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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to____ Commission file number 33-99622
BUSSE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2750516
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
141 East Michigan Avenue, Suite 300
Kalamazoo, Michigan 49007
(Address of principal executive offices)
(616) 388-8019
(Registrant's telephone number, including area code)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes X No
------- -------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of May 13, 1997, 107,700 shares of the Common Stock of Busse
Broadcasting Corporation were outstanding. None of the outstanding shares
were held by non-affiliates.
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BUSSE BROADCASTING CORPORATION
FORM 10-Q TABLE OF CONTENTS
PAGE
REFERENCE
---------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BUSSE BROADCASTING CORPORATION
Condensed Consolidated Balance Sheets as of March 30, 1997
(Unaudited) and December 29, 1996 (Audited) 3
Unaudited Condensed Consolidated Statements of Operations for
the Three Months Ended March 30, 1997 and March 31, 1996 4
Unaudited Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 30, 1997 and March 31, 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements
for the Three Months Ended March 30, 1997 6
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
Condensed Consolidated Balance Sheets as of March 30, 1997
(Unaudited) and December 29, 1996 (Audited) 12
Unaudited Condensed Consolidated Statements of Operations and
Stockholder's Equity for the Three Months Ended
March 30, 1997 and March 31, 1996 13
Unaudited Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 30, 1997 and March 31, 1996 14
Notes to Unaudited Condensed Consolidated Financial Statements
for the Three Months Ended March 30, 1997 15
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 18
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 24
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 25
2
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Busse Broadcasting Corporation
Condensed Consolidated Balance Sheets
MARCH 30, DECEMBER 29,
1997 1996
UNAUDITED AUDITED
------------- -------------
ASSETS (NOTE 1)
Current assets:
Cash and cash equivalents (NOTE 3) $ 10,075,901 $ 7,989,805
Receivables, net 3,075,981 3,848,990
Other current assets 668,987 856,200
-------------------------------
Total current assets 13,820,869 12,694,995
Property, plant and equipment, net 14,057,295 14,327,392
Deferred charges and other assets 2,270,923 2,424,312
Intangible assets and excess reorganization value 51,694,346 52,707,124
-------------------------------
Total assets $ 81,843,433 $ 82,153,823
-------------------------------
-------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 1)
Current liabilities:
Accounts payable and accrued expenses $ 4,347,730 $ 3,174,795
-------------------------------
Total current liabilities 4,347,730 3,174,795
Long-term debt (NOTE 3) 60,571,416 60,464,182
Other long-term liabilities 1,060,008 941,501
Stockholders' equity:
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
March 30, 1997; including dividends in arrears of $5,869,084
and $4,663,471 at March 30, 1997 and December 29, 1996,
respectively 23,199,744 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 (16,522,314) (13,607,635)
-------------------------------
Total stockholders' equity 15,864,279 17,573,345
-------------------------------
Total liabilities and stockholders' equity $ 81,843,433 $ 82,153,823
-------------------------------
-------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations
Unaudited
THREE MONTHS ENDED
--------------------------------
MARCH 30, 1997 MARCH 31, 1996
--------------------------------
Net revenue from continuing operations $ 4,264,942 $ 4,511,640
Operating costs and expenses, excluding depreciation and amortization 2,164,881 2,187,231
Depreciation 530,269 504,588
Amortization of intangibles and excess reorganization value 1,012,778 976,007
--------------------------------
Total operating costs and expenses of continuing operations 3,707,928 3,667,826
Corporate expenses 352,953 403,685
--------------------------------
Income from continuing operations 204,061 440,129
Other income (expense) from continuing operations:
Interest expense (2,078,776) (2,198,757)
Interest income 96,514 96,019
Gain on disposition of assets 20 --
Other income (expense) 69,115 (10,919)
--------------------------------
Other expense from continuing operations (1,913,127) (2,113,657)
--------------------------------
Loss from continuing operations before income taxes (1,709,066) (1,673,528)
Provision for current state income taxes (NOTE 4) -- (25,000)
--------------------------------
Loss from continuing operations (1,709,066) (1,698,528)
Discontinued operations (Note 2):
Income from operations -- 80,697
--------------------------------
Net loss (1,709,066) (1,617,831)
Charges to stockholders' equity for Series A preferred
stock dividends in arrears (1,205,613) (1,046,631)
--------------------------------
Net loss attributable to common stockholders $(2,914,679) $(2,664,462)
--------------------------------
--------------------------------
Per common share (Note 1):
Loss from continuing operations $ (15.87) $ (15.77)
Income from discontinued operations -- 0.75
Series A preferred stock dividends in arrears (11.19) (9.72)
--------------------------------
Net loss attributable to common stockholders $ (27.06) $ (24.74)
--------------------------------
--------------------------------
Weighted average common shares outstanding 107,700 107,700
--------------------------------
--------------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
Busse Broadcasting Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
THREE MONTHS ENDED
------------------------------
MARCH 30, MARCH 31,
1997 1996
------------ -------------
OPERATING ACTIVITIES
Net loss $(1,709,066) $ (1,617,831)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,543,047 1,561,869
Noncash interest expense 107,234 140,632
Amortization of deferred financing costs 154,351 146,312
Program payments over program amortization (2,257) (9,208)
Gain on disposition of property, plant and equipment (20) (15,600)
Deferred compensation expense 88,507 91,415
Pension expense 30,000 40,000
Change in current assets and liabilities:
Receivables 773,009 622,302
Inventories and other current assets (53,161) 177,826
Accounts payable and accrued expenses 1,415,566 1,690,339
----------- ------------
Net cash provided by operating activities 2,347,210 2,828,056
INVESTING ACTIVITIES:
Capital expenditures (260,172) (159,870)
Proceeds from disposition of assets 20 15,600
Decrease in other assets (962) (14,075)
----------- ------------
Net cash used in investing activities (261,114) (158,345)
FINANCING ACTIVITIES:
Payments on indebtedness -- (35,179,528)
Payment of deferred financing costs -- (144,701)
----------- ------------
Net cash used in financing activities -- (35,324,299)
----------- ------------
Net increase (decrease) in cash and cash equivalents 2,086,096 (32,654,518)
Cash and cash equivalents at beginning of period 7,989,805 38,893,959
----------- ------------
Cash and cash equivalents at end of period $10,075,901 $ 6,239,441
----------- ------------
----------- ------------
Supplemental disclosure of cash flow information:
Interest paid during the period $ -- $ 99,107
----------- ------------
----------- ------------
Income taxes paid during the period $ -- $ --
----------- ------------
----------- ------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
March 30, 1997
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include Busse Broadcasting
Corporation and its wholly owned subsidiaries (collectively BBC or the
Company) engaged in the following businesses:
TELEVISION:
KOLN/KGIN-TV CBS Affiliate Lincoln/Grand Island, Nebraska
WEAU-TV NBC Affiliate Eau Claire/La Crosse, Wisconsin
PRINTING:
Winnebago Color Press Menasha, Wisconsin
(Sold December 27, 1996)
All intercompany accounts and transactions have been eliminated in
consolidation.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. As the Company
currently has no stock options, the impact of Statement 128 on the
calculation of primary and fully diluted earnings per share for the three
months ended March 30, 1997 and March 31, 1996 is not expected to be
material.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to be financial statements reflect, in the
opinion of the Company, all adjustments, consisting of only normal recurring
adjustments necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results for such
interim periods are not necessarily indicative of the results for the
respective entire years.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the audited financial statements and notes thereto of Busse Broadcasting
Corporation included in the Company's 1996 Annual Report on Form 10-K.
6
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
March 30, 1997
1. BASIS OF PRESENTATION (CONTINUED)
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.
2. 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. 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 3). 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
operations of Winnebago for the three months ended March 31, 1996 is classified
as income from discontinued operations. The net revenues of Winnebago included
in the condensed consolidated statements of operations were $1,558,855 for the
three months ended March 31, 1996.
Corporate expenses and interest expense, net of interest income, have been
allocated to income from discontinued operations only if such expenses were
directly attributable to Winnebago. For the three months ended March 31, 1996
the corporate expenses and interest expense, net of interest income, allocated
to income from discontinued operations were $2,877 and $738, respectively.
7
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT
Debt is summarized as follows:
MARCH 30, DECEMBER 29,
1997 1996
----------------------------
Senior Secured Notes, net of unamortized
original issue discount of $1,955,584
and $2,062,818 at March 30, 1997 and
December 29, 1996, respectively $60,571,416 $60,464,182
----------------------------
----------------------------
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. The net proceeds from the issuance of the Senior Notes, and the
interest earnings thereon, were used by the Company to redeem certain of the
Company's outstanding indebtedness in October 1995 and in January 1996.
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 Federal
Communications Commission ("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.
8
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
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") restricts the use
of the net proceeds from the sale of Winnebago ($3,207,000, as determined in
accordance with the Indenture). Pursuant to 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, and the interest earnings thereon,
to make investments in or acquire properties and assets directly related to
television and/or radio broadcasting.
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.
9
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
4. INCOME TAXES
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
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.
5. 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 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.
10
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
5. 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. Separate financial statements of KOLN/KGIN, Inc.
immediately follow these notes to condensed consolidated financial statements of
Busse Broadcasting Corporation. Separate financial statements and other
disclosures concerning KOLN/KGIN License, Inc. and WEAU License, Inc. have not
been presented because management has determined that such financial statements
would not be material to investors.
MARCH 30, DECEMBER 29,
1997 1996
-------------------------------
ASSETS
Current assets $ 3,075,479 $ 3,258,170
Non-current assets 48,148,719 49,097,117
-------------------------------
$51,224,198 $52,355,287
-------------------------------
-------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities $ 952,741 $ 1,090,989
Non-current liabilities 6,657,725 6,703,675
Shareholder's equity 43,613,732 44,560,623
-------------------------------
Total liabilities and shareholder's equity $51,224,198 $52,355,287
-------------------------------
-------------------------------
THREE MONTHS ENDED
-------------------------------
MARCH 30, 1997 MARCH 31, 1996
-------------------------------
Net revenue $ 2,819,133 $ 2,899,748
Total operating costs and expenses 2,614,956 2,589,626
Income from operations 204,177 310,122
Net loss $ (946,891) $ (812,536)
11
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Balance Sheets
MARCH 30, DECEMBER 29,
1997 1996
UNAUDITED AUDITED
---------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 473,156 $ 299,008
Receivables, net 1,931,875 2,343,022
Program contract rights 283,310 438,219
Other current assets 57,136 29,919
---------------------------
Total current assets 2,745,477 3,110,168
Property, plant and equipment, net 8,032,713 8,213,165
Due from Parent 256,174 237,465
Deferred charges and other assets 5,038 5,038
Intangible assets and excess reorganization value 34,343,068 34,992,682
---------------------------
Total assets $45,382,470 $46,558,518
---------------------------
---------------------------
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 485,785 $ 609,878
Program contracts payable 207,959 364,094
---------------------------
Total current liabilities 693,744 973,972
Deferred income tax liabilities 1,912,000 1,958,000
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 (3,791,861) (2,942,041)
---------------------------
Total stockholder's equity 42,776,726 43,626,546
---------------------------
Total liabilities and stockholder's equity $45,382,470 $46,558,518
---------------------------
---------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
12
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Operations and Stockholder's Equity
Unaudited
THREE MONTHS ENDED
--------------------------
MARCH 30, MARCH 31,
1997 1996
--------------------------
Net revenue $ 2,637,133 $ 2,723,748
Operating costs and expenses, excluding
depreciation and amortization 1,334,915 1,344,698
Depreciation 274,525 266,110
Amortization of intangibles and excess
reorganization value 649,614 649,610
Corporate expenses 218,861 226,588
--------------------------
Total operating costs and expenses 2,477,915 2,487,006
--------------------------
Income from operations 159,218 236,742
Other income (expense):
Interest income 4,962 5,497
Other expense -- (7,760)
--------------------------
Other income (expense) 4,962 (2,263)
--------------------------
Income before income taxes 164,180 234,479
(Provision) benefit for income taxes:
Current (1,060,000) (1,000,000)
Deferred 46,000 24,000
--------------------------
(1,014,000) (976,000)
--------------------------
Net loss (849,820) (741,521)
Stockholder's equity at beginning of period 43,626,546 46,296,404
--------------------------
Stockholder's equity at end of the period $42,776,726 $45,554,883
--------------------------
--------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
13
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Cash Flows
Unaudited
THREE MONTHS ENDED
-------------------------
MARCH 30, MARCH 31,
1997 1996
-------------------------
OPERATING ACTIVITIES
Net loss $ (849,820) $ (741,521)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 924,139 915,720
Program payments over program amortization (1,226) (11,002)
Deferred income taxes (46,000) (24,000)
Change in current assets and liabilities:
Receivables 411,147 128,004
Other current assets (27,217) 17,586
Accounts payable and accrued expenses (124,093) 31,879
-------------------------
Net cash provided by operating activities 286,930 316,666
INVESTING ACTIVITIES
Capital expenditures (94,073) (69,194)
Decrease in other assets -- 212
-------------------------
Net cash used in investing activities (94,073) (68,982)
FINANCING ACTIVITIES
Increase in due from Parent (18,709) (75,755)
-------------------------
Net cash used in financing activities (18,709) (75,755)
-------------------------
Net increase in cash and cash equivalents 174,148 171,929
Cash and cash equivalents at beginning of period 299,008 380,938
-------------------------
Cash and cash equivalents at end of period $ 473,156 $ 552,867
-------------------------
-------------------------
Supplemental information
Income taxes paid $1,060,000 $1,000,000
-------------------------
-------------------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
14
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements
Unaudited
March 30, 1997
1. BASIS OF PRESENTATION
The financial statements present the financial position, results of operations
and stockholder's equity, and cash flows of KOLN/KGIN, Inc., a wholly-owned
subsidiary of Busse Broadcasting Corporation (the Company or Parent). KOLN/KGIN,
Inc. owns and operates KOLN/KGIN-TV a CBS affiliate operating channels 10 and 11
in the Lincoln - Hastings - Kearney, Nebraska television market.
The accompanying financial statements include 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.
Net intercompany balances reflected in the due from Parent account are primarily
the result of KOLN/KGIN, Inc.'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, Inc. and the current income taxes that would
have been due to the Company. There are no terms of settlement or interest
related to these balances which averaged $246,819 and $204,606 due from the
Parent during the three months ended March 30, 1997 and March 31, 1996,
respectively.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in the
opinion of KOLN/KGIN, Inc., all adjustments, consisting of only normal recurring
adjustments necessary to present fairly KOLN/KGIN, Inc.'s financial position and
results of operations for the unaudited interim periods. Results for such
interim periods are not necessarily indicative of the results for the respective
entire years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
financial statements and notes thereto of KOLN/KGIN, Inc.
15
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The Company and KOLN/KGIN, Inc. (then named WWMT, Inc.) filed voluntary
petitions for a joint plan of reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Plan") on March 10, 1995. On April 20, 1995 the
United States Bankruptcy Court (the "Court") for the district of Delaware
confirmed the Plan, such Plan became effective May 3, 1995 (the "Effective
Date") and the respective Chapter 11 cases were closed by the Court on September
21, 1995.
2. GUARANTEE OF PARENT'S SENIOR 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.
To facilitate the collateral arrangements required by the Senior Notes the
Company effected the following transactions on October 20, 1995:
1. The assets and liabilities relating to the operation of KOLN-TV and KGIN-TV
were conveyed to KOLN/KGIN, Inc.
2. KOLN/KGIN, Inc. transferred the FCC licenses relating to the operation of
KOLN-TV and KGIN-TV to its wholly-owned subsidiary KOLN/KGIN License, Inc.
in exchange for all of the capital stock of the subsidiary.
Interest on the Senior Notes is payable semiannually in arrears on April 15 and
October 15 of each year, commencing April 15, 1996. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months.
16
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. GUARANTEE OF PARENT'S SENIOR NOTES (CONTINUED)
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all existing
and future senior indebtedness of the Company. The Senior Notes are secured by
all of the Company's equity interests in, and certain intercompany indebtedness
of, its subsidiaries, including the 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.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The following discussion and analysis of financial condition and results
of operations should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements of the Company and notes thereto included
at Item 1, "Financial Statements," which provide additional information
regarding the Company's financial activities and condition. The accompanying
unaudited Condensed Consolidated Financial Statements, together with the
related notes to such financial statements, reflect, in the opinion of the
Company, all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the Company's financial position and results of
operations for the unaudited interim periods. Results of such interim
periods are not necessarily indicative of the results for the respective
entire fiscal years.
The Company's fiscal year is the 52/53 week period ending on the Sunday
nearest to December 31 of each year. The Company's first three fiscal
quarters are each comprised of 13 consecutive weeks. Unless otherwise
indicated, references herein to 1997 and/or 1996 refer to the three month
period ended March 30, 1997 or March 31, 1996, respectively.
RESULTS OF OPERATIONS
The net revenues 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 revenues of the Stations is generated from
local and regional advertising,
18
which is sold primarily by the Stations' sales staff, and the remainder of
the advertising revenues represents 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 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.
Operating expenses of the Company's television stations are generally
consistent throughout the fiscal year.
The Company's sale of Winnebago on December 27, 1996 constituted a
discontinuance of operations within the printing segment. The results of
operations for the three months ended March 31, 1996 account for Winnebago as
a discontinued operation. See Note 2 to Notes to Condensed Consolidated
Financial Statements (Unaudited) included in "Financial Statements" at Item
1.
COMPARISON OF THE THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1996
Net revenue declined $246,698, or 5.5%, to $4,264,942 from $4,511,640
for the three months ended March 30, 1997 compared to the three months ended
March 31, 1996, reflecting reduced advertiser demand for commercial time.
KOLN/KGIN-TV recorded a year-to-year increase in net local time sales,
excluding net political revenues, of approximately 4.7% attributable to a
general improvement of advertising demand by local clients within that
station's market while net national time sales, excluding net political
revenues, decreased approximately 13.5% reflecting decreased advertiser
demand by national clients. WEAU-TV recorded decreases of approximately 8.1%
and 11.2% in net local and national time sales, excluding net political
revenues, respectively, during the three month period ended March 30, 1997
compared to the three months ended March 31, 1996 due to decreased advertiser
demand within that station's market. Net political revenue for the Stations
during the three months ended March 30, 1997 decreased by approximately
$66,000, or 66.7%, to $33,000 from $99,000 between the fiscal periods
reflecting the "off-year" of the biannual election cycle. Network
compensation for the Stations was consistent between the respective fiscal
periods.
Operating expenses, excluding depreciation and amortization expenses,
decreased $22,350, or 1.0%, to $2,164,881 for the three months ended March
30, 1997 from $2,187,231 for the comparable 1996 period.
Depreciation expenses increased $25,681, or 5.1%, to $530,269 for the
three months ended March 30, 1997 from $504,588 for the comparable 1996
period, reflecting depreciation related to capital assets acquired since
March 31, 1996.
19
Amortization expenses increased $36,771, or 3.8%, to $1,012,778 for the
three months ended March 30, 1997 from $976,007 for the comparable 1996
period.
Corporate expenses decreased $50,732, or 12.6%, to $352,953 during the
three months ended March 30, 1997 from $403,685 for the three months ended
March 31, 1996 reflecting, in part, differences in the incurrence of
professional services between the respective fiscal periods.
Income from continuing operations decreased $236,068, or 53.6%, to
$204,061 for the three months ended March 30, 1997 from $440,129 for the
comparable period of 1996 primarily reflecting the reduced net revenues
discussed above.
Interest expense decreased $119,981, or 5.5%, to $2,078,776 for the
three months ended March 30, 1997 from $2,198,757 for the comparable 1996
fiscal period reflecting the Company's redemption and/or repayment of certain
debt in January and October 1996, respectively. Interest income was
consistent between the respective fiscal periods.
The Company has analyzed its current and deferred tax assets and
liabilities and has concluded that no provision for current or deferred
federal or state taxes is required for the three months ended March 30, 1997.
Income from discontinued operations for the three months ended March 31,
1996 reflects the results for Winnebago, accounted for as a discontinued
operation, for the 1996 period and includes $1,558,855 of net revenue for the
three months then ended. Winnebago was sold December 27, 1996, see Note 2
to Notes to Condensed Consolidated Financial Statements (Unaudited) included
in "Financial Statements" at Item 1.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at March 30, 1997 totaled
$10,075,901 compared to $7,989,805 at December 31, 1996. The Company's cash
balance at March 30, 1997 includes $3,250,353 representing the net proceeds,
and the interest earnings thereon, from the sale of Winnebago. The Company's
use of such net proceeds, and the interest earnings thereon, 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. 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.
See Note 3 to Notes to Condensed Consolidated Financial Statements
(Unaudited) included in "Financial Statements" at Item 1. The primary
changes in the Company's cash position results from changes in certain
working capital accounts.
20
The Company's primary source of liquidity is cash generated by
operations. There are no contractual restrictions on the ability of the
Company's subsidiaries to pay cash dividends or make loans or advances to the
Company. The Company's net cash provided by operations (including changes in
working capital) was $2,347,210 and $2,828,056 for the three months ended
March 30, 1997 and March 31, 1996, respectively. The decrease in net cash
generated between the respective fiscal periods is due primarily to the
Company's decreased net revenues, discussed above, and changes in certain
working capital accounts.
The Company continues to have a significant annual cash interest
obligation of approximately $7,268,000 with respect to the Senior Notes.
Such cash interest obligation is payable in semi-annual installments of
approximately $3,634,000 due on the 15th day of April and October.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. For the three
months ended March 30, 1997 capital expenditures totaled $260,172. The
Company currently expects fiscal year 1997 capital expenditures to
approximate $1,100,000 with such amount divided approximately evenly between
the Stations.
It is anticipated that significant capital expenditures may be required
in the future to implement digital advanced television systems ("ATV") at
the Stations. The Federal Communications Commission ("FCC") has determined
the technical standards for ATV and in April 1997 established the channel
assignments and a time table for implementation of ATV. The FCC has assigned
the following ATV channels to the Company's current channels:
Station Location Current Channel ATV Channel
------- -------- --------------- -----------
KOLN Lincoln, Nebraska 10 25
KGIN Grand Island, Nebraska 11 32
WEAU Eau Claire, Wisconsin 13 39
Generally, under the FCC's implementation schedule, the Company must
apply for ATV construction permits for each of its present television
stations by December 1, 1999 and then commence ATV operations by May 1, 2002.
Under the current FCC implementation schedule the Company would be required
to surrender to the government either the current channel or the ATV channel
by December 31, 2006 and continue its digital operations thereafter on the
retained channel. The foregoing implementation schedule is subject to review
by the FCC each two years and is also subject to pending and proposed
congressional legislation. Neither the outcome of the FCC review(s) nor the
pending or proposed legislation can be predicted by the Company.
The Company is currently studying the ATV channel assignments for the
Stations and the technical requirements, including capital expenditure
requirements, to implement ATV at
21
the Stations. The Company currently intends to implement ATV at the Stations
within the FCC mandated implementation period but cannot presently predict
the cost of such implementation.
Although there can be no assurance that the Company will generate
earnings in the future sufficient to cover its fixed charges, including the
debt service obligations with respect to the Senior Notes, management
believes that the cash flow generated from the Company's operations and
available cash on hand should be sufficient to fund its interest
requirements, working capital needs, anticipated capital expenditures and
other operating expenses through the end of fiscal year 1999. 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 quarterly report on Form 10-Q 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,"
"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 within the industry and/or 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
22
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's 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 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 is not
restricted, absent a future "ownership change" under Section 382 of the Code.
See Note 4 of Notes to Condensed Consolidated Financial Statements
(Unaudited) included in "Financial Statements" at Item 1.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
(a) EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBITS
27 Financial Data Schedule for the Quarter ended
March 30, 1997
(b) REPORTS ON FORM 8-K
None.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSSE BROADCASTING CORPORATION
-------------------------------
(Registrant)
May 13, 1997 BY: /s/ JAMES C. RYAN
- -------------------- -------------------------------
(Date) James C. Ryan
Chief Financial Officer
(Authorized Officer and
Principal Accounting Officer)
25