and earnings on the funds deposited
into the Escrow Account pending the Junior Subordinated Note Redemption. See
Notes 5 and 6 to Notes to Consolidated Financial Statements included in
"Financial Statements and Supplementary Data."
The Combined 1995 current income tax expense reflects current state tax
expense and federal alternate minimum taxes due in conjunction with the WWMT
Sale. The combined 1995 net deferred income tax benefit is principally the
reversal of net deferred tax liabilities as a result of the Restructuring and
the WWMT Sale.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at December 29, 1996 totaled
$7,989,805 compared to $38,893,959 at December 31, 1995. The Company's cash
balance at December 29, 1996 includes approximately $3,140,000 of net
proceeds from the sale of Winnebago. In addition, the Company received
approximately $102,857 in February 1997 representing a working capital
purchase price adjustment. The Company's use of such aggregate net proceeds
is restricted, under the terms of the Indenture to making investments in or
acquiring property and assets directly related to television and/or radio
broadcasting. Pending any such investment or acquisition such net proceeds
are required by the Indenture to be invested in cash or cash equivalents.
See "Business-Winnebago Sale." Although the Company has no immediate plans
to use such net proceeds to invest in or acquire assets directly related to
television and/or radio broadcasting, some or all of such proceeds may be
used to fund the capital expenditures described below, other capital
expenditures or for other permitted uses. 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, which use was offset in part by the
net proceeds generated by the December 27, 1996 sale of Winnebago. See Note
6 of Notes to Consolidated Financial Statements for the year ended December
29, 1996.
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 $3,816,724 and $6,151,524 for the year ended December 29, 1996 and
the Combined 1995 periods ending December 31, 1995, respectively. The decrease
in net cash provided by operations for the year ended December 29, 1996 is due
primarily to changes in certain working capital accounts and the sale of WWMT
and Winnebago.
The Company's cash interest requirements increased significantly during
the 1996 fiscal year when compared to the 1995 fiscal year reflecting the
semi-annual cash interest payments each of approximately $3,634,000 paid during
fiscal year 1996 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 as opposed to the payment of cash.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. For the 1996
fiscal year capital expenditures totaled $1,983,417, of which $1,065,505 related
to the Stations and $917,912 related to Winnebago. The Company currently
anticipates expending an aggregate of approximately $1 million for capital
expenditures per annum for the Stations during the 1997, 1998 and 1999 fiscal
-27-
years. This is a forward-looking statement that involves uncertainties and such
estimate of future capital expenditure needs is subject to numerous factors
including the regulatory environment affecting the Company's operations.
The Company currently anticipates that significant capital expenditures
may be required in the future to implement advanced digital television
systems ("ATV") at the Stations. The Federal Communications Commission
("FCC") has not yet determined the final channel assignments for ATV, nor has
it established a specific timetable for implementation of ATV. The Company
cannot presently predict the cost of implementing ATV at each of the
Stations. See Item 1 "Business Federal Regulation of Television Broadcasting
- -- Advanced Television Service."
The Company has entered into contracts to purchase rights to air certain
programs at future dates extending through the year 2000. As of December 29,
1996, the Company had aggregate commitments of $2,247,750 under such contracts.
Cash payments for program contract rights are made at fixed monthly amounts over
the terms of the contracts.
On June 29, 1995, the Company entered into a letter agreement with McPike
to provide McPike with up to $1,900,000 in connection with McPike's FCC
application for and construction of Channel 45 in Lincoln Nebraska, a UHF
channel. In exchange for such financial assistance, McPike will, subject to the
receipt of requisite FCC and other governmental approvals, including the grant
of the Channel 45 license, enter into LMA's with the Company. The Company
intends (subject to requisite FCC and other governmental approvals) to operate
Channel 45 under such agreements.
Multiple parties in addition to McPike have filed applications with the FCC
for the grant of the Channel 45 license (the "Competing Applications"). Each of
the Competing Applications and the McPike application are mutually exclusive.
Although McPike has advised the Company that it intends to prosecute its
application for Channel 45 fully, the Company can not predict the outcome of
these mutually exclusive applications.
On February 9, 1996, the Company entered into a letter agreement with
McPike to provide McPike with up to $2,100,000 in connection with McPike's FCC
application for and construction of Channel 39 in Marshfield, Wisconsin, a UHF
channel. In exchange for such financial assistance, McPike will, subject to
receipt of requisite FCC and other governmental approvals, including the grant
of the Channel 39 license, enter into LMA's with the Company. The Company
intends (subject to requisite FCC and other governmental approvals) to operate
Channel 39 under such LMA's.
On September 17, 1996, the Company entered into a letter agreement with
David M. Comisar ("Comisar") to provide Comisar with up to $1,800,000 in
connection with his FCC application for and construction of Channel 51 in
Lincoln Nebraska, a UHF channel. In exchange for such financial assistance,
Comisar will, subject to the receipt of requisite FCC and other governmental
approvals, including the grant of the Channel 51 license, enter into LMA's with
the Company. The Company intends (subject to requisite FCC and other
governmental approvals) to operate Channel 51 under such agreements.
Except for certain nominal amounts previously advanced by the Company,
which as of December 29, 1996 aggregated approximately $60,900, the Company
expects to invest funds in McPike and/or with Comisar only after receipt of
requisite FCC and other governmental approvals of the respective proposed
transactions. The funds are expected to be provided to McPike and/or Comisar
primarily in the form of a secured loans with terms and conditions customary to
agreements of such type. The Company will acquire no ownership interest in
McPike or Comisar's channel 51. No terms of the LMA's have yet been negotiated
with McPike or Comisar, but, in general a local marketing agreement involves the
payment of a fee to and/or expenses of a station licensee in exchange for the
rights to provide programming to a station and to retain revenues derived from
the sale of advertising in such programming and a joint facilities agreement
involves the sharing of certain facilities or staff in exchange for a negotiated
division of the costs associated therewith.
The Company is presently unable to predict whether the requisite FCC and
other governmental approvals, including the FCC grant of the McPike or Comisar
applications, will be received or the timing of such approvals.
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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 currently 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 1999. This is a forward-looking statement that involves
uncertainties and such estimate of future capital expenditure needs is subject
to numerous factors including the regulatory environment affecting the Company's
operations and general economic conditions of the Stations' markets. 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 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.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This annual report on Form 10-K contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
When used in this report, the words "believes," "expects," "anticipates," and
"estimates" and similar words and expressions are generally intended to identify
forward-looking statements. Statements that describe the Company's future
strategic plans, goals, or objectives are also forward-looking statements.
Readers of this Report are cautioned that any forward-looking statements,
including those regarding the intent, belief or current expectations of the
Company or management, are not guarantees of future performance, results or
events and involve risks and uncertainties, and that actual results and events
may differ materially from those in the forward-looking statements as a result
of various factors including, but not limited to, (i) general economic
conditions in the markets in which the Company operates, (ii) competitive
pressures in the markets in which the Company operates, (iii) the effect of
future legislation or regulatory changes on the Company's operations and (iv)
other factors described from time to time in the Company's filings with the
Securities and Exchange Commission. The forward-looking statements included in
this report are made only as of the date hereof. The Company undertakes no
obligation to update such forward-looking statements to reflect subsequent
events or circumstances.
INCOME TAXES
The Company estimated that its federal NOL carryover as of December 29,
1996 was approximately $60.8 million and that such NOL carryover will begin to
expire in 2005. 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 carryover
of approximately $59.8 million to offset any taxable income incurred after the
Effective Date. The Company's use of its Post-Effective Date NOL carryover is
not restricted, absent a future "ownership change", under Section 382 of the
Code (see Note 8 of Notes to Consolidated Financial Statements included in
"Financial Statements and Supplementary Data").
RETENTION OF A FINANCIAL ADVISOR BY CERTAIN STOCKHOLDERS
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,
-29-
1996 the Company was informed by the Controlling Stockholders 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements are included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth information concerning the executive
officers and directors of the Company as of December 29, 1996:
NAME AGE POSITION
----------------- --- --------
Lawrence A. Busse 60 Chairman of the Board and President
James C. Ryan 36 Chief Financial Officer
Robert Greinert 65 Winnebago Color Press General Manager
Frank Jonas 49 KOLN/KGIN-TV General Manager
Cheryl Weinke 42 WEAU-TV General Manager
W. Don Cornwell 48 Director
Stuart J. Beck 49 Director
Gary E. Hindes 46 Director
___________
Lawrence A. Busse has served as Chairman of the Board, President and a
Director of the Company since its inception in 1987. Mr. Busse has been active
in broadcasting for over 34 years. From 1973 until 1984, Mr. Busse worked in
various management roles for Post Corporation including the General Manager
positions with WLUC-TV, Marquette, Michigan, WEAU-TV, Eau Claire, Wisconsin,
WOKR-TV, Rochester, New York, and WLUK-TV, Green Bay, Wisconsin. In 1984,
Mr. Busse became Executive Vice President of the Broadcast Division of Post
Corporation following its acquisition by GHI. Prior to joining the Company,
Mr. Busse served as President of this division.
James C. Ryan has served as the Chief Financial Officer of the Company
since its formation in 1987. Mr. Ryan began his professional career in 1982 as
an auditor with Peat Marwick. In 1985, Mr. Ryan entered the broadcast industry
as the controller of WOKR-TV, Rochester, New York.
Robert Greinert joined Winnebago in 1957 and served as General Manager of
this division from 1988 through December 27, 1996 when the division was sold
by the Company.
Frank Jonas has been the General Manager of KOLN/KGIN-TV since
October 1986. Mr. Jonas has been active in broadcasting for over 24 years. In
1978, Mr. Jonas joined WLUC-TV in Marquette, Michigan as General Sales Manager
and was named the General Sales Manager of WLUK-TV in Green Bay, Wisconsin in
1980. From September 1984 through October 1986, Mr. Jonas was the General
Manager at KTVO-TV, Kirksville, Missouri.
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Cheryl Weinke has been the General Manager of WEAU-TV since January 1992.
She started her broadcast career in 1980 as the Accounting Supervisor for
WEAU-TV and certain other affiliated broadcast businesses. Prior to assuming her
current position, Ms. Weinke served as the Controller of WEAU-TV for eight
years.
Messrs. Busse, Ryan, Greinert, Jonas and Ms. Weinke have each held their
current respective positions during the two years prior to the Company's
proceedings under Chapter 11 of the Bankruptcy Code.
W. Don Cornwell has served as Director of the Company since the Effective
Date. Mr. Cornwell is a founding stockholder of Granite and has been Chairman of
the Board of Directors and Chief Executive Officer of Granite since
February 1988. Mr. Cornwell served as President of Granite, which office then
included the duties of chief executive officer, until September 1991 when he was
elected to the newly-created office of the Chief Executive Officer. Prior to
founding Granite, Mr. Cornwell served as a Vice President in the Investment
Banking Division of Goldman, Sachs & Co. ("Goldman Sachs") from May 1976 to
July 1988. In addition, Mr. Cornwell was the Chief Operating Officer of the
Corporate Finance Department of Goldman Sachs from January 1980 to August 1987.
Mr. Cornwell is a director of CVS Corporation, Hershey Trust Company and the
Milton S. Hershey School.
Mr. Hindes was Chairman and Chief Executive Officer of The Delaware Bay
Company, Inc., a New York and Delaware brokerage concern which specializes in
the securities of bankrupt and distressed companies, from 1986 through 1996.
Mr. Hindes has also been the Managing General Partner of the Fallen Angels
Fund, L.P., a private investment partnership which invests in the securities of
bankrupt and distressed companies. Mr. Hindes is the Corporate Secretary and a
Director of SSP, Inc., 100% of the stock of which is owned by Messrs. Salovaara
and Eckert. Mr. Hindes is married to Denise T. Hindes.
Stuart J. Beck has been a Director of the Company since the Effective Date.
Mr. Beck is a founding stockholder of Granite and has been a member of the Board
of Directors, and Secretary of Granite since February 1988 and President of
Granite since September 1991. Prior to founding Granite, Mr. Beck was an
attorney in private practice of law in New York, New York and Washington, DC.
All members of the Board of Directors hold office until the next annual
meeting of stockholders of the Company or until their successors are duly
elected and qualified. All officers are elected annually and serve at the
discretion of the Board of Directors.
The Company anticipates that, subsequent to the date hereof, the number of
directors on the Company's Board of Directors may be increased from four to
seven, and any or all of Mikael Salovaara, Alfred C. Eckert III and Denise T.
Hindes may be elected as Directors of the Company.
Mr. Salovaara has been a General Partner of Greycliff Partners, an
investment advisory firm and the investment advisor to the South Street
Investment Funds, since 1991.
Mr. Eckert has been a General Partner of Greycliff Partners since 1991 and
the President of Greenwich Street Capital Partners, Inc. since 1994.
Ms. Hindes is the President and a Director of SSP, Inc. Ms. Hindes is
married to Gary E. Hindes.
DIRECTOR COMPENSATION
Directors not also serving as employees of the Company are paid a fee of
$9,000 per year, except Mr. Hindes who receives no fee.
-31-
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the compensation paid by the Company to its
chief executive officer, the President, and each of its most highly compensated
executive officers whose total cash compensation exceeded $100,000 during 1996:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
---------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION COMPENSATION (2)
- ------------------------------------ ---- -------- -------- ------------ ----------------
Lawrence A. Busse 1996 $301,327 $262,775 N/A $25,687
Chairman of the Board and President 1995 284,271 135,553 N/A 358,264
1994 268,180 75,000 N/A 15,027
James C. Ryan 1996 104,809 86,506 N/A 950
Chief Financial Officer 1995 98,877 45,881 N/A 125,924
1994 93,280 30,000 N/A 924
Frank Jonas 1996 158,016 82,830 N/A 14,910
KOLN/KGIN-TV Gen. Mgr. 1995 150,491 59,781 N/A 38,273
1994 143,325 57,304 N/A 14,695
Cheryl Weinke 1996 98,399 87,687 N/A 8,987
WEAU-TV Gen. Mgr. 1995 93,713 73,466 N/A 33,829
1994 89,250 32,447 N/A 8,341
Robert Greinert 1996 86,253 $27,265 N/A 2,138
Winnebago Gen. Mgr. 1995 82,146 11,235 N/A 14,768
1994 78,234 4,000 N/A 3,082
___________
(1) The amounts disclosed as annual bonuses for 1995 and 1996 include vested
amounts Messrs. Busse, Ryan, Jonas and Ms. Weinke will receive subject only to
continued employment by the Company pursuant to the Long Term Incentive Plan.
Such vested amounts for Messrs. Busse, Ryan, Jones, and Ms. Weinke are $121,553,
$37,551, $39,781, and $36,466, respectively, for fiscal year 1995 and $182,815,
$56,506, $59,830 and $54,844, respectively, for fiscal year 1996.
The amounts disclosed as annual bonuses for Mr. Greinert include the vested
amounts of $7,735 and $27,265 for fiscal years 1995 and 1996, respectively,
earned pursuant to the Long Term Incentive Plan. Mr. Greinert was paid the
total amount earned of $35,000 (the "Maximum Amount", as defined herein) upon
the Winnebago Asset Sale.
(2) The following table identifies and quantifies the types and amounts of "All
Other Compensation" paid for fiscal years 1994-1996:
EMPLOYER
401(K) SIGNING SERVICES WWMT
NAME AND PRINCIPAL POSITION YEAR AUTO LIFE LTD CONTRIBUTION BONUS BONUS SALE BONUS
- --------------------------- ---- ------- ------ -------- ------------ -------- -------- ----------
Lawrence A. Busse 1996 $14,058 $4,459 $6,220 $950 N/A N/A N/A
Chairman of the Board and President 1995 3,330 3,735 6,089 924 $125,000 $44,186 $175,000
1994 4,981 3,152 5,970 924 N/A N/A N/A
James C. Ryan 1996 N/A N/A N/A 950 N/A N/A N/A
Chief Financial Officer 1995 N/A N/A N/A 924 50,000 N/A 75,000
1994 N/A N/A N/A 924 N/A N/A N/A
Frank Jonas 1996 8,079 1,673 3,375 1,783 N/A N/A N/A
KOLN/KGIN-TV 1995 6,683 1,518 3,227 1,845 25,000 N/A N/A
Gen. Mgr. 1994 8,651 1,293 3,095 1,656 N/A N/A N/A
Cheryl Weinke 1996 5,935 171 1,528 1,353 N/A N/A N/A
WEAU-TV Gen. Mgr. 1995 5,743 162 1,413 1,511 25,000 N/A N/A
1994 5,835 146 1,318 1,042 N/A N/A N/A
Robert Greinert 1996 N/A N/A N/A 2,138 N/A N/A N/A
Winnebago Gen. Mgr. 1995 N/A N/A N/A 2,268 12,500 N/A N/A
1994 N/A N/A N/A 3,082 N/A N/A N/A
-32-
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (as amended, the
"Employment Agreements") with each of its executive officers. Each such
Employment Agreement had an initial term of approximately two and one-half years
commencing on the date immediately following the Effective Date and ending on
December 31, 1997. As of February 6, 1997 the Employment Agreements were
amended to extend their term through December 31, 1998. Under these Employment
Agreements, the executive officers (other than Messrs. Busse and Ryan) are
eligible to receive an annual discretionary performance-based bonus. The amount
of such bonus, if any, will be determined at the sole discretion of the Board of
Directors of the Company.
The Employment Agreements provide that if the Company terminates the
employment of an executive officer without "cause" (as defined below) or the
executive officer resigns with "good reason" (as defined below), such officer
will be entitled to receive a lump sum payment equal to the officer's annual
base salary in effect on the date of such termination or resignation. "Cause"
under the Employment Agreements means the commission of a felony (other than
driving while intoxicated), a willful dereliction of duty or intentional and
malicious conduct contrary to the best interests of the Company or a refusal to
perform a service customarily performed by and consistent with the position as a
senior executive officer of the Company if such refusal is not corrected within
thirty (30) days after written notice thereof from the Company. An employee's
termination of employment with the Company shall be deemed to have occurred for
"good reason" if it occurs within six (6) months of the assignment by the
Company of duties substantially inconsistent with, or representing a substantial
diminution in the nature or status of, responsibilities, duties or job title or
the relocation to any place more than forty (40) miles from the office regularly
occupied.
Pursuant to the Employment Agreements, each executive officer is prohibited
from disclosing information confidential to the Company during the term of his
or her Employment Agreement and for a period of three years thereafter. In
addition, such officers are prohibited from engaging, directly or indirectly, in
the television broadcast business in the geographic markets served by the
Company, or soliciting or enticing any individual to terminate his or her
employment with the Company or any of its affiliates during the term of his or
her Employment Agreement and for a period of one year after termination with
"cause" or resignation without "good reason." In accordance with the Employment
Agreements, Messrs. Busse, Ryan, Jonas and Ms. Weinke received annual salaries
of $284,271, $98,877, $150,491 and $93,713, respectively, for the year ending
December 31, 1995 and $301,327, $104,809, $158,016 and $98,399, respectively,
for the year ending December 31, 1996. For the years ending December 31, 1997
and 1998, Messrs. Busse, Ryan, Jonas and Ms. Weinke will receive annual salaries
of $319,407, $111,098, $165,916, and $103,319, respectively, and $335,377,
$116,652, $174,212, and $108,485, respectively. Mr. Greinert received, in
accordance with his Employment Agreement, an annual salary of $82,146 and
$86,253 for the years ended December 31, 1995 and 1996, respectively. Mr.
Greinert's Employment Agreement was assumed by WCP as part of the sale of
Winnebago and the Company's obligations with respect to such agreement
terminated as of December 27, 1996. Further, in connection with the
Restructuring, Messrs. Busse, Ryan, Jonas, Ms. Weinke and Mr. Greinert received
signing and other bonuses in the aggregate amounts of $169,186, $50,000,
$25,000, $25,000, $12,500, respectively. In connection with the WWMT Sale,
Messrs. Busse and Ryan received one-time bonuses of $175,000 and $75,000,
respectively.
SENIOR MANAGEMENT BONUS PLAN
Each of Messrs. Busse and Ryan are eligible to participate in the Company's
Senior Management Bonus Plan (the "Bonus Plan") during the term of his
Employment Agreement. Under the Bonus Plan, Messrs. Busse and Ryan (and other
individuals as may be designated by Mr. Busse) will be eligible to receive in
the aggregate with respect to each fiscal year, commencing with fiscal 1995, an
amount equal to the product of (a) Actual Broadcast Cash Flow (as defined below)
for the relevant fiscal year and (b) a fixed percentage equal to (i) 0.25% if
Actual Broadcast Cash Flow equals between 90.00% and 94.99% of Target Broadcast
Cash Flow (as defined below), (ii) 0.50% if Actual Broadcast Cash Flow equals
between 95.00% and 99.99% of Target Broadcast Cash Flow, (iii) 1.00% if Actual
Broadcast Cash Flow equals between 100.00% and 110.00% of Target Broadcast Cash
Flow and (iv) 1.10% if Actual Broadcast Cash Flow equals more than 110.00% of
Target Broadcast Cash Flow. No bonus will be payable under the Bonus Plan with
respect to any fiscal year in which Actual Broadcast Cash Flow represents less
than 90.00% of Target Broadcast Cash Flow. The portion of such amount, if any,
paid to the participants in the Bonus Plan will be determined at the sole
discretion
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of Mr. Busse. For purposes of the Bonus Plan, "Actual Broadcast Cash Flow" with
respect to any fiscal year generally means an amount equal to the sum of the
Company's (a) income (or loss) from operations before extraordinary items,
(b) depreciation expense, (c) amortization expense (other than with respect to
program rights) and (d) corporate overhead expenses; provided, that Actual
Broadcast Cash Flow does not take into account any of Winnebago's assets or
operations. "Target Broadcast Cash Flow" with respect to any fiscal year
generally means the amount reflected as the Target Broadcast Cash Flow on the
operating budget approved by the Company's Board of Directors for such fiscal
year, which amount was $9.7 million in fiscal year 1995, $10.8 million for
fiscal year 1996 and $10.0 million for fiscal year 1997.
SHORT TERM INCENTIVE PLANS
For each fiscal year during the term of his or her Employment Agreement
commencing with fiscal 1995, Mr. Jonas, Ms. Weinke and Mr. Greinert , to the
date of the Winnebago Asset Sale, will be eligible to participate in the Short
Term Incentive Plan established for the Station by which he or she is employed
or for Winnebago, as applicable (each, a "Short Term Incentive Plan"). Under
each Short Term Incentive Plan, the aggregate amount of funds available to all
participants in any fiscal year will be equal to 8% of the amount by which
Actual Cash Flow (as defined below) exceeds Target Cash Flow (as defined below)
for such fiscal year. The amount, if any, allocated and paid to the participants
in such Short Term Incentive Plan from such aggregate amounts will be determined
at the sole discretion of Mr. Busse. For purposes of any Short Term Incentive
Plan, "Actual Cash Flow" with respect to any fiscal year, generally means an
amount equal to the sum of the (a) income (or loss) from operations before
extraordinary items, (b) depreciation expense, (c) amortization expense (other
than with respect to program rights, if applicable) and (d) allocated corporate
overhead charges for the relevant Station or Winnebago, as applicable. "Target
Cash Flow" with respect to any fiscal year, generally means the amount of
projected Actual Cash Flow reflected on the annual operating budget approved by
the Board of Directors of the Company for the relevant Station or Winnebago, as
applicable.
LONG TERM INCENTIVE PLAN
Each of the executive officers participates in the Company's Long Term
Incentive Plan (as amended, the "Long Term Incentive Plan"). Pursuant to the
Long Term Incentive Plan, the Company may be obligated to pay in the aggregate a
maximum of $1,100,000 to the participants. The maximum amounts payable to each
participant is referred to as the "Maximum Amount" and is set forth in the
respective long-term Incentive Agreement entered into by each participant
pursuant to the Long-Term Incentive Plan. The Maximum Amounts for Messrs. Busse,
Ryan, Jonas, Ms. Weinke and Mr. Greinert are $550,000, $170,000, $180,000,
$165,000 and $35,000, respectively. The allocation of the aggregate maximum
amount payable under the Long-Term Incentive Plan among the individual
participants was established by Mr. Busse in his capacity as the sole member of
the Company's Board of Directors prior to the Effective Date. Each
participant's right to receive his or her Maximum Amount will vest ratably over
three years, and, on the third anniversary of the Effective Date (the "Third
Anniversary Date"), the Company will become obligated to pay each participant
who has not previously received a payment under the Long Term Incentive Plan and
who has been continuously employed by the Company since the Effective Date such
Maximum Amount. Pursuant to the Long Term Incentive Plan, if a participant's
employment with the Company is terminated due to death or Disability (as defined
below), the Company will pay to such participant (or the beneficiary or estate
of such participant, as applicable) an amount equal to the participant's Vested
Amount (as defined below). Under the Long-Term Incentive Plan, an employee is
deemed subject to a "Disability" if the employee is substantially unable to
perform his or her duties by reason of illness or mental or physical disability
for a period in excess of one hundred eighty (180) days in the aggregate during
any twelve-month period. In the event a participant's employment with the
Company is terminated by the Company without "cause" or by such participant for
"good reason" (other than in connection with certain events constituting a
change in control of the Company (each, a "Trigger Event")), the participant
will be entitled to receive an amount equal to the present discounted value of
his or her Maximum Amount discounted from the Third Anniversary Date at the
Applicable Federal Rate (defined as the lowest applicable federal rate permitted
under Section 1274(d) of the Code). On May 31, 1996, the Long Term Incentive
Plan was amended to provide that upon the occurrence of a Trigger Event, the
Company will pay to each participant an amount equal to such participant's
Maximum Amount.
For purposes of the Long Term Incentive Plan, "Vested Amount" generally
means an amount equal to such participant's Maximum Amount times a fraction, the
numerator of which is the number of days during which such
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participant has been employed by the Company from and after the Effective Date
and the denominator of which is 1,095, but in no event more than the Maximum
Amount applicable to such participant and "Trigger Event" generally means, with
respect to each participant, certain events consisting of (i) the bankruptcy or
insolvency (or similar occurrence) of the Company or any "significant
subsidiary" of the Company, (ii) a change in beneficial ownership of more than
50% of the voting securities of the Company and (iii) approval by the Company's
stockholders of certain fundamental changes to the Company's corporate structure
or ownership of its assets and, with respect to Mr. Greinert, Mr. Jonas and
Ms. Weinke, respectively, the disposition of the all or substantially all of the
assets of Winnebago or the respective Station such participant manages. Mr.
Greinert was paid his Maximum Amount ($35,000) upon the Winnebago Asset Sale.
The Long Term Incentive Plan provides that if a participant's employment
with the Company is terminated by the Company for "cause" or by reason of
resignation of such participant other than for "good reason" the participant's
rights under the Long Term Incentive Plan will terminate and no payments will be
made to such participant. Upon such termination, up to 25% of such participant's
Maximum Amount or, in the event of the participant's death or Disability, such
participant's Unvested Amount (generally defined as the participant's Maximum
Amount less the participant's Vested Amount) may be allocated to other
participants in the Long Term Incentive Plan and the remaining balance, together
with any amount not so allocated, may be allocated to any employee selected by
the Company to replace such participant.
The Company is not required to fund or otherwise segregate assets to be
used to pay benefits under the Long Term Incentive Plan. The Company's
obligations under the Long Term Incentive Plan rank senior to its obligations
under the indenture governing the Junior Subordinated Notes. Under the Long Term
Incentive Plan, the Company is precluded, with certain permitted exceptions,
from (a) paying cash dividends and making cash payments in respect of the Junior
Subordinated Notes and (b) entering into transactions with Affiliates (as
defined therein) other than upon fair and reasonable terms.
In connection with the Transactions, the "Majority Participant" (as defined
below) under the Long Term Incentive Plan has executed a waiver agreement
pursuant to which any default arising under the Long Term Incentive Plan as a
result of the Secured Senior Note Redemption or the Junior Subordinated Note
Redemption has been waived. "Majority Participant" means participants
representing at least 50% of the aggregate Maximum Amounts of all participants
at such time then payable under the Long Term Incentive Plan.
BENEFIT PLANS
The Company sponsors a defined contribution savings plan (the "401(k)
Plan") whereby employees of the Company or its subsidiaries may (under current
administrative rules) elect to contribute, in whole percentages to 10% of
compensation, provided no employee's elective contributions shall exceed the
amount permitted under Section 402(g) of the Code ($9,500 in 1996). A matching
contribution of 50% of an employee's elective pre-tax contribution is made by
the Company, up to 2% of such compensation. Employees have full and immediate
vesting rights to their elective contributions. Company-matched contributions
generally vest at the rate of 25% for each year of an employee's service to the
Company after the first full year of such service.
The Company maintains a noncontributory defined benefit pension plan (the
"Pension Plan") for certain eligible employees of the Company. An employee of
the Company is generally eligible to become a participant in the Pension Plan
upon attaining age 21 and completing a 12-month period of service to the
Company. To receive benefits under the Pension Plan, participants must complete
at least five years of "Benefit Service" (as defined below). The Company makes
annual contributions to the Pension Plan in amounts determined by the actuary
for the Pension Plan. A year of "Benefit Service" under the Pension Plan means
each year beginning after December 31, 1988 during which the participant
completes at least 1,000 hours of service.
The normal retirement age under the Pension Plan is 65. A reduced early
retirement benefit is available when a participant has attained age 55 and
completed at least ten years of "Vesting Service" (as defined below). A
participant's accrued monthly benefit under the Pension Plan starting at age 65
is the sum of (a) his accrued monthly benefit, if any,
-35-
as of December 31, 1988 under any of the three predecessor plans merged into the
Pension Plan on such date, and (b) one-twelfth of 1.4% of the compensation (as
defined below) paid to the participant during each year of Benefit Service.
Compensation is generally defined in the Pension Plan as the total amount of
cash paid to an employee during a calendar year, including salary reduction
contributions under certain benefit plans, such as the 401(k) Plan, but
excluding fringe benefits other than salary reduction contributions and expense
allowances or reimbursements; and is limited by federal law to $150,000 per year
(as adjusted for cost-of-living increases). Federal law limits the maximum
annual benefit payable under the Pension Plan to a person who retires at age 65
to $148,500 (as adjusted for cost-of-living increases). Under the Pension Plan,
years of "Vesting Service" equals the sum of each Plan Year beginning on or
after January 1, 1989 during which an Employee completes at least 1,000 Hours of
Service and an Employee's years of vesting service under a predecessor plan and
"Compensation" means the total amount of cash paid to an Employee during a plan
year, including wages, salesmen's commissions, salaries, fees for professional
services and other amounts received for personal services actually rendered in
the course of his employment.
Assuming a normal retirement age, the estimated annual benefits payable
under the Pension Plan for Messrs. Busse, Ryan and Jonas and Ms. Weinke would be
approximately $55,300, $73,800, $50,400, and $59,900, respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company has no compensation committee. Prior
to May 3, 1995, Lawrence A. Busse was the President and the sole director of the
Company, and in his capacity as sole director Mr. Busse established the
compensation for all executive officers of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of December 29,
1996, regarding beneficial ownership of the Common Stock by each stockholder who
is known by the Company to own beneficially more than 5% of the outstanding
Common Stock. None of the executive officers or directors of the Company
beneficially own any shares of the Common Stock.
AMOUNT
OWNED PERCENTAGE OF VOTING
NAME AND COMPLETE MAIL ADDRESS (SHARES) SECURITIES OWNED
- ----------------------------------------- --------- --------------------
The South Street Investment Funds (1) 107,700 100%
3801 Kennett Pike
Suite D300
Wilmington, Delaware 19807
Mikael Salovaara (1) 107,700 100%
170 Dryden Road
Bernardsville, New Jersey 07924
Alfred C. Eckert III (1) 107,700 100%
134 Ballantine Road
Bernardsville, New Jersey 07924
___________
(1) The number of shares of Common Stock beneficially owned by the South Street
Investment Funds includes (a) 87,603.1 shares owned by South Street Corporate
Recovery Fund I, L.P., the general partner of which is SSP Advisors, L.P., a
Delaware limited partnership, the general partner of which is SSP, Inc., a
Delaware corporation ("SSP"), 100% of the stock of which is owned by
Messrs. Salovaara and Eckert, who together indirectly control 100% of the voting
stock of the Company, (b) 5,000 shares held by Greycliff Leveraged Corporate
Recovery Fund 1993, L.P., the general partner of which is SSP Partners, L.P., a
Delaware limited partnership ("SSP Partners"), the general partner of which is
SSP, (c) 12,324 shares held by South Street Leveraged Corporate Recovery Fund,
L.P., the general partner of which is SSP Partners, and (d) 2,772.9 shares held
by South Street Corporate Recovery Fund I (International), L.P.,
-36-
the general partner of which is SSP International Partners, L.P., a Cayman
Islands limited partnership, the general partner of which is SSP
International, Inc., a Cayman Islands corporation, 100% of the stock of which is
owned by Messrs. Salovaara and Eckert together.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Concurrently with the issuance of the Senior Notes on October 26, 1995, all
of the outstanding Secured Senior Subordinated Notes were redeemed in full
without penalty or premium, at 100% of the principal amount thereof, plus
accrued interest thereon, to the date of redemption, at a cost of approximately
$26.5 million (the "Secured Senior Subordinated Note Redemption"). On
January 12, 1996 the Company used the portion of the net proceeds from the
Senior Notes offering remaining after the Secured Senior Subordinated Note
Redemption, including interest earned on such portion of net proceeds, together
with the Excess Cash, to redeem a portion of the outstanding Junior Subordinated
Notes, without penalty or premium, at 100% of the principal amount thereof, plus
accrued and unpaid interest thereon, at a cost of approximately $35.2 million.
Pursuant to the Junior Subordinated Note Redemption, the balance of the Junior
Subordinated Notes not redeemed for cash were redeemed for shares of 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 South Street Investment Funds owned all of the outstanding Secured Senior
Subordinated Notes immediately prior to the Secured Senior Subordinated Note
Redemption and owned all of the outstanding Junior Subordinated Notes
immediately prior to the Junior Subordinated Note Redemption.
On December 27, 1996, the Company entered into the Buy and Sell Agreement
with WCP, a Wisconsin corporation and a company affiliated with Mr. Lawrence A.
Busse, Chairman and Chief Executive Officer of the Company, pursuant to which
the Company sold substantially all of the assets of Winnebago to WCP for
aggregate consideration of $3,327,856 in cash plus (i) the assumption by WCP of
$369,638 of certain current liabilities and (ii) the additional assumption by
WCP of certain other liabilities as set forth in the Buy and Sell Agreement
(collectively, the "Winnebago Asset Sale"). The Company received net proceeds
from the Winnebago Asset Sale of $3,207,000. In connection with the sale, the
Company received an opinion from an investment banking firm to confirm that the
terms of the sale were fair to the Company and its stockholders from a financial
point of view.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1 Financial Statements
BUSSE BROADCASTING CORPORATION PAGE
----
Report of Independent Auditors . . . . . . . . . . . . . . . .F-1
Consolidated Balance Sheets as of
December 29, 1996 and December 31, 1995. . . . . . . . . . .F-2
Consolidated Statements of Operations for
the fiscal year ended December 29, 1996 and
the period from May 3, 1995 through December 31,
1995, Post-Effective Date. . . . . . . . . . . . . . . . . .F-3
Consolidated Statements of Operations for the
period from January 2, 1995 through May 2,
1995 and the fiscal year ended January 1, 1995,
Pre-Effective Date . . . . . . . . . . . . . . . . . . . . .F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for the fiscal year ended December 29,
1996, the period from May 3, 1995 through
December 31, 1995, Post-Effective Date; the
period from January 2, 1995 through May 2, 1995
and the fiscal year ended January 1, 1995,
Pre-Effective Date . . . . . . . . . . . . . . . . . . . . .F-5
Consolidated Statements of Cash Flows for the
fiscal year ended December 29, 1996,the period
from May 3, 1995 through December 31, 1995,
Post-Effective Date; the period from January 2,
1995 through May 2, 1995 and the fiscal year
ended January 1, 1995, Pre-Effective Date. . . . . . . . . .F-6
Notes to Consolidated Financial Statements . . . . . . . . . .F-7
-37-
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
Report of Independent Auditors . . . . . . . . . . . . . . . F-31
Consolidated Balance Sheets as of
December 29, 1996 and December 31, 1995. . . . . . . . . . F-32
Consolidated Statements of Operations and
Stockholder's/Divisional Equity for the
fiscal year ended December 29, 1996, the
period from May 3, 1995 through December 31,
1995, Post-Effective Date; the period from
January 2, 1995 through May 2, 1995 and
fiscal year ended January 1, 1995, Pre-Effective Date. . . F-33
Consolidated Statements of Cash Flows for
the fiscal year ended December 29, 1996,
the period from May 3, 1995 through December 31,
1995, Post-Effective Date; the period from
January 2, 1995 through May 2, 1995 and the
fiscal year ended January 1, 1995, Pre-Effective Date. . . F-34
Notes to Consolidated Financial Statements . . . . . . . . . F-35
(a)2 Financial Statement Schedule
Schedule II -- Busse Broadcasting Corporation: Valuation and
Qualifying Accounts Information . . . . . . . . . . . . . . . S-1
All other Financial Statement Schedules are omitted as they are
inapplicable, immaterial or the required information is included in the
consolidated financial statements or notes thereto.
(a)3 Exhibits
2.1 Buy and Sell Agreement dated December 27, 1996 between the Company and
Winnebago Color Press, Inc.
3.1 Amended and Restated Certificate of Incorporation of Busse
Broadcasting Corporation
3.2* Amended and Restated By-Laws of Busse Broadcasting Corporation
3.4* Certificate of Incorporation of KOLN/KGIN, Inc. (then known as WWMT,
Inc.)
3.5* Certificate of Amendment to the Certificate of Incorporation of
KOLN/KGIN, Inc. (then known as WWMT, Inc.)
3.6* Certificate of Amendment to the Certificate of Incorporation of
KOLN/KGIN, Inc. (then known as Busse Management, Inc.)
3.7* By-Laws of KOLN/KGIN, Inc.
3.8* Certificate of Incorporation of KOLN/KGIN License, Inc.
3.9* By-Laws of KOLN/KGIN License, Inc.
3.10* Certificate of Incorporation of WEAU License, Inc.
3.11* By-Laws of WEAU License, Inc.
4.1* Indenture dated as of October 26, 1995 among Busse Broadcasting
Corporation, KOLN/KGIN, Inc., KOLN/KGIN License, Inc. and WEAU
License, Inc. and Shawmut Bank Connecticut, National Association, as
Trustee, related to the 11 5/8% Senior Secured Notes due 2000
(including form of certificate to be delivered in connection with
transfers to institutional accredited investors)
4.2* Exchange and Registration Rights Agreement dated as of October 26,
1995 between Busse Broadcasting Corporation, KOLN/KGIN, Inc.,
KOLN/KGIN License, Inc. and WEAU License, Inc. and Lazard Freres & Co.
LLC
4.3* Amendment No. 1 to Registration Rights Agreement dated as of
October 26, 1995 between Busse Broadcasting Corporation and KOLN/KGIN,
Inc.
4.4* Escrow Agreement dated as of October 26, 1995 among Busse Broadcasting
Corporation, Shawmut Bank Connecticut, National Association, as
collateral agent, under the Indenture dated as of October 26, 1995
among the Company, the Guarantors and Shawmut Bank Connecticut,
National Association as trustee for the benefit of the Holders of the
11 5/8% Senior Secured Notes due 2000 issued by the Company and
guaranteed on a senior secured basis by each of the Subsidiaries of
the Company, and Shawmut Bank Connecticut, National Association as
escrow agent
4.5* Pledge and Security Agreement dated as of October 26, 1995 by Busse
Broadcasting Corporation and each of its Subsidiaries in favor of
Shawmut Bank Connecticut, National Association, as collateral agent
under the Indenture dated as of October 26, 1995 among the Company,
the Guarantors and Shawmut Bank Connecticut, National
-38-
Association as trustee for the benefit of the Holders of the 11 5/8%
Senior Secured Notes due 2000 issued by the Company and guaranteed on
a senior secured basis by each Guarantor
4.6* Indenture dated as of May 3, 1995 between Busse Broadcasting
Corporation and Shawmut Bank, N.A., as Trustee, governing the issuance
of $97,021,000 aggregate principal amount of Busse's 7.38% Junior
Subordinated Pay-in-Kind Notes due December 31, 2014
4.7* Representative 7.38% Junior Subordinated Pay-in-Kind Note of Busse
4.8* First Supplemental Indenture to Indenture dated as of May 3, 1995
dated as of October 20, 1995 among Busse Broadcasting Corporation,
KOLN/KGIN, Inc. and Shawmut Bank, N.A., as Trustee
4.9* Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filings related to properties in Kearney County, Nebraska, Seward
County, Nebraska, Lancaster County, Nebraska, Dunn County, Wisconsin,
Pierce County, Wisconsin, and Winnebago County, Wisconsin
10.1* CBS Television Network Affiliation Agreement dated June 15, 1995
between CBS Television Network and Busse Broadcasting Corporation
relating to KOLN-TV
10.2* CBS Television Network Affiliation Agreement dated June 15, 1995
between CBS Television Network and Busse Broadcasting Corporation
relating to KGIN-TV
10.3 NBC Television Network Affiliation Agreement dated April 8, 1996
between National Broadcasting Company, Inc. and Busse Broadcasting
Corporation relating to WEAU-TV
10.4* License Agreement between KOLN/KGIN, Inc. and KOLN/KGIN License, Inc.
10.5* License Agreement between Busse Broadcasting Corporation and WEAU
License, Inc.
10.6* Amended and Restated Employment Agreement - Lawrence Busse
10.6A Second Amendment to Amended and Restated Employment Agreement -
Lawrence Busse
10.7* Amended and Restated Employment Agreement - James Ryan
10.7A Amendment No. 1 to Amended and Restated Employment Agreement - James
Ryan
10.8* Amended and Restated Employment Agreement - Frank Jonas
10.8A Amendment No. 1 to Amended and Restated Employment Agreement - Frank
Jonas
10.9* Amended and Restated Employment Agreement - Cheryl Weinke
10.9A Amendment No. 1 to Amended and Restated Employment Agreement - Cheryl
Weinke
10.10* Amended and Restated Employment Agreement - Robert Greinert
10.11* Busse Broadcasting Corporation Long Term Incentive Plan
10.11A Amendment to Busse Broadcasting Long Term Incentive Plan dated May 31,
1996
10.12* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Lawrence A. Busse dated as of May 3, 1995
10.13* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and James C. Ryan dated as of May 3, 1995
10.14* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Frank Jonas dated May 3, 1995
10.15* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Cheryl Weinke dated May 3, 1995
10.16* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Robert Greinert dated May 3, 1995
21.1* Subsidiaries of Busse Broadcasting Corporation
21.2* Subsidiary of KOLN/KGIN, Inc.
27 Financial Data Schedule
___________
* Incorporated by reference to the similarly numbered exhibits to Amendment No.
2 to Registration Statement No. 33-99622 filed on February 6, 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.
Form 8-K, dated December 27, 1996, filed with the Securities and
Exchange Commission incorporating the press release issued by the
Company announcing the Company's sale of its Winnebago Color Press
operating division to
-39-
Winnebago Color Press, Inc., a company affiliated with Mr. Lawrence A.
Busse, the Company's Chairman of the Board and President.
-40-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Kalamazoo, State of Michigan, on March 28, 1997.
BUSSE BROADCASTING CORPORATION
By: /s/ Lawrence A. Busse
-------------------------------------
Lawrence A. Busse
CHAIRMAN OF THE BOARD AND PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ Lawrence A. Busse Chairman of the Board and President March 28, 1997
- ----------------------- (Principal Executive Officer)
Lawrence A. Busse
/s/ James C. Ryan Chief Financial Officer March 28, 1997
- ------------------------ (Principal Financial Officer
James C. Ryan and Principal Accounting Officer)
/s/ W. Don Cornwell Director March 28, 1997
- ------------------------
W. Don Cornwell
/s/ Stuart J. Beck Director March 28, 1997
- ------------------------
Stuart J. Beck
/s/ Gary E. Hindes Director March 28, 1997
- -------------------------
Gary E. Hindes
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Busse Broadcasting Corporation
We have audited the accompanying consolidated balance sheets of Busse
Broadcasting Corporation (the Company) (Post-Effective Date) as of December 29,
1996 and December 31, 1995 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 29, 1996 and the period from May 3, 1995 through December 31, 1995. We
have also audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows of Busse Broadcasting Corporation
(Pre-Effective Date) for the period from January 2, 1995 through May 2, 1995 and
for the year ended January 1, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Busse Broadcasting
Corporation (Post-Effective Date) at December 29, 1996 and December 31, 1995 and
the consolidated results of its operations and its cash flows for the year ended
December 29, 1996 and the period from May 3, 1995 through December 31, 1995 in
conformity with generally accepted accounting principles; and the consolidated
results of its operations and its cash flows (Pre-Effective Date) for the period
from January 2, 1995 through May 2, 1995 and for the year ended January 1, 1995,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
Ernst & Young LLP
Milwaukee Wisconsin
February 26, 1997
F-1
BUSSE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, DECEMBER 31,
1996 1995
--------------------------------
ASSETS (NOTES 1 AND 3)
Current assets:
Cash and cash equivalents (NOTE 6) $ 7,989,805 $ 38,893,959
Receivables, net 3,848,990 4,589,784
Inventories -- 920,000
Other current assets 856,200 1,010,734
--------------------------------
Total current assets 12,694,995 45,414,477
Property, plant and equipment, net 14,327,392 17,877,590
Deferred charges and other assets 2,424,312 2,791,788
Intangible assets and excess reorganization value 52,707,124 56,896,391
--------------------------------
Total assets $82,153,823 $122,980,246
--------------------------------
--------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (NOTES 1 AND 3)
Current liabilities:
Accounts payable and accrued expenses $ 3,174,795 $ 3,225,767
Current maturities of long-term debt (NOTE 6) -- 35,214,927
--------------------------------
Total current liabilities 3,174,795 38,440,694
Long-term debt (NOTE 6) 60,464,182 77,525,774
Other long-term liabilities 941,501 476,176
Commitments (NOTE 11)
Stockholders' equity (NOTES 6 AND 10):
Series A cumulative convertible preferred stock (non-voting) -
$.01 par value, $1,000 per share liquidation preference;
65,524.41 shares authorized, issued and outstanding as of
December 29, 1996; including dividends in arrears of
$4,633,471 21,994,131 --
Common stock (voting) - $.01 par value; 2,154,000 shares
authorized, and 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) (13,607,635) (2,649,247)
--------------------------------
Total stockholders' equity 17,573,345 6,537,602
--------------------------------
Total liabilities and stockholders' equity $82,153,823 $122,980,246
--------------------------------
--------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
BUSSE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
POST-EFFECTIVE DATE
------------------------------------------
FISCAL PERIOD FROM
FISCAL YEAR ENDED MAY 3, 1995 THROUGH
DECEMBER 29, 1996 DECEMBER 31, 1995
------------------------------------------
Net revenue from continuing operations $ 19,274,171 $11,358,095
Operating costs and expenses, excluding depreciation and amortization 8,407,679 5,151,550
Depreciation 1,853,863 1,359,448
Amortization of intangibles and excess reorganization value 3,859,999 2,607,858
------------------------------------------
Total operating costs and expenses of continuing operations 14,121,541 9,118,856
Corporate expenses 1,571,772 870,072
------------------------------------------
Income from continuing operations 3,580,858 1,369,167
Other income (expense) from continuing operations:
Interest expense (8,400,340) (5,794,343)
Interest income 287,793 836,119
Loss on disposition of assets (77,982) (3,626)
Other income 23,922 4,522
------------------------------------------
Other expense from continuing operations (8,166,607) (4,957,328)
------------------------------------------
Loss from continuing operations before income taxes (4,585,749) (3,588,161)
(Provision) benefit for income taxes (NOTE 8)
Current - Federal -- (1,673,929)
Current - State -- (41,000)
Deferred - Federal -- 2,069,000
Deferred - State -- 517,000
------------------------------------------
Income taxes benefit -- 871,071
------------------------------------------
Loss from continuing operations (4,585,749) (2,717,090)
Discontinued operations:
Income from operations net of applicable income tax provision of
$53,000 for the fiscal period from May 3, 1995 through December 31,
1995 (NOTE 4) 220,468 67,843
Loss on disposal of operations (NOTE 4) (1,929,636) --
------------------------------------------
(1,709,168) 67,843
------------------------------------------
Net loss (6,294,917) (2,649,247)
Charges to stockholders' equity for Series A preferred stock
dividends in arrears (4,663,471) --
------------------------------------------
Net loss attributable to common stockholders $(10,958,388) $(2,649,247)
------------------------------------------
------------------------------------------
Per common share:
Loss from continuing operations $ (42.58) $ (25.13)
Income (loss) from discontinued operations (15.87) .63
Series A preferred stock dividends in arrears (43.30) --
------------------------------------------
Net loss $ (101.75) $ (24.50)
------------------------------------------
------------------------------------------
Weighted average common shares outstanding 107,700 108,126
------------------------------------------
------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
BUSSE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
PRE-EFFECTIVE DATE
-------------------------------------------
FISCAL PERIOD FROM
JANUARY 2, 1995
THROUGH FISCAL YEAR ENDED
MAY 2, 1995 JANUARY 1, 1995
-------------------------------------------
Net revenue $ 14,510,895 $ 44,726,755
Operating costs and expenses, excluding depreciation and amortization 8,509,977 23,676,369
Depreciation 1,307,271 4,078,248
Amortization of intangibles and excess reorganization value 468,801 1,567,125
-------------------------------------------
Total operating costs and expenses 10,286,049 29,321,742
Corporate expenses 290,960 988,658
-------------------------------------------
Income from operations 3,933,886 14,416,355
Other income (expense):
Interest expense (7,472,473) (26,929,211)
Interest income 85,525 217,899
Gain (loss) on disposition of assets 2,133 (552,954)
Other income 144,198 15,639
-------------------------------------------
Other expense (7,240,617) (27,248,627)
-------------------------------------------
(3,306,731) (12,832,272)
Reorganization items:
Gain on restructuring transaction (NOTE 1) 103,810,917 --
Legal and professional fees (2,660,510) (2,148,588)
-------------------------------------------
Income (loss) before income taxes and extraordinary item 97,843,676 (14,980,860)
(Provision) benefit for income taxes (NOTE 8)
Current - State (100,000) (194,000)
Deferred-Benefit 2,318,000 1,150,000
-------------------------------------------
2,218,000 956,000
-------------------------------------------
Income (loss) before extraordinary item 100,061,676 (14,024,860)
Extraordinary item
Debt forgiveness related to restructuring transactions (NOTE 1) 46,479,605 --
-------------------------------------------
Net income (loss) 146,541,281 (14,024,860)
Charges to stockholders' equity for Series A preferred stock
dividends in arrears -- (450,000)
-------------------------------------------
Net income (loss) attributable to common stockholders $146,541,281 $(14,474,860)
-------------------------------------------
-------------------------------------------
Per common share:
Income (loss) before extraordinary item $ 990.71 $ (138.86)
Extraordinary item 460.19 --
Series A preferred stock dividends in arrears -- (4.46)
-------------------------------------------
Net income (loss) $ 1,450.90 $ (143.32)
-------------------------------------------
-------------------------------------------
Weighted average common shares outstanding 101,000 101,000
-------------------------------------------
-------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
BUSSE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (NOTE 1)
PREFERRED STOCK
--------------------------------------------------------------------
PRE-EFFECTIVE POST-EFFECTIVE
DATE SHARES AMOUNT DATE SHARES AMOUNT
--------------------------------------------------------------------
Balance January 2, 1994 30 $5,859,000 -- $ --
Net loss -- -- -- --
Provisions for dividends in arrears -- 450,000 -- --
--------------------------------------------------------------------
Balance January 1, 1995 30 6,309,000 -- --
Net income for the period from January 2,
1995 through May 2, 1995 -- -- -- --
Transactions pursuant to Plan of
Reorganizations:
Cancellation of pre-effective date
preferred stock (30) (6,309,000) -- --
Cancellation of pre-effective date
common stock -- -- -- --
Issuance of post-effective date
common stock and adoption of
fresh start reporting -- -- -- --
--------------------------------------------------------------------
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 -- -- -- --
Provisions for dividends in arrears -- -- -- 4,663,471
--------------------------------------------------------------------
Balance December 29, 1996 -- $ -- 65,524.41 $21,994,131
--------------------------------------------------------------------
--------------------------------------------------------------------
COMMON STOCK
--------------------------------------------------------------------
PRE-EFFECTIVE DATE
SHARES ADDITIONAL
---------------------------- PAID-IN
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
Reorganizations:
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 reporting -- -- -- --
--------------------------------------------------------------------
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 -- -- -- --
Net loss -- -- -- --
Provisions for dividends in arrears -- -- -- --
--------------------------------------------------------------------
Balance December 29, 1996 -- -- $ -- $ --
--------------------------------------------------------------------
--------------------------------------------------------------------
COMMON STOCK
----------------------------------------------------
POST- ADDITIONAL
EFFECTIVE PAID-IN
DATE SHARES AMOUNT CAPITAL
----------------------------------------------------
Balance January 2, 1994 -- $ -- $ --
Net loss -- -- --
Provisions for dividends in arrears -- -- --
----------------------------------------------------
Balance January 1, 1995 -- -- --
Net income for the period from January 2,
1995 through May 2, 1995 -- -- --
Transactions pursuant to Plan of
Reorganizations:
Cancellation of pre-effective date
preferred stock -- -- --
Cancellation of pre-effective date
common stock -- -- --
Issuance of post-effective date
common stock and adoption of
fresh start reporting 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 -- -- --
Provisions for dividends in arrears -- -- --
----------------------------------------------------
Balance December 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
Reorganizations:
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 reporting (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 (6,294,917) (6,294,917)
Provisions for dividends in arrears (4,663,471) --
--------------------------------------
Balance December 29, 1996 $ (13,607,635) $ 17,573,345
--------------------------------------
--------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
BUSSE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (6,294,917) $ (2,649,247) $146,541,281 $(14,024,860)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,996,936 4,123,242 1,776,072 5,645,373
Loss on sale of discontinued operations 1,929,636 -- -- --
Noncash interest expense 445,712 3,104,661 6,743,397 24,254,657
Amortization of deferred financing costs 611,433 88,043 -- 254,962
Program payments (over) under program amortization (16,891) (15,582) 20,063 (155,521)
Loss (gain) on disposition of property, plant and
equipment 92,498 49,067 (2,133) 552,954
Deferred compensation expense 346,260 244,193 -- --
Pension expense (income) 129,507 (229,964) 79,926 (88,965)
Deferred income tax benefit (NOTE 8) -- (2,600,000) (2,318,000) (1,150,000)
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 (299,044) (515,122) 596,984 (1,036,745)
Inventories and other current assets 522,037 62,914 185,403 (229,010)
Accounts payable and accrued expenses 384,374 1,476,721 (378,690) 52,574
Income taxes payable (30,817) 58,817 -- 16,000
----------------------------------------------------------------
Net cash provided by operating activities 3,816,724 3,197,743 2,953,781 14,091,419
INVESTING ACTIVITIES:
Proceeds from sale of television station, net -- 98,979,532 -- --
Capital expenditures (1,983,417) (656,772) (497,728) (1,725,088)
Proceeds from disposition of assets 64,432 35,459 4,089 30,289
Increase (decrease) in other assets (24,298) (34,364) 295 4,872
Increase in intangibles -- (297,636) -- --
Cash proceeds from sale of Winnebago Color Press
net of expenses and cash sold ($285,101) (NOTE 4) 2,854,277 -- -- --
----------------------------------------------------------------
Net cash provided by (used in) investing activities 910,994 98,026,219 (493,344) (1,689,927)
FINANCING ACTIVITIES:
Purchase and cancellation of Company's stock -- (16,051) -- --
Payments on indebtedness (35,391,571) (121,658,147) (4,641,023) (10,666,874)
Proceeds from issuance of Senior Secured Notes -- 60,000,909 -- --
Payment of deferred financing costs (240,301) (2,811,539) -- --
----------------------------------------------------------------
Net cash used in financing activities (35,631,872) (64,484,828) (4,641,023) (10,666,874)
----------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (30,904,154) 36,739,134 (2,180,586) 1,734,618
Cash and cash equivalents at beginning of period 38,893,959 2,154,825 4,335,411 2,600,793
----------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,989,805 $ 38,893,959 $ 2,154,825 $ 4,335,411
----------------------------------------------------------------
----------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid during the period $ 7,303,035 $ 1,313,943 $ 742,020 $ 2,420,259
----------------------------------------------------------------
----------------------------------------------------------------
Income taxes paid during the period $ -- $ 1,723,112 $ 100,000 $ 182,734
----------------------------------------------------------------
----------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 29, 1996
1. BASIS OF PRESENTATION
The 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
(Sold December 27, 1996)
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;
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;
F-7
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
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 affiliated investment funds (the "South Street Investment Funds"). On
June 16, 1995, the Company purchased and retired the 2,300 shares of common
stock not controlled by the South Street Investment 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 appointment of new Board of Directors comprised of three directors, two
of which are executive officers of Granite Broadcasting Corporation (see
Note 5); (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
The retention of certain executive officers of the Company under multi-year
employment and incentive agreements including a long term incentive plan
which provides, under certain circumstances, for aggregate payments of $1.1
million (see Note 7).
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.
F-8
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 5, 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%.
F-9
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 consolidated
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
consolidated statement of operations) 46,479,605
-----------
Total gain on restructuring transactions $150,290,522
-----------
-----------
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
March 9, 1995 through the Effective Date.
In applying Fresh Start Accounting, the Company accounted for its interest in
WWMT-TV (sold June 1, 1995) 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". As discussed more fully in Note 5, the Company valued the investment in
WWMT-TV based on the expected sales proceeds, net of selling costs, the
incremental cash generated during the holding period and interest charges
relating to the debt to be retired with the net sale proceeds. The results of
operations for WWMT-TV and the incremental interest on the debt to be retired
with the net sale proceeds are not reflected in the accompanying Post-Effective
Date consolidated statement of operations but rather were estimated in the
original investment in WWMT-TV on the Effective Date.
As a result of the effectiveness of the Plan and the adoption of Fresh Start
Accounting, the results for the fiscal year ended December 29, 1996 and for the
fiscal period from May 3, 1995 through December 31, 1995 are not comparable to
any of the Company's fiscal periods ended on or prior to May 2, 1995 and
accordingly, Pre-Effective Date and Post-Effective Date financial statements and
disclosures are presented on separate pages or are separated by a vertical line.
F-10
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories of paper and ink on hand at December 31, 1995 were valued at the
lower of cost, determined on the first-in, first-out (FIFO) method or market.
TELEVISION PROGRAM CONTRACT RIGHTS
The rights to broadcast non-network programs are stated at cost less accumulated
amortization. These costs are amortized based upon the usage of the programs
under methods which generally result in straight-line amortization. The cost of
program rights expected to be used within one year is classified as a current
asset.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost net of accumulated
depreciation. Depreciation is generally calculated on the straight-line method
based on the following useful lives:
POST-EFFECTIVE PRE-EFFECTIVE
-----------------------------
YEARS YEARS
-----------------------------
Leasehold and land improvements 5-20 5-10
Buildings 20 30
Machinery and equipment 1-20 10-20
Vehicles 1-3 3-7
F-11
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs relate to costs incurred with the issuance of debt
securities and are being amortized over the respective lives of the debt issues
utilizing the weighted average debt outstanding method. Accumulated amortization
at December 29, 1996 and December 31, 1995 was $699,476 and $88,043,
respectively.
INTANGIBLE ASSETS AND EXCESS REORGANIZATION VALUE
On the Effective Date the amounts allocated to intangible assets and excess
reorganization value represent the excess of the reorganization value over the
amounts allocated to the net tangible and all other intangible assets as of the
Effective Date. These amounts are being amortized on a straight-line basis over
15 years. Accumulated amortization at December 29, 1996 and December 31, 1995
was $6,467,857 and $2,607,858, respectively.
Prior to the Effective Date, goodwill and amounts allocated to FCC licenses and
network contracts were amortized on a straight-line basis over forty years. The
cost of other intangible assets with determinable economic lives was charged to
operations based on their respective economic lives, under methods that
generally resulted in accelerated amortization.
The Company records impairment losses on long-lived assets used in operations,
including excess reorganization value, when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.
F-12
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
ADVERTISING
Advertising costs are expensed as incurred and totaled $222,780, $489,243 and
$576,543 for fiscal 1996, 1995 and 1994, respectively.
REPORTING PERIOD
The Company's fiscal year is the 52/53 week period ending on the Sunday nearest
December 31.
RECLASSIFICATIONS
Certain amounts in the prior fiscal years' financial statements have been
reclassified to conform with the current fiscal period's financial statements.
3. SUPPLEMENTARY BALANCE SHEET INFORMATION
The composition of certain balance sheet information follows:
DECEMBER 29, DECEMBER 31,
1996 1995
---------------------------
Receivables:
Trade $3,786,502 $4,364,894
Other 123,388 435,370
---------------------------
3,909,890 4,800,264
Less allowance for doubtful accounts (60,900) (210,480)
---------------------------
$3,848,990 $4,589,784
---------------------------
---------------------------
F-13
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUPPLEMENTARY BALANCE SHEET INFORMATION (CONTINUED)
DECEMBER 29, DECEMBER 31,
1996 1995
-----------------------------
Inventories:
Paper and ink $ -- $ 676,400
Work in process -- 160,300
Other -- 83,300
---------------------------
$ -- $ 920,000
---------------------------
---------------------------
Other current assets:
Program contract rights $ 675,719 $ 683,519
Prepaid expenses and other 180,481 327,215
---------------------------
$ 856,200 $ 1,010,734
---------------------------
---------------------------
Property, plant and equipment:
Land, land improvements, buildings and
improvements $ 2,666,744 $ 3,541,763
Machinery and equipment 13,285,024 14,624,869
Office equipment 854,225 813,856
Vehicles 443,995 392,296
Construction in progress 175,931 --
---------------------------
17,425,919 $ 19,372,784
Accumulated depreciation (3,098,527) (1,495,194)
---------------------------
$ 14,327,392 $ 17,877,590
---------------------------
---------------------------
Deferred charges and other assets:
Deferred financing costs $ 2,352,364 $ 2,723,496
Other 71,948 68,292
---------------------------
$ 2,424,312 $ 2,791,788
---------------------------
---------------------------
F-14
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUPPLEMENTARY BALANCE SHEET INFORMATION (CONTINUED)
DECEMBER 29, DECEMBER 31,
1996 1995
---------------------------
Accounts payable and accrued expenses:
Accounts payable $ 318,639 $ 416,702
Program contracts payable--current 569,747 604,638
Accrued interest 1,514,326 1,313,239
Other accrued expenses 772,083 891,188
-------------------------
$3,174,795 $ 3,225,767
-------------------------
-------------------------
Other long-term liabilities:
Program contracts payable--noncurrent $ -- $ 10,442
Accrued pension plan obligations 351,048 221,541
Accrued long term incentive plan obligations 590,453 244,193
-------------------------
$ 941,501 $ 476,176
-------------------------
-------------------------
F-15
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DISCONTINUED OPERATIONS--SALE OF WINNEBAGO COLOR PRESS
On December 27, 1996, the Company sold substantially all of the assets of its
Winnebago Color Press ("Winnebago") division to Winnebago Color Press, Inc., an
entity owned in part by Mr. Lawrence A. Busse, the Chairman and Chief Executive
Officer of BBC for $3,327,856 in cash plus the assumption of certain liabilities
totaling $369,638 and, after payment of certain selling costs, retained net
proceeds of $3,242,235 (approximately $3,207,000 after payment of $35,000 of
certain obligations under the Company's Long Term Incentive Plan, see Note 7).
The Company received $102,857 of the sale proceeds in February 1997; such amount
was recorded as a receivable as of December 29, 1996. The Company's utilization
of such net proceeds is restricted under the terms of a certain indenture
relating to the Company's 11 5/8% Senior Secured Notes due October 15, 2000 (see
Note 6). As part of the transaction the Company received an opinion from an
investment banking firm that the transaction was fair to the Company and its
stockholders. Winnebago was the Company's only operation within the printing
segment and accordingly, because of the sale, this segment has been presented as
a discontinued operation. The loss on the transaction of $1,929,636 is
classified as a loss on disposal of discontinued operations in the accompanying
consolidated statements of operations for the year ended December 29, 1996 and
the operations of Winnebago for the year ended December 29, 1996 and the period
from May 3, 1995 through December 31, 1995 are classified as income from
discontinued operations. The net revenues of Winnebago included in the
consolidated statements of operations were $6,896,484 and $4,312,605 for the
year ended December 29, 1996 and the period from May 3, 1995 through December
31, 1995, respectively.
Corporate expenses and interest expense, net of interest income, have been
allocated to income from discontinued operations only if such expenses are
directly attributable to Winnebago. For the year ended December 29, 1996 and for
the period from May 3, 1995 through December 31, 1995 the corporate expenses
allocated to income from discontinued operations were $27,233 and $7,767,
respectively, and $12,711 and $3,611, respectively, for interest expense net of
interest income.
F-16
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. SALE OF WWMT-TV
On February 1, 1995, the Company formed a wholly-owned subsidiary, WWMT, Inc.
[renamed Busse Management Inc. ("BMI") on May 3, 1995 and further renamed
KOLN/KGIN, Inc. on October 20, 1995 (see Note 9)], 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, approximating $99,400,000 from the
sale were used, in part, to repay the outstanding Credit Agreement ($10,400,000)
and purchase or redeem (at 100% of aggregate principal value plus accrued
interest) certain Senior PIK Notes ($84,437,000 aggregate principal value),
Junior PIK Notes ($1,180,000 aggregate principal value) and 2,300 shares of
common stock ($16,051 purchase price).
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 as follows:
Expected gross cash proceeds from the sale of WWMT-TV $99,420,357
Plus cash generated from operations from May 3, 1995
through May 31, 1995 498,637
Less expenses incurred to sell WWMT-TV (316,969)
Less interest on the debt to be retired (622,493)
-----------
Net investment in WWMT-TV as of May 3, 1995 $98,979,532
-----------
-----------
Two of the four members of the board of directors of the Company are executive
officers of Granite. An individual affiliated with the South Street Investment
Funds is one of the nine members of the board of directors of Granite and holds
equity interests in Granite (see Note 1).
F-17
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT
Debt is summarized as follows:
DECEMBER 29, DECEMBER 31,
1996 1995
--------------------------
(a) Senior Secured Notes, net of
unamortized original issue discount of
$2,062,818 and $2,454,185 at
December 29, 1996 and December 31,
1995, respectively $60,464,182 $ 60,072,815
(b) 7.38% Junior Subordinated Pay-in-Kind
Notes including Junior Secondary
Securities -- 41,960,647
(c) 17% Discounted Junior Subordinated
Pay-in-Kind Notes -- 10,462,108
(d) Promissory Note -- 245,131
--------------------------
Total debt 60,464,182 112,740,701
Less current maturities -- 35,214,927
--------------------------
Long term debt $60,464,182 $ 77,525,774
--------------------------
--------------------------
(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 ("Senior Notes") at a price of 95.96%
of the aggregate principal amount thereof and received net proceeds of
$58,125,099 after payment of underwriting discounts and commissions of
$1,875,810.
A portion of the net proceeds from the issuance of the Senior Notes were used by
the Company on October 26, 1995 to redeem all of the outstanding 7.38% Secured
Senior Subordinated Pay-in-Kind Notes, at 100% of the principal amount thereof
plus accrued and unpaid interest thereon, for an aggregate cost of $26,469,445.
The remaining net proceeds of $31,655,654 were deposited in an Escrow Account
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 Junior
Subordinated Note Redemption, 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 Junior Subordinated Note Redemption was $100,765,475. The balance
of the Junior Subordinated Notes not redeemed for cash in the Junior
Subordinated Note Redemption was redeemed for 65,524.4135 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.
F-18
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT (CONTINUED)
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.
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.
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 to the Senior Notes (the "Indenture") requires that
the net proceeds, as defined by the Indenture and which are net of the
payment made under the long-term incentive plan, from the sale of Winnebago
($3,207,000) be utilized to (i) offer to redeem Senior Notes at 100% of their
accreted value on the date of redemption, plus accrued interest, or (ii) to
make investments in or acquire properties and assets directly related to
television and/or radio broadcasting as specified in the Indenture. In
accordance with the Indenture, on February 12, 1997 the Company commenced an
offer to purchase up to $3,207,000 of aggregate principal amount of Senior
Notes with the net proceeds of the sale of Winnebago. The Company's offer to
purchase expired, by its terms, on March 14, 1997 with no Senior Notes having
been tendered by their respective holders and consequently, no Senior Notes
were purchased by the Company. Under the terms of the Indenture, the Company
may only utilize the $3,207,000 to make investments in or acquire properties
and assets directly related to television and/or radio broadcasting.
F-19
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT (CONTINUED)
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.
It was not practicable to estimate the fair value of the Company's long-term
debt securities because of a lack of quoted market prices and the inability to
estimate fair value without incurring excessive costs.
(b) 7.38% Junior Subordinated Pay-in-Kind Notes ("Junior PIK Notes") and
(c) 17% Discounted Junior Subordinated Pay-in-Kind Notes ("Discounted Junior
PIK Notes")
On May 3, 1995 the Company issued $97,021,000 of 7.38% Junior Subordinated Pay-
in-Kind Notes due December 31, 2014.
As discussed in Note 1, $41,180,000 in aggregate principal amount of Junior PIK
Notes were recorded under Fresh Start Accounting at 100% of aggregate principal
amount as these notes have been or were reasonably expected to be repaid in the
near future. The remaining $55,841,000 in aggregate principal amount of Junior
PIK Notes were recorded under Fresh Start Accounting at a discounted present
value using a 17% discount rate which was indicative of market interest rates
for similar securities at the Effective Date. These Discounted Junior PIK Notes
were initially recorded at $9,390,000 and accrued interest at 17% for financial
statement reporting purposes.
As discussed in (a) Senior Secured Notes, all of the Junior Subordinated Pay-in-
Kind notes were redeemed in cash or Series A Preferred Stock (see Note 10) on
January 12, 1996. As of December 31, 1995 $35,078,553 of the Junior Subordinated
Pay-in-Kind notes were reflected as a current liability in the accompanying
consolidated balance sheet.
F-20
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DEBT (CONTINUED)
(d) 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
outstanding principal balance of the Note, plus accrued interest, was paid in
full in November 1996 without penalty or premium.
7. EMPLOYEE BENEFIT PLANS
The Company has noncontributory defined benefit pension plans covering
approximately 132 full-time employees. The benefits are based on length of
service, age and the employee's compensation. The Company's funding policy is to
contribute amounts to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as the Company may determine to be appropriate from
time to time. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. The components of pension cost were as follows:
1996 1995 1994
----------------------------------
Service cost--benefit earned during period $ 134,377 $ 204,706 $ 249,856
Interest cost on projected benefit
obligation 154,256 180,362 165,655
Actual return on plan assets (183,951) (227,067) (116,757)
Net amortization and deferral 24,825 19,824 (58,977)
----------------------------------
Net periodic pension cost $ 129,507 $ 177,825 $ 239,777
----------------------------------
----------------------------------
F-21
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
Assumptions used in the accounting for the defined benefit plan were:
1996 1995 1994
------------------------------
Weighted average discount rates 7.25% 7.25% 8.25%
Rates of increase in compensation levels 5.0% 5.0% 6.5%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
The following table sets forth the funded status and amounts recognized in the
Company's consolidated balance sheet:
DECEMBER 29, DECEMBER 31,
1996 1995
--------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $2,149,278 $1,821,290
--------------------------
--------------------------
Accumulated benefit obligation 2,175,809 $1,920,204
--------------------------
--------------------------
Projected benefit obligation 2,356,168 2,254,315
Plan assets at fair value, primarily group
annuity contracts and U.S. corporate stocks
and bonds 2,103,190 2,032,611
--------------------------
Projected benefit obligation in excess of
plan assets 252,978 221,704
Unrecognized gain (15,561) (121,911)
Unrecognized prior service cost 113,631 121,748
--------------------------
Net pension liability recognized in the
consolidated balance sheets $ 351,048 $ 221,541
--------------------------
--------------------------
Effective June 1, 1995 the Company curtailed the portion of the defined benefit
pension plan related to the WWMT-TV employees and recognized an associated gain
of $327,866 at that time.
The Company has 401(k) plans available to substantially all employees with at
least 1,000 hours of service annually. The Company matches 50% of the first 2%
of the employee contributions. Total plan expense was $71,673, $31,247, $57,718
and $126,369 for fiscal 1996, the period from May 3, 1995 through December 31,
1995, for the period from January 2, 1995 through May 2, 1995, and fiscal 1994
respectively.
F-22
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
LONG TERM INCENTIVE PLAN
The Company maintains a Long Term Incentive Plan (the "LTIP") for certain key
executives (the "Participants"). The aggregate maximum amount which the Company
may become obligated to pay under the LTIP is $1,100,000 and each Participants'
allocated share of such amount is referred to as the "Maximum Amount".
Participants vest ratably over thirty-six months beginning May 3, 1995 (the
"Vested Amount"), and, subject only to continuous employment, the Maximum Amount
is due and payable May 3, 1998. In the event of a Participant's death or
disability the Participant will be entitled to payment of the Vested Amount as
of such date. In certain instances involving changes in control of the Company
or significant asset sales, a Participant may be entitled to the Maximum Amount.
In conjunction with the sale of Winnebago one Participant was paid their Maximum
Amount of $35,000. In the event of a Participant's termination of employment
without "cause" or by such Participant for "good reason" (as defined therein)
the Participant may be entitled to the discounted present value of the Maximum
Amount according to a formula defined in the LTIP. If a Participant's employment
with the Company terminates for "cause" (as defined therein), the Company's
obligations with respect to that Participant terminate and no payments will be
made to the Participant.
The Company is not required to fund or otherwise segregate assets to be used to
pay benefits under the LTIP. Under the LTIP the Company is precluded, with
certain permitted exceptions, from paying cash dividends and entering into
transactions with Affiliates (as defined therein) other than on fair and
reasonable terms.
For fiscal 1996 and the fiscal period from May 3, 1995 through December 31,
1995, the Company expensed $381,260 and $244,193, respectively, relating to the
LTIP based on a 3 year straight line amortization.
F-23
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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:
DECEMBER 29, DECEMBER 31,
1996 1995
----------------------------
Deferred tax liabilities:
Property, plant and equipment basis
differences $ 3,569,000 $ 4,208,000
Debt basis difference -- 18,852,000
---------------------------
3,569,000 23,060,000
Deferred tax assets:
Federal net operating loss carryforwards 20,706,000 19,790,000
State net operating loss carryforwards 2,747,000 1,935,000
Alternative minimum tax credit 1,615,000 1,615,000
Other 47,000 124,000
---------------------------
25,115,000 23,464,000
Valuation allowances (21,546,000) (404,000)
---------------------------
3,569,000 23,060,000
---------------------------
$ -- $ --
---------------------------
---------------------------
The debt basis difference at December 31, 1995 was eliminated during 1996 upon
the exchange of the Company's Junior Subordinated Notes for the Company's Series
A Preferred Stock (see Note 6). Due to past and current operating losses, a
valuation allowance has been recognized to offset the Company's net deferred tax
assets.
F-24
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The benefit (provision) for income taxes from continuing operations is different
from the amount computed by applying the U.S. statutory rate due to the
following items:
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
Benefit (provision), from continuing operations and
including extraordinary item, at federal statutory rate $ 1,559,000 $ 1,220,000 $(49,070,000) $ 5,093,000
State taxes -- 341,000 (1,358,000) 288,000
Change in valuation allowance -- 136,000 40,854,000 (4,001,000)
Unused current net operating loss (71,000) -- -- --
Gain on restructuring transactions and related items -- -- 11,762,000 --
Non-deductible amortization of intangible assets and
excess reorganization values and other items (1,488,000) (825,929) 30,000 (424,000)
------------------------------------------------------------------
$ -- $ 871,071 $ 2,218,000 $ 956,000
------------------------------------------------------------------
------------------------------------------------------------------
The deferred (provision) benefit from continuing operations consists of the
following:
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
Deferred tax benefits of temporary differences other
than operating loss carryforwards $ 19,414,000 $ 30,220,000 $(39,562,000) $ 1,998,000
Benefits (use) of operating loss carryforwards 1,728,000 (27,770,000) 1,026,000 3,153,000
Change in valuation allowance (21,142,000) 136,000 40,854,000 (4,001,000)
------------------------------------------------------------------
$ -- $ 2,586,000 $ 2,318,000 $ 1,150,000
------------------------------------------------------------------
------------------------------------------------------------------
F-25
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
As of December 29, 1996 the Company had approximately $60.8 million of federal
net operating loss carryforwards ("NOL's") which begin to expire in 2005. As a
result of the Plan (see Note 1) the Company elected treatment under Section 382
(1) (5) of the Internal Revenue Code, as amended. This treatment will allow the
restructured Company to utilize, under certain restrictions, its NOL's to offset
taxable income incurred after the Effective Date. Utilization of a portion of
these NOL's are assumed in the Company's calculation of Post-Effective Date
deferred taxes.
9. CORPORATE REORGANIZATION/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. To facilitate the collateral
arrangements required by the Senior Notes the Company effected the following
transactions on October 20, 1995:
1. The Federal Communication Commission ("FCC") licenses relating to the
operation of WEAU-TV were conveyed to a wholly-owned subsidiary, WEAU
License, Inc., in exchange for a $4,880,000 note payable to Busse
Broadcasting Corporation and 100% of the stock of the subsidiary;
2. The assets and liabilities relating to the operation of KOLN/KGIN-TV were
conveyed to a wholly-owned subsidiary, KOLN/KGIN, Inc. (formerly known as
Busse Management, Inc. which was formerly known as WWMT, Inc.); and
3. KOLN/KGIN, Inc. conveyed the FCC licenses relating to the operation of
KOLN/KGIN-TV to its wholly-owned subsidiary KOLN/KGIN License, Inc. in
exchange for all of the capital stock of the subsidiary.
F-26
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CORPORATE REORGANIZATION/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 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.
POST-EFFECTIVE DATE
----------------------------
DECEMBER 29, DECEMBER 31,
1996 1995
----------------------------
ASSETS
Current assets $ 3,258,170 $ 3,129,038
Non-current assets 49,097,117 52,405,578
----------------------------
$52,355,287 $55,534,616
----------------------------
----------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities $ 1,090,989 $ 1,116,223
Non-current liabilities 6,703,675 6,954,442
Shareholder's equity 44,560,623 47,463,951
----------------------------
Total liabilities and shareholder's equity $52,355,287 $55,534,616
----------------------------
----------------------------
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
Net revenue $11,926,061 $6,657,481 $3,489,390 $11,369,877
Total operating costs and expenses 9,937,965 6,345,213 2,393,360 6,925,515
Income from operations 1,988,096 312,268 1,096,030 4,444,362
Reorganization item--gain on restructuring transaction -- -- 34,831,263 --
Net income (loss) (2,903,328) (1,727,698) 36,308,787 2,226,423
F-27
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. 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
The authorized common stock of the Company consists of 2,154,000 shares, of
which 107,700 shares are issued and outstanding. 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 LTIP. 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
The authorized preferred stock of the Company consists of 65,524.4135 shares,
all of which are issued and outstanding. 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.
F-28
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. 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 conversation rate,
under certain conditions, in order to protect the conversion rights against
dilution.
The Series A Preferred Stock is redeemable at the option of the Company at any
time, in whole or in part, out of funds legally available therefor, at a per
share redemption price equal to the per share liquidation preference per share
($1,000), plus in each case an amount equal to accrued and unpaid dividends, if
any, to (and including) the redemption date, whether or not declared.
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.
11. COMMITMENTS
The Company has entered into contracts to purchase rights to air certain
programs at future dates. The Company records these contracts as assets and
corresponding liabilities when the license period begins, which totaled
$969,630, $959,010 and $3,443,510 in fiscal 1996, 1995 and 1994, respectively.
The aggregate amount of these contracts entered into but not yet recorded at
December 29, 1996 is approximately $2,247,750.
12. BUSINESS SEGMENTS
On December 27, 1996 the Company sold substantially all of the assets of its
printing segment, Winnebago Color Press. Because of this sale, the Company now
operates only in the television segment. For the year ended December 29, 1996
and the period from May 3, 1995 through December 31, 1995, the loss on the sale
of the printing segment and its results of operations have been included as
discontinued operations in the accompanying respective statements of operations
(see Note 4).
F-29
BUSSE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. BUSINESS SEGMENTS (CONTINUED)
PRE-EFFECTIVE DATE
----------------------------
FISCAL PERIOD
FROM FISCAL YEAR
JANUARY 2, ENDED
1995 THROUGH JANUARY 1,
MAY 2, 1995 1995
----------------------------
Net revenue:
Television $12,141,986 $37,455,680
Printing 2,368,909 7,271,075
--------------------------
$14,510,895 $44,726,755
--------------------------
--------------------------
Depreciation and amortization:
Television $ 1,631,472 $ 5,183,226
Printing 144,600 462,147
--------------------------
$ 1,776,072 $ 5,645,373
--------------------------
--------------------------
Income from operations:
Television $ 3,810,498 $14,007,199
Printing 123,388 409,156
--------------------------
$ 3,933,886 $14,416,355
--------------------------
--------------------------
Capital expenditures:
Television $ 450,106 $ 1,424,389
Printing 47,622 300,699
--------------------------
$ 497,728 $ 1,725,088
--------------------------
--------------------------
POST-EFFECTIVE
DATE
DECEMBER 31,
1995
-------------
Identifiable assets:
Television $ 76,823,762
Printing 5,195,595
Corporate 40,960,889
-------------
$122,980,246
-------------
-------------
F-30
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Busse Broadcasting Corporation
We have audited the accompanying consolidated balance sheets of KOLN/KGIN, Inc.,
a wholly owned subsidiary of Busse Broadcasting Corporation (the Company) (Post-
Effective Date) as of December 29, 1996 and December 31, 1995 and the related
consolidated statements of operations and stockholder's/divisional equity, and
cash flows for the year ended December 29, 1996 and the period from May 3, 1995
through December 31, 1995. We have also audited the accompanying consolidated
statements of operations and stockholder's/divisional equity, and cash flows of
KOLN/KGIN, Inc. (Pre-Effective Date) for the period from January 2, 1995 through
May 2, 1995 and for the year ended January 1, 1995. These financial statements
are the responsibility of KOLN/KGIN, Inc.'s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of KOLN/KGIN, Inc.
(Post-Effective Date) at December 29, 1996 and December 31, 1995 and the
consolidated results of its operations and its cash flows for the year ended
December 29, 1996 and the period from May 3, 1995 through December 31, 1995 in
conformity with generally accepted accounting principles; and the consolidated
results of its operations and its cash flows for the period from January 2, 1995
through May 2, 1995 and for the year ended January 1, 1995, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Milwaukee, Wisconsin
February 26, 1997
F-31
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 29, DECEMBER 31,
1996 1995
----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 299,008 $ 380,938
Receivables, net 2,343,022 2,149,310
Program contract rights 438,219 425,230
Other current assets 29,919 27,560
--------------------------
Total current assets 3,110,168 2,983,038
Property, plant and equipment, net 8,213,165 8,612,289
Due from Parent 237,465 166,729
Deferred charges and other assets 5,038 27,125
Intangible assets and excess reorganization
value 34,992,682 37,580,767
--------------------------
Total assets $46,558,518 $49,369,948
--------------------------
--------------------------
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 609,878 $ 617,972
Program contracts payable 364,094 381,130
--------------------------
Total current liabilities 973,972 999,102
Deferred income tax liabilities 1,958,000 2,064,000
Other long-term liabilities -- 10,442
Commitments
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 (2,942,041) (272,183)
--------------------------
Total stockholder's equity 43,626,546 46,296,404
--------------------------
Total liabilities and stockholder's equity $46,558,518 $49,369,948
--------------------------
--------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-32
KOLN/KGIN, Inc.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS AND STOCKHOLDER'S/DIVISIONAL EQUITY
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
Net revenue $11,212,061 $ 6,511,481 $ 3,489,390 $11,369,877
Operating costs and expenses, excluding depreciation and
amortization 5,089,462 3,220,927 1,741,340 4,816,710
Depreciation 1,033,581 765,399 486,000 1,371,148
Amortization of intangibles and excess reorganization value 2,588,085 1,732,545 63,000 350,594
Corporate expenses 856,936 545,009 98,000 372,000
------------------------------------------------------------------
Total operating costs and expenses 9,568,064 6,263,880 2,388,340 6,910,452
------------------------------------------------------------------
Income from operations 1,643,997 247,601 1,101,050 4,459,425
Other income (expense):
Interest income 17,749 10,231 -- --
Gain (loss) on disposition of assets (44,874) (967) 2,074 (441,683)
Other income (expense) (7,730) (9) (4,152) 5,121
------------------------------------------------------------------
Other income (expense) (34,855) 9,255 (2,078) (436,562)
------------------------------------------------------------------
1,609,142 256,856 1,098,972 4,022,863
Reorganization item - gain on restructuring transaction
(NOTE 1) -- -- 34,831,263 --
------------------------------------------------------------------
Income before income taxes 1,609,142 256,856 35,930,235 4,022,863
(Provision) benefit for income taxes:
Current (4,385,000) (2,098,101) (582,000) (2,385,377)
Deferred 106,000 166,000 1,466,000 644,000
------------------------------------------------------------------
(4,279,000) (1,932,101) 884,000 (1,741,377)
------------------------------------------------------------------
Net income (loss) (2,669,858) (1,675,245) 36,814,235 2,281,486
Stockholder's/divisional equity at beginning of period 46,296,404 47,632,491 11,747,254 12,549,380
Net intercompany transactions -- 339,158 (928,998) (3,083,612)
------------------------------------------------------------------
Stockholder's/divisional equity at end of the period $43,626,546 $46,296,404 $47,632,491 $11,747,254
------------------------------------------------------------------
------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-33
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $(2,669,858) $(1,675,245) $36,814,235 $ 2,281,486
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,621,666 2,497,944 549,000 1,721,742
Program payments (over) under program amortization (19,825) (12,159) 4,056 6,140
(Gain) loss on disposition of assets 44,874 967 (2,074) 441,683
Deferred income taxes (106,000) (166,000) (1,466,000) (644,000)
Reorganization item - gain on restructuring transaction -- -- (34,831,263) --
Change in current assets and liabilities:
Receivables (193,712) (227,626) 207,244 (13,690)
Other current assets (2,359) 3,063 21,517 (43,731)
Accounts payable and accrued expenses (8,094) 183,625 (37,963) 21,642
------------------------------------------------------------------
Net cash provided by operating activities 666,692 604,569 1,258,752 3,771,272
INVESTING ACTIVITIES
Capital expenditures (694,444) (587,652) (209,259) (704,925)
Proceeds from disposition of assets 15,113 5,694 2,798 19,040
Decrease in other assets 1,445 817 295 10,860
------------------------------------------------------------------
Net cash used in investing activities (677,886) (581,141) (206,166) (675,025)
FINANCING ACTIVITIES
Net intercompany transactions -- 339,158 (928,998) (3,083,612)
Increase in due from Parent (70,736) (166,729) -- --
------------------------------------------------------------------
Net cash provided by (used in) financing activities (70,736) 172,429 (928,998) (3,083,612)
------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (81,930) 195,857 123,588 12,635
Cash and cash equivalents at beginning of period 380,938 185,081 61,493 48,858
-----------------------------------------------------------------
Cash and cash equivalents at end of period $ 299,008 $ 380,938 $ 185,081 $ 61,493
------------------------------------------------------------------
------------------------------------------------------------------
Supplemental information
Income taxes paid $4,385,000 $2,098,101 $582,000 $2,385,377
------------------------------------------------------------------
------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-34
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 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, totaled $27,155,167 at January 1, 1995, averaged $25,613,361 for the
year ended January 1, 1995, was zero at May 3, 1995 due to the adoption of Fresh
Start Accounting (discussed herein) and was a payable averaging $169,579 for the
fiscal period from May 3, 1995 through October 20, 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 $202,097 and $83,364 due from the Parent during fiscal 1996 and the
period from October 20, 1995 through December 31, 1995, respectively.
F-35
KOLN/KGIN, Inc.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The adjustments to adopt Fresh Start Accounting resulted in a total gain on
restructuring transaction of $34,831,263 in the accompanying statement of
operations and stockholder's/divisional equity for the period from January 1,
1995 through May 2, 1995. This gain resulted from adjustments to assets to
reflect adoption of Fresh Start Accounting.
F-36
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
As a result of the effectiveness of the Plan and the adoption of Fresh Start
Accounting, the results for the year ended December 29, 1996 and the fiscal
period from May 3, 1995 through December 31, 1995 are not comparable to any of
the KOLN/KGIN-TV's fiscal periods ended on or prior to May 2, 1995 and
accordingly, Pre-Effective date and Post-Effective date financial statements are
separated by a vertical line.
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.
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.
F-37
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV (CONTINUED)
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.
The indenture relating to 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.
F-38
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
TELEVISION PROGRAM CONTRACT RIGHTS
The rights to broadcast non-network programs are stated at cost less accumulated
amortization. These costs are amortized based upon the usage of the programs
under methods which generally result in straight-line amortization. The cost of
program rights expected to be used within one year is classified as a current
asset.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost net of accumulated
depreciation. Depreciation is generally calculated on the straight-line method
based on the following useful lives:
POST-EFFECTIVE PRE-EFFECTIVE
-----------------------------
YEARS YEARS
-----------------------------
Leasehold and land improvements 5-20 5-10
Buildings 20 30
Machinery and equipment 1-20 10-20
Vehicles 1-3 3-7
INTANGIBLE ASSETS AND EXCESS REORGANIZATION VALUE
On the Effective Date the amounts allocated to intangible assets and excess
reorganization value represent the excess of the reorganization value over the
amounts allocated to the net tangible and all other intangible assets as of the
Effective Date. These amounts are being amortized on a straight-line basis over
15 years. Accumulated amortization at December 29, 1996 and December 31, 1995
was $4,320,630 and $1,732,545, respectively.
F-39
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prior to the Effective Date, goodwill and amounts allocated to FCC licenses and
network contracts were amortized on a straight-line basis over forty years. The
cost of other intangible assets with determinable economic lives was charged to
operations based on their respective economic lives, under methods that
generally resulted in accelerated amortization.
The Company records impairment losses on long-lived assets used in operations,
including excess reorganization value, when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.
INDEBTEDNESS
The Company has not allocated its indebtedness to its operating divisions or
subsidiary and consequently does not charge the divisions or subsidiary
interest.
INCOME TAXES
KOLN/KGIN-TV is included in the consolidated federal income tax return of the
Company. For financial reporting purposes KOLN/KGIN-TV has provided for federal
income taxes as if it filed a separate income tax return. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-40
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING
Advertising costs are expensed as incurred and totaled, $154,169, $176,366 and
$101,593 for fiscal 1996, 1995, and 1994, respectively.
REPORTING PERIOD
The Company's fiscal year is the 52/53 week period ending on the Sunday nearest
December 31.
4. SUPPLEMENTARY BALANCE SHEET INFORMATION
The composition of receivables is as follows (in thousands):
DECEMBER 29, DECEMBER 31,
1996 1995
--------------------------
Receivables:
Trade $2,293 $2,131
Other 90 58
--------------------------
2,383 2,189
Less allowance for doubtful accounts (40) (40)
--------------------------
$2,343 $2,149
--------------------------
--------------------------
The composition of property, plant and equipment is as follows (in thousands):
DECEMBER 29, DECEMBER 31,
1996 1995
--------------------------
Property, plant and equipment:
Land, land improvements, buildings and
improvements $1,698 $1,672
Machinery and equipment 7,443 7,000
Office equipment 491 463
Vehicles 277 241
--------------------------
9,909 9,376
Accumulated depreciation (1,696) (764)
--------------------------
$8,213 $8,612
--------------------------
--------------------------
F-41
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The income tax provisions (benefits) consist of the following (in thousands):
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
Current - federal $3,510 $1,680 $ 466 $1,940
Current - state 875 418 116 445
Deferred (106) (166) (1,466) (644)
------------------------------------------------------------------
$4,279 $1,932 $ (884) $1,741
------------------------------------------------------------------
------------------------------------------------------------------
The income tax provisions (benefits) differ from the amount computed by applying
the U.S. statutory rate due to the following (in thousands):
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------------------------------------------------------
FISCAL PERIOD
FROM
FISCAL YEAR MAY 3, 1995 FISCAL PERIOD
ENDED THROUGH FROM JANUARY 2, FISCAL YEAR
DECEMBER 29, DECEMBER 31, 1995 THROUGH ENDED
1996 1995 MAY 2, 1995 JANUARY 1, 1995
------------------------------------------------------------------
Provision at federal statutory rate $ 547 $ 87 $ 12,216 $1,368
State taxes, net of federal benefit 564 254 (116) 208
Gain on restructuring transactions and related items -- -- (12,984) --
Intercompany interest recorded for tax purposes 2,227 1,020 -- --
Non-deductible amortization of intangible assets and
excess reorganization values and other items 941 571 -- 165
------------------------------------------------------------------
$4,279 $1,932 $ (884) $1,741
------------------------------------------------------------------
------------------------------------------------------------------
F-42
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
Property, plant and equipment basis differences represent the significant
component of KOLN/KGIN-Inc.'s deferred tax liabilities.
6. COMMITMENTS
The Company has entered into contracts to purchase rights to air certain
programs at future dates. The Company records these contracts as assets and
corresponding liabilities when the license period begins which totaled $606,670,
$578,070 and $661,250 in fiscal 1996, 1995 and 1994, respectively. The aggregate
amount of these contracts entered into but not yet recorded at December 29, 1996
is approximately $1,362,575.
F-43
BUSSE BROADCASTING CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS INFORMATION
For the year ended December 29, 1996 and for the period from
May 3, 1995 through December 31, 1995, Post-Effective Date;
the period from January 2, 1995 through May 2, 1995;
and for the year ended January 1, 1995, Pre-Effective Date
(IN THOUSANDS)
Deductions Due to
Write Off of Certain
Balance at Additions Receivables Against
Beginning of Charged to Costs the Allowance for Balance at end of
Description Period and Expenses Doubtful Accounts Other Deduction(1) Period
- ---------------------------------------------------------------------------------------------------------------------------------
Post-Effective Date:
Year ended December 29, 1996 -
Allowance for doubtful accounts $210 $72 $96 $125 $ 61
For the period from May 3, 1995
through December 31, 1995 -
Allowance for doubtful accounts 222 64 76 -- 210
Pre-Effective Date:
For the period from January 2,
1995 through May 2, 1995 -
Allowance for doubtful accounts 294 36 12 96 222
Year ended January 1, 1995 -
Allowance for doubtful accounts 260 75 41 -- 294
(1) Reduction reflects an elimination of the allowance for doubtful accounts
relating to the accounting for the sale of WWMT-TV ($96) and the sale of
WCP ($125).
S-1