SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
May 9, 1996
----------------------------
(Date of earliest event reported)
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
Maryland 000-26076 52-1494660
(State of incorporation) (Commission File Number) (IRS Employer
Identification Number)
2000 W. 41st Street, Baltimore, Maryland 21211-1420
---------------------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (410) 467-5005
--------------
Item 2. Acquisition or Disposition of Assets.
In its original filing on Form 8-K, the Company reported as pending the
acquisition of certain assets from (as previously amended) Kansas City TV 62
Limited Partnership ("KSMO"), Cincinnati TV 64 Limited Partnership ("WSTR") and
River City Broadcasting ("RCB"). The Company completed the acquisition of assets
from RCB on May 31, 1996, and entered into an Amended and Restated Asset
Purchase Agreement, a Group I Option and a Columbus Option reflecting certain
amendments, as described in the original filing, to the original agreements. The
Company completed the acquisition of KSMO on July 1, 1996 and completed the
acquisition of WSTR on August 1, 1996.
ITEM 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The following financial statements are filed with this report:
KANSAS CITY TV 62 LIMITED PARTNERSHIP
Balance Sheet as of June 30, 1996
Statements of Operations for the Three and Six Months
Ended June 30, 1995 and June 30, 1996
Statement of Cash Flows for the Six Months Ended
June 30, 1995 and June 30, 1996
Notes to Financial Statements
CINCINNATI TV 64 LIMITED PARTNERSHIP
Balance Sheet as of June 30, 1996
Statements of Operations for the Three and Six Months
Ended June 30, 1995 and June 30, 1996
Statement of Cash Flows for the Six Months Ended
June 30, 1995 and June 30, 1996
Notes to Financial Statements
Financial statements of businesses acquired (previously filed as
amended herein)
SUPERIOR COMMUNICATIONS GROUP, INC.
Independent Auditors Report
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994
Consolidated Statements of Operations for the Years Ended
December 31, 1995 and December 31, 1994
Consolidated Statements of Stockholder's Equity for the Years
Ended December 31, 1995 and December 31, 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995 and December 31, 1994
Notes to Consolidated Financial Statements
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
Report of Independent Public Accountants
Consolidated Balance sheets as of August 3, 1995 and
December 31, 1994
Consolidated Statements of Operations for the period from
January 1, 1995 through August 3, 1995 and the Year Ended
December 31, 1994
Consolidated Statements of Stockholders' Equity for the
Period from January 1, 1995 through August 3, 1995 and the
Year Ended December 31, 1994
Consolidated Statements of Cash Flows for the Period from
January 1, 1995 through August 3, 1995 and the Year Ended
December 31, 1994
Notes to Consolidated Financial Statements
KRRT, Inc.
Report of Independent Public Accountants
Balance Sheet as of December 31, 1995
Statement of Operations for the Period from July, 25 1995
through December 31, 1995
Statements of Changes in Stockholders' Equity for the Period
from July 25, 1995 through December 31, 1995
Statements of Cash Flows for the Period from July 25, 1995
through December 31, 1995
Notes to Financial Statements
RIVER CITY BROADCASTING L.P.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1994 and
December 31, 1995
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995
Consolidated Statements of Partners' Capital (Deficit) for the
Years Ended December 31, 1993, 1994 and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995
Notes to Consolidated Financial Statements
Supplementary Information-Consolidating Balance Sheet as of
December 31, 1995
Supplementary Information-Consolidating Schedule of Operations
for the Year Ended December 31, 1995
(b) Pro forma financial information
Pro forma financial statements as of June 30, 1996 and for the six
months ended June 30, 1996 and the year ended December 31, 1995 are
filed with this report.
(c) Exhibits
10.71 Amended and Restated Asset Purchase Agreement dated as of
May 31, 1996 by and between River City Broadcasting, L.P. and Sinclair
Broadcast Group, Inc.
10.72 Group I Option Agreement dated as of May 31, 1996 by and
among River City Broadcasting, L.P., River City License Partnership
and Sinclair Broadcast Group, Inc.
10.73 Columbus Option dated as of May 31, 1996 by and among River
City Broadcasting, L.P., River City License Partnership and Sinclair
Broadcast Group, Inc.
Kansas City TV 62 Limited Partnership
Balance Sheet
As of June 30, 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 522,967
Accounts receivable, net of allowance for
doubtful accounts of $252,018 4,021,199
Program contract rights, current portion 1,046,243
Prepaid expenses and other current assets 122,584
----------
Total current assets 5,712,993
Property and equipment, net of accumulated
depreciation 464,124
Due from related party -
Program contract rights, long-term portion 2,115,502
Intangible assets, net of accumulated amortization 3,727,907
-----------
Total assets $12,020,526
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Program contract rights payable, current portion $ 1,629,010
Accounts payable 97,621
Deferred revenue 114,711
Accrued liabilities 915,393
Note payable, current portion 1,120,502
-----------
Total current liabilities 3,877,237
PROGRAM CONTRACTS PAYABLE, net of current portion 1,664,335
NOTE PAYABLE, net of current portion 13,991,290
-----------
Total liabilities 19,532,862
-----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock -
Additional paid-in capital -
Retained earnings (7,512,336)
-----------
Total stockholders' equity (7,512,336)
-----------
Total liabilities and stockholders' equity $12,020,526
===========
The accompanying notes are an integral part of these unaudited statements.
Kansas City TV 62 Limited Partnership
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
REVENUES:
Advertising revenue, net of agency commissions $ 4,144,103 $ 4,401,518 $ 7,008,506 $ 7,693,895
Revenues realized from barter arrangements 692,212 (807,348) 1,369,940 45,577
------------ ------------ ------------ ------------
Total Revenues 4,836,315 3,594,170 8,378,446 7,739,472
OPERATING EXPENSES:
Programming and production 2,197,505 1,745,583 2,272,081 1,842,027
Selling, general and administrative 505,573 771,159 1,720,429 1,901,725
Amortization of program contract rights 933,102 (515,477) 1,865,394 601,039
Depreciation and amortization of property and equipment 216,570 185,345 424,074 374,000
Amortization of intangible assets ------------ ------------ ----------- ------------
Total operating expenses 3,852,750 2,186,610 6,281,978 4,718,791
------------ ------------ ----------- ------------
Broadcast operating income 983,565 1,407,560 2,096,468 3,020,681
------------ ------------ ----------- ------------
OTHER INCOME:
Interest expense, net (512,911) (466,849) (1,057,399) (823,349)
Other income (expense) (4,105) (3,046) (23,525) 6,861
------------ ------------ ----------- ------------
Total other income (517,016) (469,895) (1,080,924) (816,488)
------------ ------------ ----------- ------------
Net income $ 466,549 $ 937,665 $ 1,015,544 $ 2,204,193
============ ============ =========== ============
Pro Forma Net Income After Imputing An Income Tax Provision:
Net income as reported $ 466,549 $ 937,665 $ 1,015,544 $ 2,204,193
Imputed income tax provision (223,943) (450,080) (487,461) (1,058,013)
------------ ------------ ----------- ------------
Pro Forma net income $ 242,606 $ 487,585 $ 528,083 $ 1,146,180
============ ============ =========== ============
The accompanying notes are an integral part of these unaudited statements.
Kansas City TV 62 Limited Partnership
Statements of Cash Flows
For The Six Months Ended June 30, 1995 and June 30, 1996
(Unaudited)
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,015,544 $ 2,204,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 318,949 281,820
Amortization of goodwill and other intangible assets 105,127 92,180
Amortization of program contracts rights 595,458 591,898
Changes in assets and liabilities:
Increase in accounts receivable (864,532) (68,406)
Increase in prepaid expenses (40,257) (105,036)
Increase (Decrease) in accounts payable 120,872 (24,713)
Decrease in accrued liabilities (793,637) (630,303)
Decrease in other current liabilities (42,058) (27,728)
Film Rights Payments (1,033,281) (921,424)
------------ ------------
Net cash flows from operating activities (617,815) 1,392,481
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (43,015) (11,310)
------------ ------------
Net cash flows from investing activities (43,015) (11,310)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners - (325,000)
Repayment of long-term debt (57,856) (1,123,089)
------------ ------------
Net cash flows from financing activities (57,856) (1,448,089)
------------ ------------
Net decrease in cash (718,686) (66,918)
------------ ------------
CASH, beginning of period 978,488 589,885
------------ ------------
CASH, end of period $ 259,802 $ 522,967
============ ============
Supplemental Schedule of Noncash Investing and Financing
Activities:
Film contracts acquired $ 41,000 $ 524,413
------------ -----------
Film contract liability additions $ 41,000 $ 524,413
============ ============
The accompanying notes are an integral part of these unaudited statements.
KANSAS CITY TV 62 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION:
Kansas City TV 62 Limited Partnership (the "Partnership") is a joint venture of
ABRY Communications III, L.P., the general partner, and Copley Place Capital
Group, the limited partner. The Partnership was organized under the laws of the
State of Delaware on April 18, 1990. On September 21, 1990, the Partnership
acquired the business and certain assets of Kansas City Television, Inc. (the
"Seller"). The Partnership is a television broadcaster serving the Kansas City
area through Station KSMO on UHF Channel 62.
These statements are unaudited, and certain information and footnote
disclosures normally included in the Partnership's annual financial statements
have been omitted, as permitted under the applicable rules and regulations.
Readers of these statements should refer to the financial statements and the
notes thereto as of December 31, 1995 and for the year ended included in the
original filing on Form 8-K. The results of operations presented in the
accompanying financial statements are not necessarily representative of
operations for an entire year.
2. RELATED PARTY TRANSACTIONS:
Prior to 1995, ABRY Communications III, L.P., provided certain administrative
and support services to the Partnership for which it was paid a management fee.
Management fees charged to operations aggregated $276,000 in 1994. No management
fees were charged during 1995 or 1996.
3. OPTION AGREEMENT:
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of the station
for an amount equal to the lesser of outstanding debt as of the exercise date,
including accrued interest thereon, or $9,000,000. The acquiring entity will
assume all other liabilities of the station. In conjunction with option
agreement, the Partnership entered into an agreement with the third-party
whereby the Partnership would pay the third-party a consulting fee of $250,000
per year as long as the option is outstanding. The Third-party exercised this
option and acquired the assets of the station for $10.5 million on July 2, 1996.
Cincinnati TV 64 Limited Partnership
Balance Sheet
As of June 30, 1996
(Unaudited)
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,335
Accounts receivable, net of allowance for
doubtful accounts of $97 2,993
Program contract rights, current portion 3,215
Prepaid expenses and other current assets 34
---------
Total current assets 7,577
Property and equipment, net of accumulated
depreciation 4,979
Due from related party -
Program contract rights, long-term portion 3,190
Intangible assets, net of accumulated amortization 1,707
---------
Total assets $ 17,453
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Program contract rights payable, current portion $ 3,784
Accounts payable 492
Deferred revenue 114
Accrued liabilities 752
Note payable, current portion 200
---------
Total current liabilities 5,342
PROGRAM CONTRACTS PAYABLE, net of current portion 3,080
NOTE PAYABLE, net of current portion 18,778
---------
Total liabilities 27,200
---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock -
Additional paid-in capital -
Retained earnings (9,747)
---------
Total stockholders' equity (9,747)
---------
Total liabilities and stockholders' equity $ 17,453
=========
The accompanying notes are an integral part of these unaudited statements.
Cincinnati TV 64 Limited Partnership
Statements of Operations
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
REVENUES:
Advertising revenue, net of agency commissions $ 3,122 $ 3,679 $ 5,604 $ 6,477
Revenues realized from barter arrangements 859 881 1,669 1,715
------- ------- ------- -------
Total Revenues 3,981 4,560 7,273 8,192
OPERATING EXPENSES:
Programming and production 1,259 1,261 2,459 2,491
Selling, general and administrative 807 878 1,506 1,876
Amortization of program contract rights 341 484 716 1,011
Depreciation and amortization of property and equipment 144 142 300 284
Amortization of intangible assets 19 19 39 39
------- ------- ------- -------
Total operating expenses 2,570 2,784 5,020 5,701
------- ------- ------- -------
Broadcast operating income 1,411 1,776 2,253 2,491
------- ------- ------- -------
OTHER INCOME:
Interest expense, net (652) (550) (1,289) (1,112)
Other income (expense) - - - -
------- ------- ------- -------
Total other income (652) (550) (1,289) (1,112)
------- ------- ------- -------
Net income $ 759 $ 1,226 $ 964 $ 1,379
======= ======= ======= =======
The accompanying notes are an integral part of these unaudited statements.
Cincinnati TV 64 Limited Partnership
Statements of Cash Flows
For The Six Months Ended June 30, 1995 and June 30, 1996
(Unaudited)
(in thousands)
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 964 $ 1,379
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 300 284
Amortization of goodwill and other intangible assets 39 39
Amortization of program contracts rights 716 1,011
Changes in assets and liabilities:
Decrease in accounts receivable 358 213
Increase in prepaid expenses (6) (20)
Decrease in accounts payable (611) (362)
Increase in accrued liabilities 485 446
Decrease in other current liabilities - (187)
Film Rights Payments (545) (1,235)
------- ------
Net cash flows from operating activites 1,700 1,568
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (78) (25)
------- ------
Net cash flows from investing activities (78) (25)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (1,410) (850)
------- ------
Net cash flows from financing activities (1,410) (850)
------- ------
Net increase in cash 212 693
------- ------
CASH, beginning of period 325 642
------- ------
CASH, end of period $ 537 $ 1,335
======= ======
Supplemental Schedule of Noncash Investing and Financing
Activities:
Film contracts acquired $ 416 $ 130
------- ------
Film contract liability additions $ 416 $ 130
======== ========
The accompanying notes are an integral part of these unaudited statements.
CINCINNATI TV 64 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
1. ORGANIZATION:
Cincinnati TV 64 Limited Partnership (the "Partnership") is a joint venture of
ABRY Communications II, L.P., the general partner, and Copley Place Capital
Group, the limited partner. The Partnership was organized under the laws of the
State of Delaware on August 1, 1989. The Partnership is a television broadcaster
serving the Cincinnati, Ohio area through Station WSTR on UHF Channel 64.
These statements are unaudited, and certain information and footnote
disclosures normally included in the Partnership's annual financial statements
have been omitted, as permitted under the applicable rules and regulations.
Readers of these statements should refer to the financial statements and the
notes thereto as of December 31, 1995 and for the year ended included in the
original filing on Form 8-K. The results of operations presented in the
accompanying financial statements are not necessarily representative of
operations for an entire year.
2. RELATED PARTY TRANSACTIONS:
Prior to 1995, ABRY Communications II, L.P., provided certain administrative and
support services to the Partnership for which it was paid a management fee.
3. OPTION AGREEMENT:
On May 24, 1994, the Partnership entered into an agreement whereby the
Partnership granted a third-party an option to acquire the assets of the station
for an amount equal to the lesser of outstanding debt as of the exercise date,
including accrued interest thereon, or $11,000,000. The acquiring entity will
assume all other liabilities of the station. In conjunction with option
agreement, the Partnership entered into an agreement with the third-party
whereby the Partnership would pay the third-party a consulting fee of $250,000
per year as long as the option is outstanding. The third-party exercised this
option in January 1996 and acquired the assets of the station for $9.9 million
on August 1, 1996.
PRO FORMA FINANCIAL INFORMATION
The Pro Forma Consolidated Financial Data filed with this report includes
the unaudited pro forma consolidated balance sheet of the Company as of June 30,
1996 (the "Pro Forma Consolidated Balance Sheet") and the unaudited pro forma
consolidated statements of operations for the six months ended June 30, 1996 and
the year ended December 31, 1995 (the "Pro Forma Consolidated Statements of
Operations").
The unaudited Pro Forma Consolidated Balance Sheet is adjusted to give
effect to (I) the consummation of the acquisition of the assets and liabilities
of Kansas City TV 62 Limited Partnership ("KSMO") and Cincinnati TV 64 Limited
Partnership ("WSTR") and (II) cash on hand and borrowings under the existing
Bank Credit Agreement in amounts sufficient to complete the transactions
described in (I) above.
The unaudited Pro Forma Consolidated Statement of Operations are adjusted
to give effect to (I) the consummation of the acquisition of Superior
Communications Group, Inc. (Superior), KSMO, WSTR and River City Broadcasting
L.P. (RCB) (including KRRT, Inc.) and (II) cash on hand and borrowings under the
existing Bank Credit Agreement and New Credit Facilities in amounts sufficient
to complete the transactions described in (I) above. The WSYX-TV information in
the Pro Forma Consolidated Balance Sheet and Pro Forma Consolidated Statements
of Operations reflects the modification of the acquisition documents separating
Sinclair Broadcast Group, Inc.'s ("SBG") option to acquire the assets of
WSYX-TV, as reflected in the Amended and Restated Asset Purchase Agreement,
Group I Option and Columbus Option filed as exhibits to this report.
The pro forma adjustments are based upon available information and certain
assumptions the Company believes are reasonable. The Pro Forma Consolidated
Financial Data should be read in conjunction with the Company's Consolidated
Financial Statements and related notes thereto, and the Financial Statements and
related notes of Superior, KSMO, WSTR and RCB. The unaudited Pro Forma
Consolidated Data do not purport to represent what the Company's results of
operations or financial position would have been had any of the above events
occurred on the dates specified or to project the Company's results of
operations or financial position for or at any future period or date.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
CONSOLIDATED PRO FORMA
HISTORICAL KSMO(A) WSTR(A) ADJUSTMENTS PRO FORMA
--------------- ---------- ---------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash, including cash equivalents......................... $ 4,196 $ 723 $ 1,693 $ -- $ 6,612
Accounts receivable, net of allowance for
doubtful accounts................................. 81,842 3,855 2,754 88,451
Current portion of program contract costs................ 29,396 1,548 2,096 33,040
Deferred barter costs.................................... 3,964 65 (132) 3,897
Prepaid expenses and other current assets................ 3,697 83 32 3,812
Deferred tax asset....................................... 6,148 6,148
--------------- ---------- ---------- ------------- -------------
Total current assets....................... 129,243 6,274 6,443 -- 141,960
PROPERTY AND EQUIPMENT, net............................... 139,387 3,661 8,378 151,426
PROGRAM CONTRACT COSTS, less current portion.............. 33,267 1,745 2,364 37,376
LOANS TO OFFICERS AND AFFILIATES, net..................... 11,642 11,642
NON-COMPETE AND CONSULTING AGREEMENTS, net................ 19,994 19,994
DEFERRED TAX ASSET........................................ 1,076 1,076
OTHER ASSETS.............................................. 64,602 (13,775)(b) 50,827
ACQUIRED INTANGIBLE BROADCASTING ASSETS, net ............. 1,239,994 7,139 7,456 1,254,589
--------------- ---------- ---------- ------------- -------------
Total Assets............................... $1,639,205 $18,819 $24,641 $ (13,775) $1,668,890
=============== ========== ========== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ........................................ $ 4,237 $ 98 $ 785 $ $ 5,120
Accrued Liabilities...................................... 31,116 503 116 31,735
Current portion of long-term liabilities-
Notes payable and commercial bank financing........... 61,235 61,235
Capital leases payable................................ 310 310
Notes and capital leases payable to affiliates ....... 1,976 1,976
Program contracts payable............................. 35,203 1,629 2,135 38,967
Deferred barter revenues................................. 5,218 5,218
--------------- ---------- ---------- ------------- -------------
Total current liabilities.................. 139,295 2,230 3,036 -- 144,561
LONG-TERM LIABILITIES
Notes payable and commercial bank financing............. 1,170,000 20,430(b) 1,190,430
Notes and capital leases payable to affiliates.......... 12,935 12,935
Program contracts payable............................... 51,010 1,664 2,325 54,999
Other long-term liabilites.............................. 2,384 2,384
--------------- ---------- ---------- ------------- -------------
Total liabilities...................................... 1,375,624 3,894 5,361 20,430 1,405,309
--------------- ---------- ---------- ------------- -------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES............ 3,968 -- -- -- 3,968
--------------- ---------- ---------- ------------- -------------
COMMITMENTS AND CONTINGENCIES.............................
STOCKHOLDERS' EQUITY......................................
Preferred stock, $.01 par value, 10,000,000 shares
authorized and -0- shares issued and outstanding 12 12
Class A Common stock, $.01 par value, 100,000,000
shares authorized 6,328,000 shares
issued and outstanding .............................. 64 64
Class B Common stock, $.01 par value, 35,000,000
shares authorized and 28,422,000 shares issued
and outstanding...................................... 284 284
Additional paid-in-capital.............................. 274,099 274,099
Accumulated deficit..................................... (20,853) (20,853)
Additional paid-in capital - stock options.............. 12,430 12,430
Deferred compensation................................... (6,423) (6,423)
--------------- ---------- ---------- ------------- -------------
Total stockholders' equity............................. 259,613 -- -- -- 259,613
--------------- ---------- ---------- ------------- -------------
Total Liabilities and Stockholders' Equity ............ $1,639,205 $ 3,894 $ 5,361 $ 20,430 $1,668,890
=============== ========== ========== ============= =============
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) The KSMO and WSTR columns reflect the assets and liabilities acquired in
connection with the purchase of KSMO and WSTR. Total acquired intangibles are
calculated as follows:
(1) KSMO:
Purchase Price 14,925
Add: Liabilities acquired -
Accounts payable............................. 98
Accrued liabilities.......................... 503
Current portion of program contract payable.. 1,629
Long term portion of program contract
payable...................................... 1,664
Less: Assets acquired -
Cash......................................... 723
Accounts receivable.......................... 3,855
Current portion of program costs............. 1,548
Deferred barter costs........................ 65
Prepaid expenses and other current assets.... 83
Property and equipment....................... 3,661
Program contract costs, less current portion. 1,745
--------
Acquired intangibles $ 7,139
========
(2) WSTR:
Purchase Price $19,280
Add: Liabilities acquired -
Accounts payable.............................. 785
Accrued liabilities........................... 116
Current portion of program contract payable... 2,135
Long term portion of program contract payable. 2,325
Less: Assets acquired -
Cash.......................................... 1,693
Accounts receivable........................... 2,754
Current portion of program cost............... 2,096
Deferred barter costs......................... (132)
Prepaid expenses and other current assets..... 32
Property and equipmen......................... 8,378
Program contract costs, less current portion.. 2,364
--------
Acquired intangibles $ 7,456
========
(b) To reflect the acquisition price of WSTR and KSMO through the incurrence of
$20,430 of bank financing and the removal of the $9.0 million purchase option to
acquire KSMO and WSTR and the forgiveness of the $4,775 note receivable from
WSTR.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Superior
Consolidated Flint Communications
Historical TV, Inc. (a) Group, Inc.(b) KSMO(c) WSTR(d)
REVENUES:
Station broadcast revenues, net of agency commissions .... $117,339 $1,012 $4,431 $ 7,694 $6,477
Revenues realized from station barter arrangements........ 9,571 2,321 1,715
---------------------------------------------------------------------
Total revenues.................................... 126,910 1,012 4,431 10,015 8,192
---------------------------------------------------------------------
OPERATING EXPENSES:
Program and production.................................... 20,699 101 539 1,550 785
Selling, general and administrative....................... 24,267 345 2,002 2,194 1,876
Expenses realized from station barter arrangements........ 7,859 2,276 1,715
Amortization of program contract costs and net realizable.
value adjustments................................... 17,557 125 736 601 1,011
Deferred compensation................................... 6,007
Depreciation and amortization of property and equipment 3,544 4 373 374 284
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other
assets............................................. 24,392 529 39
----------------------------------------------------------------------
Total operating expenses....................... 104,325 575 4,179 6,995 5,710
----------------------------------------------------------------------
Broadcast operating income (loss)................ 22,585 437 252 3,020 2,482
----------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense........................................ (27,646) (457) (823) (1,127)
Interest income......................................... 2,521 15
Other income (expense).................................. 650 19 4 7
----------------------------------------------------------------------
Income (loss) before (provision) benefit for income.
taxes and extraordinary items................... (1,890) 456 (201) 2,204 1,370
(PROVISION) BENEFIT FOR INCOME TAXES...................... 1,100 (219) 117 (1,283) (797)
----------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS ....... $ (790) $ 237 $ (84) $ 921 $ 573
======================================================================
----------------------------------------------------------------------
LOSS PER COMMON SHARE .................................... $ (0.02)
======================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands) ........ 34,750
======================================================================
River City Pro Forma
Broadcasting, L.P.(e) WSYX(e) Adjustments Pro Forma
REVENUES:
Station broadcast revenues, net of agency commissions ..... $86,869 $ (10,783) $ -- $213,039
Revenues realized from station barter arrangements......... 13,607
-------------------------------------------------- ----------
Total revenues..................................... 86,869 (10,783) -- 226,646
-------------------------------------------------- ----------
OPERATING EXPENSES:
Program and production.................................... 10,001 (736) 32,939
Selling, general and administrative....................... 39,786 (3,950) 789 (f) 67,309
Expenses realized from station barter arrangements........ 11,850
Amortization of program contract costs and net realizable.
value adjustments................................... 9,721 (458) 29,293
Deferred compensation..................................... 1,295 (g) 7,302
Depreciation and amortization of property and equipment... 6,294 (1,174) (1,096)(h) 8,603
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other
assets.............................................. 14,041 (3,599) 3,972 (i) 39,374
----------------------------------------------- -------
Total operating expenses........................ 79,843 (9,917) 4,960 196,670
----------------------------------------------- --------
Broadcast operating income (loss)................. 7,026 (866) (4,960) 29,976
----------------------------------------------- -------
OTHER INCOME (EXPENSE):
Interest expense........................................ (12,352) (16,686)(j) (59,091)
Interest income......................................... 2 (924)(k) 1,614
Other income (expense).................................. (115) (8) 557
----------------------------------------------- ----------
Income (loss) before (provision) benefit for income
taxes and extraordinary items................... (5,439) (874) (22,570) (26,944)
(PROVISION) BENEFIT FOR INCOME TAXES........................ 3,166 509 13,136 (l) 15,729
----------------------------------------------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS.......... $ (2,273) $ (365) $ (9,434) $(11,215)
=============================================== =========
------------------------------------------------ ----------
LOSS PER COMMON SHARE ...................................... $ (0.29)
=============================================== =========
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands).......... $ 38,932 (m)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
River City
Broadcasting L.P.(n)
------------------
KRRT Inc.
------------------
Flint Superior Paramount
Consolidated TV, Communications Stations Group
Historical Inc.(a) Group, Inc(b) KSMO(c) WSTR(d) of Kerville, Inc.
REVENUES: --------------------------------------------------------------------------
Station broadcast revenues, net of agency commissions....$ 187,934 $ 7,217 $13,400 $17,484 $ 15,529 $ 7,567
Revenues realized from station barter arrangements...... 18,200
-------------------------------------------------------------------------
Total revenues......................................... 206,134 7,217 13,400 17,484 15,529 7,567
-------------------------------------------------------------------------
OPERATING EXPENSES:
Program and production................................... 22,563 511 1,461 3,347 1,002 833
Selling, general and administrative...................... 41,763 2,114 4,188 4,374 4,023 1,958
Expenses realized from station barter arrangements....... 16,120 876
Amortization of program contract costs and net realizable
value adjustments...................................... 29,021 897 4,899 4,007 4,971 921
Deferred compensation....................................
Depreciation and amortization of property and equipment.. 5,400 20 1,660 632 585 194
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other
assets................................................. 45,989 12 1,066 210 77 253
-------------------------------------------------------------------------
Total operating expenses............................. 160,856 3,554 13,274 12,570 10,658 5,035
-------------------------------------------------------------------------
Broadcast operating income (loss).................... 45,278 3,663 126 4,914 4,871 2,532
-------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense......................................... (39,253) -- (1,579) (2,039) (2,506)
Interest income.......................................... 3,942 81
Other income (expense)................................... 221 41 (188) 630 63
-------------------------------------------------------------------------
Income (loss) before (provision) benefit for
income taxes and extraordinary items............... 10,188 3,785 (1,641) 3,505 2,365 2,595
(PROVISION) BENEFIT FOR INCOME TAXES...................... (5,200) (1,514) 461 (1,682) (1,135) (1,076)
-------------------------------------------------------------------------
Net income (loss) before extraordinary items........... 4,988 2,271 (1,180) 1,823 1,230 1,519
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of related income
tax benefit .......................................... (4,912)
-------------------------------------------------------------------------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS........$ 76 $ 2,271 $(1,180) $ 1,823 $ 1,230 $ 1,519
=========================================================================
EARNINGS PER COMMON SHARE
Net income before extraordinary items................$ 0.15
Extraordinary items..................................$ (0.15)
-------------------------------------------------------------------------
Net income per common share................................$ 0.00
-------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands)......... 32,198
========================================================================
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
(continued)
River City Broadcasting L. P. (n)
-----------------------------------------------------
KRRT Inc.
-----------------------------
River City Pro Forma
Broadcasting L.P. WSYX Adjustments Pro Forma
---------------------------------------------- -----------
REVENUES:
Station broadcast revenues, net of agency commissions.... $188,190 $(28,767) $ -- $ 408,554
Revenues realized from station barter arrangements...... 18,200
-------------------------------------------- -----------
Total revenues......................................... 188,190 (28,767) -- 426,754
-------------------------------------------- -----------
OPERATING EXPENSES:
Program and production................................... 62,041 (8,133) -- 83,625
Selling, general and administrative...................... 30,456 (3,153) (620)(f) 85,103
Expenses realized from station barter arrangements....... 16,996
Amortization of program contract costs and net realizable
value adjustments...................................... 33,452 (2,624) 75,554
Deferred compensation.................................... 8,855 (g) 8,855
Depreciation and amortization of property and equipment.. 11,524 (2,107) (361)(h) 17,547
Amortization of acquired intangible broadcasting assets,
non-compete and consulting agreements and other
assets................................................. 27,649 (9,780) 11,972 (i) 77,448
-------------------------------------------- -----------
Total operating expenses............................. 165,122 (25,797) 19,846 365,128
-------------------------------------------- -----------
Broadcast operating income (loss).................... 23,068 (2,970) (19,846) 61,626
-------------------------------------------- -----------
OTHER INCOME (EXPENSE):
Interest expense......................................... (34,523) (36,742)(j) (116,642)
Interest income.......................................... 1,715 (2,838)(k) 2,900
Other income (expense)................................... (22) 57 802
-------------------------------------------- -----------
Income (loss) before (provision) benefit for income
taxes and extraordinary items..................... (9,762) (2,913) (59,426) (51,314)
(PROVISION) BENEFIT FOR INCOME TAXES...................... 4,686 1,398 30,331 (l) 26,269
-------------------------------------------- -----------
Net income (loss) before extraordinary items........... (5,076) (1,515) (29,095) (25,045)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt, net of related
income tax benefit ...................................... (4,912)
-------------------------------------------- -----------
NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS........ $ (5,076) $ (1,515) $(29,095) $ (29,957)
=========================================== ===========
EARNINGS PER COMMON SHARE
Net income before extraordinary items............... $ (0.72)
Extraordinary items................................. $ (0.14)
-------------------------------------------- -----------
Net income per common share............................... $ (0.86)
=========================================== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands)........ $ 34,687 (m)
=========================================== ===========
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Flint T.V., Inc. column reflects the results of operations for WSMH for
the year ended December 31, 1995 and for the period from January 1, 1996 to
February 28, 1996, the date the transaction was consummated.
(b) The Superior Communications Group, Inc. column reflects the results of
operations for Superior for the year ended December 31, 1995 and for the
period from January 1, 1996 to May 7, 1996 the date the transaction was
consummated.
(c) The KSMO column reflects the results of operations for the year ended
December 31, 1995 and for the period from January 1, 1996 to June 30, 1996
as the purchase transaction was consummated in July 1996.
(d) The WSTR column reflects the results of operations for the year ended
December 31, 1995 and for the period from January 1, 1996 to June 30, 1996
as the purchase transaction was consummated in August 1996.
(e) The River City Broadcasting L.P. column reflects the results of operations
for RCB (including KRRT, Inc.) for the period from January 1, 1996 to May
31, 1996, the date the transaction was consummated, the WSYX column reflects
the modification of the acquisition eliminating the acquisition of WSYX-TV.
(f) To record additional corporate expenses as follows:
1996 1995
---------- ----------
Corporate expenses on a pro forma basis $ 5,723 $ 9,236
Less: Corporate expenses recorded by Company (3,066) (5,374)
Less: Corporate expenses recorded by RCB (1,868) (4,482)
---------- ----------
Pro forma adjustment $ 789 $ (620)
========== ==========
(g) To record compensation expense related to options granted to Barry Baker
under the employment agreement included as part of the RCB acquisition and
options granted under the Long-Term Incentive Plan.
1996 1995
----------- ---------
Compensation expense related to the Barry
Baker employment agreement and the Long-Term
Incentive Plan on a pro-forma basis $ 7,302 $8,855
Less: Compensation expense recorded by
the Company related to the Barry Baker
employment agreement and the Long-Term
Incentive Plan (6,007) --
--------- --------
$(1,295) $8,855
========= ========
(h) To record depreciation expense related to acquired tangible assets and eliminate depreciation expense recorded by WSMH,
Superior, KSMO, WSTR and RCB. Tangible assets are to be depreciated over lives ranging from 5 to 29.5 years, calculated as
follows:
6/30/96
--------------------------------------------------------------
WSMH Superior KSMO WSTR RCB Total
------- ----------- --------- -------- ----------- -----------
Depreciation expense on acquired tangible assets $32 $315 $240 $507 $ 3,965 $ 5,059
Less: Depreciation expense recorded by WSMH, Superior,
KSMO, WSTR and RCB (e) (4) (373) (374) (284) (5,120) (6,155)
------- ----------- --------- -------- ----------- -----------
Pro forma adjustment $28 $(58) $(134) $223 $(1,155) $(1,096)
======= =========== ========= ======== =========== ===========
12/31/95
--------------------------------------------------------------
WSMH Superior KSMO WSTR RCB Total
------- ----------- --------- --------- ---------- -----------
Depreciation expense on acquired tangible assets $192 $945 $480 $1,014 $ 9,516 $ 12,147
Less: Depreciation expense recorded by WSMH, Superior,
KSMO, WSTR and RCB (n) (20) (1,660) (632) (585) (9,611) (12,508)
------- ----------- --------- --------- ---------- -----------
Pro forma adjustment $172 $(715) $(152) $429 $ (95) $ (361)
======= =========== ========= ========= ========== ===========
(i) To record amortization expense related to acquired intangible assets and
deferred financing costs and eliminate amortization expense recorded by
WSMH, Superior, KSMO, WSTR and RCB. Intangible assets are to be amortized
over lives ranging from 1 to 40 years, calculated as follows:
6/30/96
---------------------------------------------------------
WSMH Superior KSMO WSTR RCB Total
------- ---------- ------- ------- ----------- ----------
Amortization expense on acquired intangible assets $167 $827 $180 $285 $ 12,094 $ 13,553
Deferred financing costs 1,429
Less: Amortization expense recorded by WSMH, Superior,
KSMO, WSTR and RCB (e) -- (529) -- (39) (10,442) (11,010)
------- ---------- ------- ------- ----------- ----------
Pro forma adjustment $167 $298 $180 $246 $ 1,652 $ 3,972
======= ========== ======= ======= =========== ==========
12/31/95
---------------------------------------------------------
WSMH Superior KSMO WSTR RCB Total
---- -------- ---- ---- --- -----
Amortization expense on acquired intangible assets $1,002 $2,481 $360 $570 $ 24,188 $ 28,601
Deferred financing costs 2,858
Less: Amortization expense recorded by WSMH, Superior,
KSMO, WSTR and RCB (n) (12) (1,066) (210) (77) (18,122) (19,487)
--- ------ ---- --- ------- -------
Pro forma adjustment $ 990 $1,415 $150 $493 $ 6,066 $ 11,972
====== ====== ==== ==== ======== ========
(j) To record interest expense for the six months ended June 30, 1996 on acquisition financing relating to Superior of $59,850 (in
Credit Facility with commercial bank at 8.0% for 4 months), KSMO and WSTR of $10,425 and $10,005, respectively (both in Credit
Facility with commercial bank at 8.0% for 6 months) and RCB (including KRRT of $868,300 (in Credit Facility with commercial bank
at 8.0% for 5 months) and on $851 for hedging arrangements related to the RCB financing and eliminate interest expense recorded.
No interest expense has been recorded for WSMH as it has been assumed that the proceeds from the August 1995 public debt
offering were used to purchase WSMH.
6/30/96
--------------------------------------------------------
Superior KSMO WSTR RCB Total
----------- --------- ---------- ----------- -----------
Interest expense adjustment as noted above $1,596 $417 $ 400 $ 29,032 $ 31,445
Less: Interest expense recorded by WSMH, Superior,
KSMO, WSTR and RCB (e) (457) (823) (1,127) (12,352) (14,759)
----------- --------- ---------- ----------- -----------
Pro forma adjustment $1,139 $(406) $ (727) $ 16,680 $ 16,686
=========== ========= ========== =========== ===========
To record interest expense for the year ended December 31, 1995 on acquisition financing relating to WSMH of $34,400 (in Credit
Facility with commercial bank at 8.0% for 8 months - assumes that the proceeds from the August 1995 public debt offering were
used to pay the commerical bank financing), Superior of $59,850 (in Credit Facility with commercial bank at 8.0% for 12 months),
KSMO and WSTR of $10,425 and $10,005, respectively (both in Credit Facility with commercial bank at 8.0% for 8 months - assumes
that the proceeds from the August 1995 public debt offering were used to pay the commercial bank financing) and RCB (including
KRRT) of $868,300 (in Credit Facility with commercial bank at 8.0% for 12 months) and on $851 for hedging agreements related to
the RCB financing and eliminate interest expense recorded.
12/31/95
---------------------------------------------------------------------
WSMH Superior KSMO WSTR RCB Total
--------- ----------- ----------- ----------- ----------- -----------
Interest expense adjustment as noted above $1,835 $4,788 $ 556 $ 533 $ 69,677 $ 77,389
Less: Interest expense recorded by WSMH, Superior,
KSMO, WSTR and RCB (n) -- (1,579) (2,039) (2,506) (34,523) (40,647)
--------- ----------- ----------- ----------- ----------- -----------
Pro forma adjustment $1,835 $3,209 $(1,483) $(1,973) $ 35,154 $ 36,742
========= =========== =========== =========== =========== ===========
(k) To eliminate interest income for the six months ended June 30, 1996 on public debt proceeds relating to WSMH, KSMO and WSTR of
$34,400 (with a commercial bank at 5.7% for 2 months), $10,425 and $10,005 (both with a commercial bank at 5.7% for 6 months),
respectively and eliminate interest income.
6/30/96
-----------------------------------------------------------
WSMH KSMO WSTR Total
Interest income adjustment as noted above $ (327) $ (297) $ (285) $ (909)
Less: Interest income recorded by WSTR -- -- (15) (15)
--------- --------- --------- ---------
Pro forma adjustment $ (327) $ (297) $ (300) $ (924)
========= ========= ========= =========
To eliminate interest income for the year ended December 31, 1995 on public debt proceeds relating to WSMH, KSMO and WSTR of
$34,400, $10,425 and $10,005 (all with a commercial bank at 5.7% for 4 months), respectively and eliminate interest income
recorded.
12/31/95
----------------------------------------------------------------------------
WSMH KSMO WSTR RCB Total
--------- --------- --------- --------- ---------
Interest income adjustment as noted above . $ (654) $ (198) $ (190) $ - $ (1,042)
Less: Interest income recorded by WSMH and RCB (n) (81) (1,715) (1,796)
--------- --------- --------- --------- ---------
Pro forma adjustment $ (735) $ (198) $ (190) $ (1,715) $ (2,838)
========= ========= ========= ========= =========
(l) To record tax benefit of pro forma adjustments.
(m) Weighted average shares outstanding on a Pro Forma basis assumes that the
$115 million of Series A Exchangeable Preferred Stock was exchanged for
4,181,818 shares of $.01 par value Class A Common Stock as of the IPO date
(June 13, 1995).
(n) The River City Broadcasting, L.P. columns reflect the results of operations
for RCB (including KRRT, Inc.) for the year ended December 31, 1995, the
results of operations for WSYX to reflect the exclusion of this station from
the companies acquisition, the results of operations for Paramount Stations
Group for the seven months and three days ended August 3, 1995.
Consolidated Financial Statements
and Other Financial Information
Superior Communications Group, Inc.
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
Superior Communications Group, Inc.
Consolidated Financial Statements
and Other Financial Information
Years ended December 31, 1995 and 1994
Contents
Report of Independent Auditors ..............................................1
Consolidated Financial Statements
Consolidated Balance Sheets .................................................2
Consolidated Statements of Operations .......................................4
Consolidated Statements of Stockholders' Equity .............................5
Consolidated Statements of Cash Flows .......................................6
Notes to Consolidated Financial Statements ..................................7
Other Financial Information
Report of Independent Auditors on Other Financial Information ..............17
Details of Consolidated Balance Sheet ......................................18
Details of Consolidated Statement of Operations.............................19
Report of Independent Auditors
To the Board of Directors and Stockholders of
Superior Communications Group, Inc.
We have audited the accompanying consolidated balance sheets of Superior
Communications Group, Inc. (the Company) as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years then ended. These financial statements 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 Superior
Communications Group, Inc. as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
February 23, 1996
Superior Communications Group, Inc.
Consolidated Balance Sheets
December 31
1995 1994
----------------------------------
Assets
Current assets:
Cash and cash equivalents $ 272,218 $ 1,088,527
Accounts receivable, less allowance
for doubtful accounts of $200,000 and $150,000 2,800,531 2,608,609
Deferred film costs 2,028,478 2,474,170
Prepaid expenses and other 106,344 165,053
----------------------------------
Total current assets 5,207,571 6,336,359
Property and equipment:
Land 538,144 535,347
Building 723,186 723,186
Equipment and fixtures 8,731,303 8,482,329
----------------------------------
9,992,633 9,740,862
Accumulated depreciation (2,604,504) (1,618,864)
----------------------------------
7,388,129 8,121,998
Other assets:
Deferred film costs, net 3,131,340 3,533,338
Intangible assets, net 8,778,246 10,413,781
Other assets 4,408 20,156
----------------------------------
11,913,994 13,967,275
----------------------------------
Total assets $24,509,694 $28,425,632
==================================
-2-
December 31
1995 1994
--------------------------------
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt $ 1,805,532 $ 1,617,089
Current portion of film contract commitments 1,824,891 1,559,914
Accounts payable 365,615 257,770
Accrued expenses 362,315 416,379
Due to related parties 58,760 62,482
--------------------------------
Total current liabilities 4,417,113 3,913,634
Long-term debt 12,185,454 12,469,015
Film contract commitments 2,783,220 2,298,625
Due to related parties 35,000 100,000
Deferred income taxes 3,383,907 3,899,249
Deferred income 31,341 37,341
Stockholders' equity:
Preferred stock, $.001 par value, 20,000 shares authorized,
10,190.84 shares issued, 8,147.97 and 10,190.84 shares
outstanding at cost in 1995 and 1994. (Liquidation
preference at December 31, 1995 and 1994 of $10,043,731
and $11,323,291, respectively) 9,365,801 9,365,801
Class B common stock, $.001 par value, 100,000 shares
authorized, 10,190.84 shares issued, 9,169.405 and
10,190.84 shares outstanding in 1995 and 1994. 10 10
Class A common stock, $.001 par value, 10,000 shares
authorized, 1,870.7 shares issued and outstanding 2 2
Additional paid-in capital 36,210 16,053
Retained deficit (4,853,864) (3,674,098)
Treasury stock (2,874,500) -
--------------------------------
Total stockholders' equity 1,673,659 5,707,768
--------------------------------
Total liabilities and stockholders' equity $24,509,694 $28,425,632
================================
See accompanying notes.
-3-
Superior Communications Group, Inc.
Consolidated Statements of Operations
Year ended December 31
1995 1994
--------------------------------
Gross sales $15,837,243 $13,974,224
Less agency commissions 2,437,582 2,032,429
--------------------------------
Net sales 13,399,661 11,941,795
Operating expenses:
Sales and promotion 2,127,911 2,015,648
Broadcast operations 1,460,716 1,065,579
General and administrative 2,059,805 2,013,921
--------------------------------
5,648,432 5,095,148
--------------------------------
Operating income 7,751,229 6,846,647
Other expenses:
Amortization--deferred film costs and barter programming 4,899,093 4,382,047
Depreciation and amortization 2,725,654 3,064,864
Interest expense, net 1,578,898 1,324,130
Other expense, net 188,111 -
--------------------------------
9,391,756 8,771,041
--------------------------------
Loss before income tax benefit (1,640,527) (1,924,394)
Income tax benefit (460,761) (89,202)
--------------------------------
Net loss $ (1,179,766) $ (1,835,192)
================================
Undeclared preferred stock dividend requirement, inception to date
$ 1,895,761 $ 1,132,451
================================
See accompanying notes.
-4-
Superior Communications Group, Inc.
Consolidated Statements of Stockholders' Equity
Additional
Partners' Preferred Class B Class A Paid-In
Capital Stock Common Stock Common Stock Capital
---------------------------------------------------------------------------
Balance at January 1, 1994 $5,950,100 $ - $ - $ - $ -
Conversion of Superior Communication
of Kentucky, L.P. interest into
preferred and common stock of
Company, January 28, 1994 (5,950,100) 5,950,091 7 2 -
Equity contribution, January 28, 1994 - 3,099,997 3 - -
Conversion of stockholder note into
preferred and common stock of
Company, January 28, 1994 - 172,713 - - -
Contribution of net assets by former
general partner including cash of
$17,052, January 28, 1994 - 143,000 - - -
Vesting of 120.7 shares of common stock
from stock grant - - - - 16,053
Net loss - - - - -
-----------------------------------------------------------------------------
Balance at December 31, 1994 - 9,365,801 10 2 16,053
Purchase of 2,042.87 shares of preferred
stock and 1,021.435 of Class B
common stock by the Company - - - - -
Vesting of shares of common stock from
stock grant - - - - 20,157
Net loss - - - - -
-----------------------------------------------------------------------------
Balance at December 31, 1995 $ - $9,365,801 $10 $ 2 $ 36,210
===============================================================================
See accompanying notes.
Retained Treasury Total
Deficit Stock Equity
----------------------------------------------
Balance at January 1, 1994 $(1,838,906) $ - $4,111,194
Conversion of Superior Communication
of Kentucky, L.P. interest into
preferred and common stock of
Company, January 28, 1994 - - -
Equity contribution, January 28, 1994 - - 3,100,000
Conversion of stockholder note into
preferred and common stock of Company,
January 28, 1994 - - 172,713
Contribution of net assets by former
general partner including cash of
$17,052, January 28, 1994 - - 143,000
Vesting of 120.7 shares of common stock
from stock grant - - 16,053
Net loss (1,835,192) - (1,835,192)
--------------------------------------------------
Balance at December 31, 1994 (3,674,098) - 5,707,768
Purchase of 2,042.87 shares of preferred
stock and 1,021.435 of Class B
common stock by the Company - (2,874,500) (2,874,500)
Vesting of shares of common stock from
stock grant - - 20,157
Net loss (1,179,766) - (1,179,766)
--------------------------------------------------
Balance at December 31, 1995 $(4,853,864) $(2,874,500) $1,673,659
==================================================
See accompanying notes.
-5-
Superior Communications Group, Inc.
Consolidated Statements of Cash Flows
Year ended December 31
1995 1994
---------------------------------------
Operating activities
Net loss $(1,179,766) $(1,835,192)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Barter program revenue (1,565,295) (1,310,618)
Deferred income (6,000) (6,000)
Stock grant expense 20,157 16,053
Provision for bad debts 50,000 99,750
Amortization--deferred film costs and barter programming 4,899,093 4,382,047
Depreciation and amortization 2,725,654 3,064,864
Loss on disposal of assets 193,415 36,769
Deferred taxes (515,342) (118,720)
Changes in operating assets and liabilities:
Accounts receivable (241,922) (744,505)
Prepaid expenses and other 58,709 (50,585)
Accounts payable 107,845 (323,086)
Accrued expenses (54,064) 290,929
---------------------------------------
Net cash provided by operating activities 4,492,484 3,501,706
Investing activities
Capital expenditures (558,385) (240,453)
Other assets 15,748 -
Intangible assets acquired - (873,369)
Acquisition of Oklahoma City Broadcasting Company,
less cash acquired - (10,696,379)
---------------------------------------
Net cash used in investing activities (542,637) (11,810,201)
Financing activities
Proceeds from long-term debt 25,500 14,200,000
Payments on long-term debt (2,995,118) (6,865,178)
Payments on film contract commitments (1,727,816) (1,545,099)
Net activity on related party liability (68,722) 37,557
Proceeds from capital contribution - 3,117,052
---------------------------------------
Net cash (used) provided by financing activities (4,766,156) 8,944,332
---------------------------------------
Net (decrease) increase in cash and cash equivalents (816,309) 635,837
Cash and cash equivalents at beginning of year 1,088,527 452,690
---------------------------------------
Cash and cash equivalents at end of year $ 272,218 $ 1,088,527
=======================================
See accompanying notes.
-6-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements
December 31, 1995
1. Significant Accounting Policies
Description of Business
The consolidated financial statements of Superior Communications Group, Inc.
(SCGI) include the accounts of SCGI and its wholly owned subsidiaries, Superior
Communications of Kentucky, Inc. (SCKI) and Superior Communications of Oklahoma,
Inc. (SCOI), which are collectively referred to as the Company. All intercompany
balances have been eliminated. The Company owns and operates television
broadcasting stations in Lexington, Kentucky and Oklahoma City, Oklahoma.
Organization
The Company, previously known as Superior Communications of Kentucky, L.P. (the
Partnership), was incorporated in its current form on January 28, 1994
concurrent with the acquisition of SCOI (Note 2). Effective on January 28, 1994,
the former partners of the Partnership exchanged all of their partnership
interests for shares of preferred and common stock of the newly formed parent
company, SCGI, under a Security Purchase and Exchange Agreement (Exchange
Agreement) and the Partnership was then dissolved. Additionally, the former
corporate general partner of the Partnership was also dissolved and the
shareholders of the general partner exchanged certain operating assets with the
Company for preferred and common stock. Furthermore, under the Exchange
Agreement, SCGI then contributed the operating assets of the former partnership
to the newly formed SCKI in exchange for all of the outstanding common stock of
SCKI.
Operations and Credit Risk
The Company's accounts receivable are from the sale of advertising, primarily to
businesses which are local to the broadcast area or to national advertising
agencies. The Company performs credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are due within
30 days. Credit losses have been within management's expectations. The carrying
amount reported in the balance sheet for accounts receivable approximates its
fair value.
Cash and Cash Equivalents
The Company considers all demand deposits and short-term investments purchased
with a maturity of 90 days or less to be cash equivalents. The carrying amount
reported in the balance sheet for cash and cash equivalents approximates its
fair value.
-7-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Deferred Film Costs and Film Contract Commitments
The Company has contracts with various film distributors from which films are
licensed for television transmission over various contract periods (generally
one to five years) and for a specified number of broadcasts. Net deferred film
costs represent the lower of unamortized cost or estimated net realizable value
of the film contracts available for use. Deferred film costs are amortized on
the straight-line method over the contract periods. Film contract commitments
represent the total obligations due under these contracts, which are generally
payable in equal installments over periods that are 12 to 18 months shorter than
the lives of the contracts, and do not bear interest.
The portion of the deferred film cost to be amortized within one year and after
one year is reported in the balance sheet as current and other assets,
respectively, and the payments under the film contract commitments due within
one year and after one year are similarly classified as current and long-term
liabilities, respectively.
Property and Equipment
Property and equipment are stated at cost. Depreciation for financial reporting
purposes is based on the straight-line method over estimated useful lives
ranging from 5 to 12 years for equipment and 15 years for buildings. Costs of
repairs and maintenance are charged to expense as incurred.
Intangible Assets
Intangible assets as reflected in Note 3 are being amortized on a straight-line
basis over their useful lives ranging from one to fifteen years.
Barter Transactions
Revenue from barter transactions (advertising provided in exchange for
programming or goods and services) is recognized as income when advertisements
are broadcast, and goods or services received are capitalized or charged to
operations when received or used. Included in the statements of operations is
broadcasting net revenue from barter transactions of $1,940,989 and $1,593,330
during 1995 and 1994, respectively, and station operating costs and expenses
from barter transactions of $1,871,077 and $1,632,184, respectively. As of
December 31, 1995 and 1994, the Company has recorded accrued liabilities for
deferred barter revenue of $86,586 and $149,434, respectively.
-8-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Deferred Income
Deferred income relates to prepaid rental income for use of SCKI's tower
facility. The amount is being recognized on a straight-line basis through 2001
(term of agreement).
Use of Estimates
The preparation of the 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.
Income Taxes
Deferred income taxes recorded on the Company's consolidated balance sheets
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.
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified or
restated to conform to the current year presentation.
2. Acquisition of Station
On January 28, 1994, SBI, a newly formed corporation and wholly owned subsidiary
of the Company, purchased all of the outstanding stock of Oklahoma City
Broadcasting Company (OCBC) for $10,973,241. The acquisition was accounted for
as a purchase transaction with the purchase price being allocated to the assets
and liabilities acquired based upon their fair market values at the date of
acquisition. In connection with the transaction, SBI also entered into a
noncompete agreement with the seller of OCBC valued at $1,500,000, for which a
note payable was issued to the seller (Note 4). The cost of the noncompete
agreement is being amortized over the five-year term of the agreement. The
acquisition was financed from the issuance of stock for $3,100,000 and from bank
debt in the amount of $7,873,241. Concurrent with the acquisition, SBI and OCBC
merged, forming SCOI.
-9-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
3. Intangible Assets
The components of intangible assets consist of the following as of December 31,
1995 and 1994:
1995 1994
---------------------------------
Advertising contracts acquired $ - $ 441,075
Loan origination costs and other 617,410 624,064
Organization and syndication costs 1,634,828 1,634,828
Covenant not-to-compete 2,500,000 2,500,000
FCC license and FOX affiliation agreement 4,269,819 4,391,223
Goodwill 3,546,186 3,546,186
---------------------------------
12,568,243 13,137,376
Less accumulated amortization (3,789,997) (2,723,595)
---------------------------------
Intangible assets, net $ 8,778,246 $10,413,781
==================================
4. Long-Term Debt
Long-term debt at December 31, 1995 consists of bank and seller debt as follows:
Bank Debt
On January 28, 1994, the Company entered into a senior secured term loan
agreement and revolving credit agreement (collectively the Credit Agreement)
with a bank in the amount of $12,700,000 and $2,000,000, respectively. The term
loan is due in quarterly installments through January 2000, and the revolving
credit agreement is due January 2000. The outstanding balance on the revolving
credit agreement was $1,500,000 at December 31, 1994, and no amounts were
outstanding at December 31, 1995. The Credit Agreement provides for interest at
the bank's Base Rate (8.5% at December 31, 1995) plus 1.75%, and is secured by
the stock of SCGI and its subsidiaries. Covenants contained in the Credit
Agreement limit capital expenditures, define required levels of earnings and
cash flows and limit additional indebtedness and film contract commitments.
The proceeds of these loans were utilized by the Company to finance the
acquisition of SCOI, and to repay amounts owed to a former bank under a term
note payable of $5,260,589.
-10-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
4. Long-Term Debt (continued)
Bank Debt (continued)
On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common
stock and 2,042.87 shares of preferred stock of the Company for $2,874,500. The
repurchase was financed through an additional term loan with a bank for
$2,900,000. The term loan is due in quarterly installments of $290,000 beginning
October 1997 through January 2000, plus interest at the bank's Base Rate plus
1.75%. A mandatory prepayment per the terms of the loan agreement was required
in 1995 and was applied to this loan. The outstanding balance on this term loan
was $2,610,000 at December 31, 1995.
Seller Debt
In connection with the acquisition of OCBC, the Company also incurred
indebtedness to the former owner of OCBC for $1,500,000. The note is secured by
a lien on SCOI's assets and is subordinated to that of the bank debt. The seller
debt bears interest at a rate of 7.5% and is payable in annual installments of
$300,000, plus interest, beginning January 28, 1995. The outstanding balance on
this note was $1,200,000 at December 31, 1995.
The following is a schedule of aggregate maturities of long-term debt as of
December 31, 1995:
1996 $ 1,805,532
1997 2,820,973
1998 3,990,045
1999 4,322,500
2000 1,051,936
--------------
$13,990,986
==============
Fair Value
The carrying amounts of the Company's borrowings under its bank and seller debt
arrangements approximate their fair value. The fair values of the Company's debt
are estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing arrangements.
-11-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
5. Film Contract Commitments
The Company has acquired certain film rights under long-term film contract
commitments. These commitments are generally payable in equal installments over
periods that are twelve to eighteen months shorter than the lives of the related
film rights and do not bear interest. Annual payments required under these
commitments are as follows:
1996 $1,824,891
1997 1,514,859
1998 978,063
1999 287,637
2000 2,661
---------------
$4,608,111
===============
The values of the film rights acquired under these contracts are included as net
deferred film costs in the accompanying consolidated balance sheet and have the
following balances at December 31, 1995:
Deferred film costs $11,202,089
Less accumulated amortization (6,042,271)
----------------
5,159,818
Less current portion (2,028,478)
----------------
Deferred film costs, net $ 3,131,340
================
As discussed in Note 1, the Company enters into contracts with various film
distributors which allow limited showings of films and syndicated programs. At
December 31, 1995, the Company has entered into contracts totaling approximately
$1,063,943 for which the license period and program availability for telecasting
begins after December 31, 1995. These contracts are not recorded in the
accompanying consolidated balance sheet.
6. Due to Related Parties
Amounts due to related parties consist of fees charged by shareholders of the
Company in connection with the acquisition of the Partnership (Note 1) in
November 1992 and includes accrued interest at 7.75%.
-12-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
7. Income Taxes
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
1995 1994
-----------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 76,456 $ 56,178
Net operating loss carryforwards 351,981 181,081
Other - 23,200
-----------------------------------
Total deferred tax assets 428,437 260,459
Deferred tax liabilities:
Properties and broadcast rights 2,500,911 2,234,846
Intangible assets 1,311,433 1,924,862
-----------------------------------
Total deferred tax liabilities 3,812,344 4,159,708
-----------------------------------
Net deferred tax liabilities $3,383,907 $3,899,249
=====================================
Significant components of the provision for income tax expense (benefit) for the
year ended December 31 are as follows:
1995 1994
----------------------------------
Current:
State $ 54,581 $ 29,518
Deferred:
Federal (461,231) (127,337)
State (54,111) 8,617
----------------------------------
Total deferred (515,342) (118,720)
----------------------------------
$(460,761) $ (89,202)
===================================
The Company's effective income tax rates differ from federal statutory income
tax rates due primarily to the amortization of goodwill and state income taxes.
Additionally, in 1994 the Company recorded deferred income tax expense of
$507,673 upon the contribution of the partnership interests and general partner
operating assets (Note 1).
At December 31, 1995, the Company has federal and state net operating loss
carryforwards of $666,000 and $2,090,000, respectively, which begin to expire in
2009.
-13-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
8. Stockholders' Equity
As discussed in Note 1, the Company reorganized effective January 28, 1994 under
the terms of the Exchange Agreement. Pursuant to the terms of the agreement the
former owners of the Partnership were given 7,090.84 shares of preferred stock,
7,090.84 shares of Class B common stock and 1,750 shares of Class A common stock
of the Company. Also on January 28, 1994, certain stockholders contributed an
additional $3,100,000 in exchange for 3,100 shares each of preferred stock and
Class B common stock of the Company.
On February 13, 1995, the Company repurchased 1,021.435 shares of Class B common
stock and 2,042.87 shares of preferred stock of the Company for $2,874,500.
The preferred stock, which has a stated liquidation preference of $1,000 a
share, has no voting rights. Dividends accumulate at 12% based upon the stock's
stated liquidation value and are payable at the discretion of the Board of
Directors and subject to restriction within the Credit Agreement. Unless all
accumulated dividends on the preferred stock have been paid, no dividend may be
paid, and no other distributions may be made upon the common stock of the
Company. Upon liquidation of the Company, any proceeds to be distributed are
first utilized to pay the preferred stockholders at an amount equal to $1,000
per share (liquidation preference) plus any accrued but unpaid dividends,
inception to date ($1,895,761 at December 31, 1995). If amounts remain available
for distribution in excess of the preferred liquidation, those amounts are to be
allocated 80% to the Class B common stockholders and 20% to the Class A common
stockholders. The Class A common stock is subject to restriction on sale,
transfer and also contain forfeiture provisions.
9. Stock Grants
The Company has granted 120.7 shares of Class A common stock to an officer of
the Company. The Class A common stock has significant restrictions including
forfeiture obligations if the officer were no longer an employee of the Company.
Pursuant to the terms of the stock grant agreement, all shares will vest upon
the completion of the sale of the Company's shares of outstanding stock as
discussed in Note 11. Accordingly, the Company recorded a charge to operations
of $20,157 in 1995 ($16,053 in 1994) to reflect the vesting of the remaining
stock granted.
-14-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
10. Operating Leases and Other Commitments
The Company has entered into various noncancelable lease arrangements for office
space rental, ratings and research services, broadcast accounting software and
other licensing agreements. Total expense charged to operations under these
agreements was approximately $283,000 in 1995. The minimum future payments under
these agreements are as follows:
1996 $ 252,088
1997 267,059
1998 281,039
1999 150,247
2000 139,323
--------------
$1,089,756
==============
11. Subsequent Event
On March 4, 1996, the shareholders of the Company entered into an agreement with
an unrelated entity to sell all of the Company's outstanding shares of preferred
and common stock. Pursuant to the terms of the stock purchase agreement, the
buyer will cause the Company to pay in full all of the outstanding debt of the
Company plus accrued interest and prepayment penalties. The balance of the
proceeds will be distributed to the selling shareholders.
12. Supplemental Cash Flow Disclosures
The Company entered into the following noncash transactions:
o As discussed in Note 4, on February 13, 1995, the Company paid
$2,874,500 for stock placed in treasury, which was financed through the
issuance of long-term debt.
o Deferred film costs in the amount of $2,548,375 and $1,820,606 were
recorded through the assumption of film contract commitments in the
same amounts during 1995 and 1994, respectively.
o The Company recorded a $1,500,000 noncompete agreement from the seller
of KOCB in exchange for the issuance of a note payable to the seller in
the same amount during 1994.
o The Company received $125,948 of net assets in exchange for stock in
connection with the January 28, 1994 restructuring.
-15-
Superior Communications Group, Inc.
Notes to Consolidated Financial Statements (continued)
12. Supplemental Cash Flow Disclosures (continued)
Additionally, cash paid for interest and income taxes was as follows:
1995 1994
---------------------------------
Interest $1,523,785 $1,262,553
=================================
Income taxes $ 16,448 $ 50,000
=================================
-16-
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
FINANCIAL STATEMENTS AS OF AUGUST 3, 1995 AND FOR THE
PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
AND AS OF DECEMBER 31, 1994 TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying balance sheets of Paramount Stations Group of
Kerville, Inc. (a Virginia corporation) as of August 3, 1995 and December 31,
1994, and the related statements of operations, stockholders' equity and cash
flows for the period from January 1, 1995 through August 3, 1995, and the year
ended December 31, 1994. These financial statements 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 financial position of Paramount Stations Group of
Kerville, Inc. as of August 3, 1995 and December 31, 1994, and the results of
its operations and its cash flows for the period from January 1, 1995 through
August 3, 1995, and the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Baltimore, Maryland,
April 26, 1996
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
BALANCE SHEETS
--------------
AS OF AUGUST 3, 1995 AND DECEMBER 31, 1994
------------------------------------------
August 3, December 31,
1995 1994
------------- --------------
ASSETS
------
CURRENT ASSETS:
Cash $ 1,122 $ 400
Accounts receivable, net of allowance for doubtful
accounts of $190,610 and $148,755, respectively 2,543,148 2,961,824
Current portion of program contract costs 1,144,236 1,130,513
Deferred barter costs - 41,274
Other current assets 340,302 123,132
-------------- --------------
Total current assets 4,028,808 4,257,143
-------------- --------------
Property and equipment, net 825,967 986,880
Program contract costs, noncurrent portion 504,701 1,430,927
Due from affiliate 4,795,220 2,567,935
Goodwill, net 15,305,080 15,558,387
Other assets - 5,092
-------------- --------------
Total Assets $ 25,459,776 $ 24,806,364
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 1,869 $ 189,547
Accrued liabilities 48,308 385,512
Current portion of program contracts payable 1,202,739 1,961,803
Deferred barter revenues - 13,674
-------------- --------------
Total current liabilities 1,252,916 2,550,536
LONG-TERM LIABILITIES:
Program contracts payable, noncurrent portion 932,591 1,576,134
-------------- --------------
Total Liabilities 2,185,507 4,126,670
-------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, Class A, $1 par value; 1,000 shares
authorized, 800 shares issued and outstanding 800 800
Common stock, Class B, $1 par value; 8,800 shares
authorized; 7,040 issued and outstanding 7,040 7,040
Additional paid-in capital 16,954,952 15,879,113
Retained earnings 6,311,477 4,792,741
-------------- --------------
Total Stockholders' Equity 23,274,269 20,679,694
-------------- --------------
Total Liabilities and Stockholders' Equity $ 25,459,776 $ 24,806,364
============ ============
The accompanying notes are an integral part of these balance sheets.
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
----------------------------------------------------------
AND THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
August 3, December 31,
1995 1994
-------------- --------------
REVENUES:
Advertising revenues, net of agency commissions
of $1,159,012 and $1,950,484, respectively $ 6,665,863 $ 11,499,302
Revenues realized from station barter arrangements 900,743 1,300,904
-------------- --------------
Total revenue 7,566,606 12,800,206
-------------- --------------
OPERATING EXPENSES:
Programming 288,704 427,316
Selling 1,459,894 2,700,025
Administration 497,671 1,003,846
Promotion 247,686 468,837
Engineering 296,677 571,813
Amortization of program contract rights 921,053 1,912,677
Depreciation of property and equipment 194,337 379,232
Amortization of intangible assets 253,307 426,495
Barter expense 875,950 1,255,799
-------------- --------------
Total operating expenses 5,035,279 9,146,040
-------------- --------------
Broadcast operating income 2,531,327 3,654,166
OTHER INCOME 63,248 2,884
-------------- --------------
Income before taxes 2,594,575 3,657,050
INCOME TAX PROVISION 1,075,839 1,541,215
-------------- --------------
Net income $ 1,518,736 $ 2,115,835
============ ============
The accompanying notes are an integral part of these statements.
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995 AND THE YEAR ENDED DECEMBER 31, 1994
Common Stock Common Stock
Class A Class B Additional Total
------------------- ----------------- Paid-In Retained Stockholders'
Shares Value Shares Value Capital Earnings Equity
------- ---------- ------- ------- -------------- ------------- -------------
BALANCE, December 31, 1993 800 $ 800 7,040 $ 7,040 $ 14,337,898 $ 2,676,906 $ 17,022,644
Forgiveness of income taxes by Parent - - - - 1,541,215 - 1,541,215
Net income - - - - - 2,115,835 2,115,835
------ --------- ------ ------- ----------- ------------ -------------
BALANCE, December 31, 1994 800 800 7,040 7,040 15,879,113 4,792,741 20,679,694
Forgiveness of income taxes by Parent - - - - 1,075,839 - 1,075,839
Net income - - - - - 1,518,736 1,518,736
------ --------- ------ ------- ------------ ------------ -------------
BALANCE, August 3, 1995 800 $ 800 7,040 $ 7,040 $ 16,954,952 $ 6,311,477 $ 23,274,269
====== ========= ====== ======= ============ ============ =============
The accompanying notes are an integral part of these statements.
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE PERIOD FROM JANUARY 1, 1995 THROUGH AUGUST 3, 1995
----------------------------------------------------------
AND THE YEAR ENDED DECEMBER 31, 1994
------------------------------------
August 3, December 31,
1995 1994
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,518,736 $ 2,115,835
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of program contract rights 921,053 1,912,677
Depreciation of property and equipment 194,337 379,232
Amortization of goodwill 253,307 426,495
Forgiveness of income tax expense by Parent 1,075,839 1,541,215
Changes in assets and liabilities:
Increase in due from affiliate (2,227,285) (2,567,935)
Decrease (increase) in accounts receivable 418,676 (567,548)
Decrease in deferred charges 41,274 32,141
(Increase) decrease in other current assets (217,170) 62,407
Decrease in other assets 5,092 -
(Decrease) increase in accounts payable (187,678) 119,639
Decrease in due to related parties - (1,553,444)
(Decrease) increase in accrued liabilities (337,204) 177,183
Decrease in deferred barter revenue (13,674) (50,660)
Film rights payments (1,411,157) (1,975,061)
-------------- --------------
Net cash provided by operating activities 34,146 52,176
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (33,424) (52,176)
-------------- --------------
Net increase in cash 722 -
CASH, beginning of year 400 400
-------------- --------------
CASH, end of year $ 1,122 $ 400
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Film contracts acquired $ 8,550 $ 981,351
============ ============
Film contract liability additions $ 8,550 $ 981,351
============ ============
The accompanying notes are an integral part of these statements.
PARAMOUNT STATIONS GROUP OF KERVILLE, INC.
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
AUGUST 3, 1995 AND DECEMBER 31, 1994
------------------------------------
1. ORGANIZATION:
------------
Paramount Stations Group of Kerville, Inc. (the Company) is a wholly-owned
subsidiary of Paramount Stations Group Holding Company, Inc. (the Parent). The
Company was organized under the laws of Virginia on August 21, 1984. The Company
is a television broadcaster serving the San Antonio, Texas area through station
KRRT on Channel 35. The Company was affiliated with UPN and FOX during 1995 and
1994, respectively.
During 1994, the Company entered into an agreement to sell substantially all of
its assets to KRRT, Inc. This sale was consummated on August 4, 1995.
Accordingly, the accompanying financial statements for 1995 are presented as of
August 3, 1995 (Note 9).
2. SUMMARY OF ACCOUNTING POLICIES:
------------------------------
Cash
- ----
All cash from customers is deposited directly into a lock box held by the
Company's Parent (Note 4).
Revenue Recognition
- -------------------
Revenue from the sale of air time to advertisers is recognized when the
advertisement is broadcast.
Program Contract Costs
- ----------------------
The Company has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
three to seven years. Program contract costs are stated at the lower of
amortized cost or estimated net realizable value. Broadcast contract costs and
the related liabilities are recorded at the contract value when the license
period begins and the program is available for use. Program contract costs are
amortized using the greater of the straight-line by months over the contract
term or straight-line over the number of showings on an aggregate basis.
Program contract costs expected to be used in the succeeding year and program
contract rights due within one year are classified as current assets and current
liabilities, respectively.
Property and Equipment
- ----------------------
Property and equipment are recorded at cost and depreciated over the estimated
useful lives of the assets on a straight-line basis. Major renewals and
betterments are capitalized and ordinary repairs and maintenance are charged to
expense in the period incurred.
-2-
Goodwill
- --------
In a series of transactions completed in 1991, the Company's Parent purchased
all of the outstanding stock of TVX, Inc., who owned and operated several
television stations, including the Company. Goodwill was allocated to each of
the stations based on specific identification and allocation of unidentified
goodwill based on cash flow multiples used to calculate the purchase price of
each station. Management monitors the financial performance of the station and
continually evaluates the realizability of goodwill and the existence of any
impairment to its recoverability.
Goodwill in the amount of $17,370,000 was allocated to the Company and is being
amortized over 40 years using the straight-line method. At August 3, 1995 and
December 31, 1994, accumulated amortization of goodwill aggregated $2,064,920
and $1,811,613, respectively.
Barter Transactions
- -------------------
Certain program contract rights provide for the exchange of advertising air time
in lieu of cash payments for the programming. As the program is aired, equal
amounts of revenue and program amortization expense are recorded, at estimated
fair market value, in results of operations.
In addition, the Company provides advertising air time to certain customers in
exchange for merchandise or services. The estimated fair value of the
merchandise or services to be received is recorded as an asset, and the
corresponding obligation to broadcast advertising is recorded as deferred
revenue. Services and other assets are charged to expense as they are used or
consumed. Deferred revenue is recognized in operations as the related
advertising is broadcast.
3. INCOME TAXES:
-------------
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company adopted the new accounting and disclosure rules effective
December 31, 1994.
The provision for income taxes consists of the following:
August 3, December 31,
1995 1994
-------------- --------------
Federal $ 920,164 $ 1,318,150
State 155,675 223,065
-------------- --------------
$ 1,075,839 $ 1,541,215
============= =============
-3-
The following is a reconciliation of the statutory federal income taxes to the
recorded provision:
August 3, December 31,
1995 1994
------------ -------------
Statutory federal income taxes $ 882,156 $ 1,243,397
Adjustments:
State tax, net of federal effect 102,745 147,223
Goodwill amortization 86,125 145,008
Others 4,813 5,587
------------- -------------
Provision for income taxes $ 1,075,839 $ 1,541,215
============ ============
The Company's Parent files a consolidated federal tax return, and separate state
tax returns for each of its subsidiaries. It is the Parent's policy not to
allocate income tax expense to its subsidiaries. The accompanying financial
statements have been prepared in accordance with the separate return method of
FASB 109, whereby the allocation of tax expense is based on what the
subsidiary's current and deferred tax expense would have been had the subsidiary
filed a federal income tax return outside its consolidated group. The difference
between the computed tax expense and the amounts paid to the Parent for taxes is
recorded as additional paid-in-capital. Under this method, the Company has no
deferred tax assets or liabilities because those amounts are considered paid to
or received from the Parent. The Company had no alternative minimum tax credit
carryforwards as of August 3, 1995.
The temporary differences between book basis and tax basis generated by the
Company and recorded on the Parent's financial statements are as follows:
August 3, December 31,
1995 1994
-------------- --------------
Program contract net realizable value adjustments $ 159,819 $ 12,428
Depreciation and amortization (33,318) 5,550
Bad debt reserves 16,362 24,047
-------------- --------------
$ 142,863 $ 42,025
============= =============
4. RELATED PARTY TRANSACTIONS:
--------------------------
The Parent pays the income taxes of the Company. It is the Parent's policy not
to charge this expense to its subsidiaries. Therefore, the provision for income
tax expense is recorded as additional paid-in capital in the accompanying
balance sheets. The Parent also provides and receives short-term cash advances
to and from the Company through a central cash management system. No interest is
charged or received for these advances.
-4-
5. PROPERTY AND EQUIPMENT:
----------------------
Property and equipment consists of the following:
Estimated
Useful Life August 3, December 31,
(Years) 1995 1994
------------- ---------------- ----------
Studio equipment 5 $ 2,931,607 $ 2,898,183
Leasehold improvements 4-11 358,472 358,472
Furniture and fixtures 5 59,671 59,671
Autos and trucks 5 32,700 32,700
-------------- --------------
3,382,450 3,349,026
Less- Accumulated depreciation 2,556,483 2,362,146
-------------- --------------
$ 825,967 $ 986,880
6. PROGRAM CONTRACTS:
-----------------
The Company purchases the right to broadcast programs through fixed term license
agreements. Broadcast rights consist of the following as of August 3, 1995 and
December 31, 1994:
August 3, December 31,
1995 1994
-------------- --------------
Aggregate cost $ 16,469,625 $ 16,461,076
Less- Accumulated amortization 14,820,688 13,899,636
-------------- --------------
1,648,937 2,561,440
Less- Current portion 1,144,236 1,130,513
-------------- --------------
$ 504,701 $ 1,430,927
============= =============
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $2,135,330 as of August 3, 1995. Future payments, by year, for
program contract rights payable as of August 3, 1995, are as follows:
1995 $ 580,830
1996 941,200
1997 459,900
1998 97,300
1999 30,500
Thereafter 25,600
-------------
$ 2,135,330
=============
The fair value of program contracts payable is the present value of the future
obligations based on the current rates available to the Company for debt of
similar maturity. The carrying amount and the fair value of program contracts
payable at August 3, 1995, were $2,135,300 and $1,521,665, respectively.
-5-
7. RETIREMENT SAVINGS PLAN:
-----------------------
The Company participates in the Parent company's retirement savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers substantially all
employees of the Company who meet minimum age or service requirements and allows
participants to defer a portion of their annual compensation on a pre-tax basis.
Contributions from the Company are made on a monthly basis in an amount equal to
50% of the participating employee contributions, to the extent such
contributions do not exceed 6% of the employees' eligible compensation during
the month.
8. COMMITMENTS AND CONTINGENCIES:
-----------------------------
Broadcast rights acquired under license agreements are recorded as an asset and
a corresponding liability at the inception of the license period. In addition to
these rights payable at August 3, 1995, the Company had $1,060,900 of
commitments to acquire broadcast rights for which the license period has not
commenced and, accordingly, for which no liability has been recorded. Future
payments arising from such commitments outstanding at August 3, 1995, are as
follows:
1995 $ 29,400
1996 140,600
1997 214,200
1998 319,500
1999 273,200
Thereafter 84,000
-------------
$ 1,060,900
=============
The Company has entered into operating leases for building space and equipment.
Rental expense was $76,700 and $129,268 for the period from January 1, 1995
through August 3, 1995 and year ended December 31, 1994, respectively. As of
August 3, 1995, future minimum lease payments under these operating leases were
as follows:
1995 $ 43,569
1996 79,996
1997 9,000
1998 9,000
1999 9,000
Thereafter 491,250
-------------
$ 641,815
=============
The Company has also entered into several contracts for data processing
equipment and service. Rental expense was $36,425 and $61,341 for the period
from January 1, 1995 through August 3, 1995 and the year ended December 31,
1994, respectively. As of August 3, 1995, future minimum payments under these
contracts are as follows:
1995 $ 25,565
1996 61,248
1997 59,858
-------------
$ 146,671
=============
-6-
Litigation
- ----------
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Companies' financial position, results of operations or cash flows.
9. SALES AGREEMENT:
----------------
During 1994, the Company entered into an agreement with KRRT, Inc., to sell
virtually all tangible and intangible assets of the Company for $30,000,000.
This sale was completed on August 4, 1995.
-7-
KRRT, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND
FOR THE PERIOD FROM JULY 25, 1995
THROUGH DECEMBER 31, 1995
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Sinclair Broadcast Group, Inc. and Subsidiaries:
We have audited the accompanying balance sheet of KRRT, Inc. (a Texas
corporation) as of December 31, 1995, and the related statements of operations,
stockholders' equity and cash flows for the period from July 25, 1995 through
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of KRRT, Inc. as of December 31,
1995, and the results of its operations and its cash flows for the period from
July 25, 1995 through December 31, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Baltimore, Maryland,
May 7, 1996
KRRT, INC.
----------
BALANCE SHEET
-------------
AS OF DECEMBER 31, 1995
-----------------------
ASSETS
------
CURRENT ASSETS:
Cash $ 8,459
Short-term investments 500,000
Current portion of program contracts 1,451,959
Other receivable 61,666
------------
Total current assets 2,022,084
Property and equipment, net 5,367,799
Noncurrent portion of program contracts 869,006
FCC license, net of accumulated amortization of $397,075 23,427,401
Goodwill, net of accumulated amortization of $6,095 579,067
Other assets, net 648,359
------------
Total assets $ 32,913,716
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bank overdraft $ 7,108
Accrued liabilities 2,833
LMA advance 132,990
Current portion of program contracts payable 1,451,959
Current portion of long-term debt 2,000,000
Accrued interest expense 152,578
------------
Total current liabilities 3,747,468
LONG-TERM LIABILITIES:
Noncurrent portion of program contracts 869,006
Note payable 500,000
Long-term debt, net of current portion 19,000,000
------------
Total liabilities 24,116,474
------------
STOCKHOLDERS' EQUITY:
Common stock, no par value; 1,000 shares authorized, issued
and outstanding -
Additional paid-in capital 10,001,000
Accumulated deficit (1,203,758)
------------
Total stockholders' equity 8,797,242
------------
Total liabilities and stockholders' equity $ 32,913,716
============
The accompanying notes are an integral part of this balance sheet.
KRRT, INC.
----------
STATEMENT OF OPERATIONS
-----------------------
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
-----------------------------------------------------------
REVENUES $ 1,437,039
--------------
OPERATING EXPENSES:
Management fees 277,775
Rating services 193,100
Legal and professional fees 159,126
Depreciation expense 328,125
Amortization expense 492,811
Film amortization expenses 69,674
Miscellaneous expenses 251,748
--------------
Total operating expenses 1,772,359
--------------
Operating loss (335,320)
OTHER INCOME (EXPENSE):
Interest income 11,556
Interest expense (879,994)
--------------
Net loss before benefit for income taxes (1,203,758)
BENEFIT FOR INCOME TAXES -
--------------
Net loss $ (1,203,758)
==============
The accompanying notes are an integral part of this statement.
KRRT, INC.
----------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
-----------------------------------------------------------
Common Stock Additional Total
------------------------------------- Paid-In Accumulated Stockholders'
Shares Value Capital Deficit Equity
------ ----- ------- ------- ------
BALANCE, July 25,
1995 - $ - $ - $ - $ -
Capital contributions 1,000 - 10,001,000 - 10,001,000
Net loss - - - (1,203,758) (1,203,758)
-------------- -------------- -------------- -------------- --------------
BALANCE, December 31,
1995 1,000 $ - $ 10,001,000 $ (1,203,758) $ 8,797,242
============== ============ ============ ============ ============
The accompanying notes are an integral part of this statement.
KRRT, INC.
----------
STATEMENT OF CASH FLOWS
-----------------------
FOR THE PERIOD FROM JULY 25, 1995 THROUGH DECEMBER 31, 1995
-----------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,203,758)
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation expense 328,125
Amortization expense 492,811
Film amortization expense 69,674
Changes in assets and liabilities:
Increase in short-term investments (500,000)
Increase in other receivables (61,666)
Increase in bank overdraft 7,108
Increase in accrued liabilities 2,833
Increase in LMA advance 132,990
Increase in accrued interest expense 152,578
Program payments (69,674)
------------
Net cash used in operating activities (648,979)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Assets acquired, net of debt financing of $21,000,000 (9,843,562)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 500,000
Contributed capital 10,001,000
------------
Net cash flows provided by financing activities 10,501,000
------------
Net increase in cash 8,459
CASH, beginning of period -
------------
CASH, end of period $ 8,459
============
SUPPLEMENTAL CASHFLOW DISCLOSURE:
Cash paid for interest $ 727,416
============
The accompanying notes are an integral part of this statement.
KRRT, INC.
----------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
1. ORGANIZATION
KRRT, Inc., a Texas corporation (the Company) was organized and incorporated on
July 25, 1995 and on August 4, 1995, purchased the license and non-license
assets of Paramount Stations Group of Kerville, Inc., the owner and operator of
television KRRT-TV, San Antonio, Texas. The Company is a wholly-owned subsidiary
of JJK Broadcasting, Inc. (the "Parent"). The Company simultaneously entered
into a local marketing agreement (LMA) with River City Broadcasting LP (River
City) (Note 2). The Company is a television broadcaster serving the San Antonio
area through station KRRT on Channel 35, a UPN affiliate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
The Company's primary source of revenue is monthly fees received in accordance
with the LMA with River City. Under the terms of this agreement, the Company
receives monthly fees and is reimbursed for all operating expenses, scheduled
principal and interest payments on the long-term debt discussed in Note 8 and
scheduled program rights payments in exchange for the right to provide
programming and general advertising receivables.
Revenue is recorded as payments are scheduled to be received.
Short-Term Investments
- ----------------------
Short-term investments represent repurchase agreements which mature within three
months. This investment is stated at cost plus accrued income which approximates
market value.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. The Company depreciates and amortizes
property and equipment over the estimated useful lives of the assets, generally
using the straight-line method over six to forty years.
Intangible Assets
- -----------------
Intangible assets include value attributable to licenses issued by the Federal
Communications Commission (FCC) and goodwill representing the excess of the cost
over the fair market value of the assets purchased and the liabilities assumed.
These assets are amortized using the straight-line method over twenty-five years
and forty years, respectively. The Company monitors the financial performance
and continually evaluates the realizability of goodwill and the existence of any
impairment to its recoverability based on the projected future cash flows.
-2-
Program Contract Rights
- -----------------------
The station has entered into agreements with program distributors granting it
the right to broadcast programs over contract periods which generally run from
one to seven years. An asset and liability are booked equal to the liability
assumed on the purchase date. The asset is recorded at its net realizable value
based on expected future revenues. Accordingly, given that the Company's future
revenues are based on program payments (Note 2), amortization is recorded in
amounts equal to program payments as they are scheduled to be made.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue, expenses, gains
and losses during the reporting periods. Actual results could differ from these
estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1995:
Studio equipment $ 2,416,651
Transmitting equipment 1,423,283
Office equipment 139,337
Furniture and fixtures 162,894
Vehicles 31,482
Buildings 111,574
Leasehold improvements 64,534
Towers 1,204,827
Tools and test equipment 69,828
Spare parts 71,514
--------------
5,695,924
Less: Accumulated depreciation and amortization (328,125)
---------------
Property and equipment, net $ 5,367,799
===============
4. ACQUISITION
In August 1995, the Company acquired substantially all of the assets of
Paramount Stations Group of Kerville, Inc. for $30 million. This acquisition was
accounted for as a purchase under Accounting Principles Board Opinion 16,
whereby the purchase price was allocated to property, FCC license and goodwill
for $5.7 million, $23.8 million and $.5 million, respectively, based upon an
independent appraisal.
-3-
5. OTHER ASSETS
Other assets consist of the following at December 31, 1995:
Amortization
Period
------
Loan origination fee 5 years $ 420,000
Organization costs 5 years 318,000
--------------
738,000
Less: accumulated amortization (89,641)
--------------
Other assets, net $ 648,359
==============
6. COMMITMENTS AND CONTINGENCIES
The Company has entered into operating leases for building space and equipment.
Rental expense was $76,913 for the period from July 25, 1995 through December
31, 1995. As of December 31, 1995, future minimum lease payments under these
operating leases were as follows:
1996 $ 133,864
1997 61,478
1998 45,000
1999 45,000
2000 45,000
Thereafter 482,250
--------------
$ 812,592
==============
The Company has also entered into several contracts for data processing
equipment and service. Rental expense was $240,030 for the period from July 25,
1995 through December 31, 1995. As of December 31, 1995, future minimum payments
under these contracts are as follows:
1996 $ 592,443
1997 581,929
--------------
$ 1,174,372
=============
Litigation
- ----------
Lawsuits and claims are filed against the Company from time to time in the
ordinary course of business. These actions are in various preliminary stages,
and no judgments or decisions have been rendered by hearing boards or courts.
Management, after reviewing developments to date with legal counsel, is of the
opinion that the outcome of such matters will not have a material adverse effect
on the Company's financial position, results of operations or net cash flows.
7. INCOME TAXES
In February 1992, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
-4-
The following is a reconciliation of the statutory federal income taxes to the
recorded provision:
December 31,
1995
-------------
Statutory federal income taxes $ (409,278)
Adjustments:
State income taxes, net of federal effect (40,706)
Valuation allowance 449,984
-------------
(Benefit) for income taxes $ -
=============
Temporary differences between the financial reporting carrying amounts and tax
basis of assets and liabilities give rise to deferred taxes. The principal
sources of temporary differences and their effects on the provision for deferred
income taxes are as follows:
December 31,
1995
-------------
Depreciation and amortization $ 126,154
Valuation allowance (126,154)
--------------
Deferred income tax provision $ -
=============
Total deferred tax assets and deferred tax liabilities as of December 31, 1995,
and the sources of the difference between financial accounting and tax bases of
the Company's assets and liabilities which give rise to the deferred tax assets
and deferred tax liabilities and the tax effects of each are as follows:
December 31,
1995
-------------
Deferred tax assets:
Depreciation and amortization $ 126,154
Valuation allowance (126,154)
--------------
$ -
=============
During the year ended December 31, 1995, the Company recorded a full valuation
allowance on the deferred tax assets to reduce the total to an amount that
management believes will ultimately be realized. Realization of deferred tax
assets is dependent upon sufficient future total income during the period that
temporary differences and carryforwards are expected to be available to reduce
taxable income.
8. LONG-TERM DEBT
In connection with the acquisition of the Station, KRRT, Inc. entered into a
Bank Credit Agreement with a principal of $21,000,000 and interest at LIBOR plus
2.5%. Payments are scheduled to begin
-5-
on January 31, 1996. The debt is secured by all the assets of KRRT, Inc.,
including their rights under the LMA agreement and the assets of their Parent.
Annual maturities of long-term debt as of December 31, 1995, are as follows:
1996 $ 2,000,000
1997 4,000,000
1998 5,000,000
1999 5,800,000
2000 4,200,000
-------------
$ 21,000,000
=============
The carrying amount the Company's long-term debt approximates Fair value. The
Fair value was determined by reference to quoted values obtained from the
lender.
9. RELATED PARTY TRANSACTIONS
The Company's Parent receives a management fee equal to the portion of the LMA
fees designated as management fees for management services provided. During the
period from July 25, 1995 through December 31, 1995, the Company paid $277,775
to their Parent.
During 1995, the Parent contributed $10,001,000 to the Company to partially
finance the acquisition of the Station from Paramount Stations Group of
Kerville, Inc. (Note 4).
In connection with the financing of the acquisition, the Parent contributed
$500,000 to satisfy a covenant with the Bank of Montreal. This $500,000 is
recorded as a long-term note payable.
10. PROGRAM CONTRACTS
The Company purchases the right to broadcast programs through fixed term license
agreements. Broadcast rights consist of the following as of December 31, 1995:
December 31,
1995
-------------
Aggregate cost $ 2,390,639
Less- Accumulated amortization 69,674
-------------
2,320,965
Less- Current portion 1,451,959
-------------
$ 869,006
=============
-6-
Contractual obligations incurred in connection with the acquisition of broadcast
rights are $2,320,965 as of December 31, 1995, respectively. Future payments, by
year, for program contract rights payable as of December 31, 1995, are as
follows:
1996 $ 1,521,663
1997 525,399
1998 162,764
1999 77,007
Thereafter 34,132
-------------
$ 2,320,965
=============
The Fair value of film contracts payable is the present value of the future
obligations based on the current rates available to the Company for debt of
similar maturity. The carrying amount and fair value of program rights, payable
at December 31, 1995, were 2,320,965 and 1,653,975 respectively.
11. SUBSEQUENT EVENT
In April 1996, Sinclair Broadcast Group, Inc. (SBG) entered into an asset
purchase agreement with the Company whereby the Company has agreed to sell the
non-license assets for approximately $29.6 million. The Company estimates the
transaction will be consummated in May 1996.
-7-
RIVER CITY BROADCASTING
(RIVER CITY BROADCASTING, L.P.
AND ITS MAJORITY-OWNED BUSINESSES)
Consolidated Financial Statements
and Schedules
December 31, 1994 and 1995
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
----------------------------
The Partners
River City Broadcasting, L.P.:
We have audited the accompanying consolidated balance sheets of River City
Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and
1995, and the related consolidated statements of operations, partners' capital
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of River City
Broadcasting, L.P. and its majority-owned businesses as of December 31, 1994 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information included in
Schedules 1 and 2 is presented for purposes of additional analysis of the
consolidated financial statements rather than to present the financial position,
results of operations, and cash flows of the individual broadcast properties.
The consolidating information has been subjected to the auditing procedures
applied in the audits of the consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
KPMG Peat Marwick LLP
February 23, 1996
RIVER CITY BROADCASTING
Consolidated Balance Sheets
December 31, 1994 and 1995
Assets 1994 1995
------ ---- ----
Current assets:
Cash and cash equivalents $ 2,444,738 $ 3,009,949
Receivables, less allowance for doubtful
accounts of approximately $751,000 in 1994
and $1,011,000 in 1995 38,380,927 55,700,972
Current portion of program rights 18,721,662 23,275,767
Prepaid and other current assets 3,364,193 4,456,352
---------- ----------
Total current assets 62,911,520 86,443,040
Property and equipment, net 83,518,363 96,269,944
Program rights, less current portion 19,255,197 19,650,217
Intangible assets, net 239,689,766 350,878,357
Other noncurrent assets 11,301,757 20,588,525
----------- -----------
Total assets $ 416,676,603 $ 573,830,083
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Current installments of long-term debt $ - $ 38,587,000
Current installments of program rights payable 26,178,686 30,071,545
Accrued expenses 7,376,801 12,462,416
Accounts payable 862,162 6,924,246
Distributions payable 2,274,613 -
---------- -----------
Total current liabilities 36,692,262 88,045,207
Long-term debt, less current installments 309,550,000 404,413,000
Program rights payable, less current installments 17,136,852 27,579,601
Deferred compensation 5,260,477 5,516,833
---------- ----------
Total liabilities 368,639,591 525,554,641
Commitments and contingencies
Partners' capital; 19,386 general partner units and 126,047
and 148,651 limited partner units outstanding at
December 31, 1994 and 1995, respectively 48,037,012 48,275,442
----------- ----------
Total liabilities an
partners' capital $ 416,676,603 $ 573,830,083
=========== ===========
See accompanying notes to consolidated financial statements.
RIVER CITY BROADCASTING
Consolidated Statements of Operations
Years ended December 31, 1993, 1994, and 1995
1993 1994 1995
---- ---- ----
Net operating revenues:
Local time sales $ 34,377,284 $ 52,867,854 $ 107,591,097
National time sales 28,718,245 42,950,399 69,945,187
Other revenues 3,119,122 4,567,058 10,653,860
---------- ---------- -----------
Total operating revenues 66,214,651 100,385,311 188,190,144
---------- ----------- -----------
Operating costs:
Station operating expenses 15,857,926 26,516,623 62,040,690
Selling expenses 10,889,632 11,977,659 25,973,660
Program amortization expense 18,799,127 16,479,271 33,452,252
Corporate expenses 1,872,983 2,498,181 4,482,364
Depreciation 6,287,274 8,259,487 11,523,526
Amortization of intangible assets 6,094,026 11,228,316 27,649,173
---------- ----------- -----------
Total operating costs 59,800,968 76,959,537 165,121,665
---------- ----------- -----------
Operating income 6,413,683 23,425,774 23,068,479
---------- ----------- -----------
Other income (expense):
Interest expense (5,341,346) (11,033,149) (33,087,633)
Amortization of deferred financing
costs and debt discount (1,573,262) (1,066,296) (1,434,904)
Interest income 177,656 333,673 1,715,104
Other (45,227) 21,720 (22,616)
-------- ------- --------
(6,782,179) (11,744,052) (32,830,049)
---------- ----------- -----------
Income (loss) before
extraordinary item (368,496) 11,681,722 (9,761,570)
Extraordinary item - early extin-
guishment of debt (6,841,084) (3,348,506) -
---------- ----------- -----------
Net earnings (loss) $ (7,209,580) $ 8,333,216 $ (9,761,570)
========== ========== ===========
See accompanying notes to consolidated financial statements.
RIVER CITY BROADCASTING
Consolidated Statements of Partners' Capital (Deficit)
Years ended December 31, 1993, 1994, and 1995
General Limited
partner partners Total
------- -------- ------
Balance at December 31, 1992 $ (6,936,635) $ - $ (6,936,635)
Partners' capital contributions - 76,500,000 76,500,000
Conversion of equity debentures - 8,191,527 8,191,527
Redemption of partners' capital (12,986,107) (15,580,796) (28,566,903)
Net loss (973,697) (6,235,883) (7,209,580)
--------- ---------- ----------
Balance at December 31, 1993 (20,896,439) 62,874,848 41,978,409
Distributions - (2,274,613) (2,274,613)
Net earnings 8,333,216 - 8,333,216
---------- ---------- ----------
Balance at December 31, 1994 (12,563,223) 60,600,235 48,037,012
Issuance of limited partner interest - 10,000,000 10,000,000
Net loss - (9,761,570) (9,761,570)
---------- ---------- ----------
Balance at December 31, 1995 $(12,563,223) $ 60,838,665 $ 48,275,442
========== ========== ==========
See accompanying notes to consolidated financial statements.
RIVER CITY BROADCASTING
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1994, and 1995
1993 1994 1995
---- ---- ----
Cash flows from operating activities:
Net earnings (loss) $ (7,209,580) $ 8,333,216 $ (9,761,570)
Extraordinary item (note 12) 6,841,084 2,164,006 -
Interest expense on conversion of debenture
to equity 101,327 - -
Adjustments to reconcile net earnings
(loss) to net cash provided by operating
activities:
Program amortization expense 18,799,127 16,479,271 33,452,252
Depreciation 6,287,274 8,259,487 11,523,526
Loss on disposition of property and
equipment 47,416 - 193,249
Amortization of deferred financing
costs and debt discount 1,573,262 1,066,296 1,434,904
Amortization of intangible assets 6,094,026 11,228,316 27,649,173
Retirement of program rights payable (15,773,065) (13,892,127) (24,065,769)
Change in assets and liabilities, net
of effects from purchase of broad-
cast properties:
Increase in receivables, net (1,816,872) (7,940,420) (17,320,045)
Increase in prepaid and other current
assets (133,109) (472,744) (763,768)
Increase in other noncurrent assets (247,492) (921,957) (9,286,768)
Increase (decrease) in accounts payable
and accrued expenses (1,087,119) (644,978) 11,147,699
Increase in deferred compensation 1,161,000 3,236,477 256,356
---------- ---------- --------
Net cash provided by operating
activities 14,637,279 26,894,843 24,459,239
---------- ----------- -----------
Cash flows from investing activities,
net of effects from purchase of broad-
cast properties:
Costs to acquire broadcast properties - (175,397,321) (137,884,857)
Additions to property and equipment 1,080,171) (5,304,587) (11,286,967)
Additions to intangible assets (1,329,361) (2,210,655) (2,682,454)
Funding of local marketing agreement - (11,000,000) -
-------- ------------ ------------
Net cash used in investing
activities 2,409,532) (193,912,563) (151,854,278)
----------- ----------- -----------
Cash flows from financing activities:
Retirement of long-term debt (58,554,497) (138,360,116) (1,550,000)
Proceeds from term loan - 120,000,000 110,000,000
Net borrowings under revolving loan commitment - 188,000,000 25,000,000
Redemption of partnership interest (28,566,903) - -
Proceeds from partners' capital
contributions 76,500,000 - -
Distributions paid - - (2,274,613)
Additions to deferred financing fees (165,174) (4,450,344) (3,215,137)
--------- ----------- -----------
Net cash provided by (used in)
financing activities (10,786,574) 165,189,540 127,960,250
---------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents 1,441,173 (1,828,180) 565,211
Cash and cash equivalents, beginning of year 2,831,745 4,272,918 2,444,738
---------- ---------- ----------
Cash and cash equivalents, end of year $ 4,272,918 $ 2,444,738 $ 3,009,949
========== ========== ==========
See accompanying notes to consolidated financial statements.
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
(1) Business Description
--------------------
River City Broadcasting, L.P. (River City Broadcasting or the
Partnership) is a limited partnership formed to purchase and operate
broadcast properties and related activities. River City Broadcasting
has acquired nine broadcast television stations and 24 radio stations.
The Partnership also operates one television station and three radio
stations under local marketing agreements (LMAs). River City
Broadcasting is managed by its general partner subject to terms and
conditions specified in the Second Amended and Restated Agreement of
Limited Partnership (Limited Partnership Agreement).
On September 3, 1993, River City Broadcasting entered into a
Reorganization Agreement, whereby additional equity funding was
injected into the Partnership, and certain partners' interests were
redeemed (the Recapitalization).
(2) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
----------------------------
The accompanying consolidated financial statements include the accounts
of River City Broadcasting and its majority-owned businesses.
Management's 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 reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Program Rights
--------------
Program rights and related liabilities are recorded at cost when the film
is available for broadcasting. Agreements define the lives of the
rights and frequently the number of showings. The cost of program
rights is charged against earnings using straight-line and accelerated
methods.
Program rights, representing the cost of those rights available for
broadcasting and expected to be broadcast in the succeeding fiscal
year, are shown as a current asset. Program rights payable are
classified as current based on those payments of the various contracts
contractually due within the succeeding fiscal year.
Program rights are stated at the lower of cost or estimated net
realizable value.
(Continued)
2
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
Property and Equipment
----------------------
Property and equipment is recorded at cost. Maintenance and repairs are
charged against earnings, while improvements which extend useful lives
are capitalized.
Depreciation expense is computed using primarily the straight-line method
over the estimated useful lives of the related assets.
Intangible Assets
-----------------
Intangible assets consist principally of network affiliation agreements,
broadcasting licenses, covenants not to compete, deferred financing
costs, and going-concern values. Amortization expense is computed on a
straight-line basis over the estimated lives of the assets, which
generally range from 5-20 years.
The Partnership assesses the recoverability of these intangible assets by
determining whether the amortization of the remaining balances over
their remaining lives can be recovered through projected undiscounted
future results. The amount of impairment, if any, is measured based on
projected discounted future results using a discount rate reflecting
the Company's average cost of funds. The methodology that management
used to project results of operations forward was based on the
historical trend line of actual results.
Interest Rate Risk Management
-----------------------------
The Partnership uses a combination of financial instruments as part of
its program to manage interest rate risk on its floating rate debt.
Such investments are considered hedges and, accordingly, changes in
their market value, representing the cost to close the Partnership's
position in these financial instruments, are not reflected in the
consolidated financial statements (see note 7).
Deferred Compensation
---------------------
River City Broadcasting has entered into deferred compensation agreements
with members of management at certain of the broadcast properties.
Deferred compensation expense is recorded over the period of employee
service based on terms as contained in the respective agreements.
In addition to the deferred compensation agreements described above, the
Partnership has granted Phantom Warrant Units to certain key members
of management. These Phantom Warrant Units were granted pursuant to a
Phantom Unit Plan (the Plan). Under Plan provisions, the Phantom
Warrant Unit holders will receive performance compensation based on
the appreciation in value of the Partnership. This compensation is
recognized as incurred based on a six-year vesting period.
Warrant Units
-------------
Concurrently with the Recapitalization, warrant units were issued to two
key members of management, who are also the sole shareholders of the
general partner of River City Broadcasting. These warrant units
provide for, among other things as described in the Limited
Partnership Agreement, participation in Partnership profits and losses
and equity appreciation on a basis substantially similar to a 10%
partnership interest.
(Continued)
3
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
Income Taxes and Distributions for Taxes
----------------------------------------
No income tax provision has been included in the consolidated financial
statements since profit and loss in the Partnership and the related
tax attributes are deemed to be distributed to, and to be reportable
by, the partners of the Partnership on their respective income tax
returns. Accordingly, based on the tax attributes to be passed through
to the partners, the Partnership records a distribution payable
calculated pursuant to the Limited Partnership Agreement for amounts
expected to be distributed to the partners for their estimated tax
liability.
Limited Partnership Agreement
-----------------------------
The allocation of Partnership profits and losses, cash distributions,
voting rights, certain equity preference and appreciation rights, and
other matters are defined in the Limited Partnership Agreement. These
items, except voting rights, are principally determined based on the
tax basis of the respective partners.
Revenues
--------
Broadcasting revenues are derived principally from the sale of program
time and spot announcements to local, regional, and national
advertisers. Advertising revenue is recognized in the period during
which the program time and spot announcements are broadcast.
Barter Transaction
------------------
Barter transactions are recorded at the estimated fair values of the
products and services received. Barter revenues are recognized when
commercials are broadcast. The assets or services received in exchange
for broadcast time are recorded when received or used.
Consolidated Statements of Cash Flows
-------------------------------------
For purposes of the consolidated statements of cash flows, the
Partnership considers all cash investments with an original maturity
of three months or less to be cash equivalents.
Reclassification
----------------
Certain 1993 and 1994 balances have been reclassified to conform with the
1995 presentation.
(3) Acquisition of Broadcast Properties
-----------------------------------
In September 1994, the Partnership acquired certain assets and assumed
certain liabilities of Continental Broadcasting Ltd. (Continental) for
total cash consideration of approximately $175,397,000. In connection
with the acquisition, River City Broadcasting assumed $120,000,000 of
senior subordinated notes and related accrued interest. Broadcast
properties acquired include WSYX-TV (Columbus, Ohio), KOVR-TV
(Sacramento, California), and WLOS-TV/WFBC-TV (formerly WAXA-TV)
(Asheville, North Carolina, and Anderson, South Carolina).
(Continued)
4
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
This acquisition is a purchase transaction and, accordingly, the assets
acquired and liabilities assumed have been recorded at their estimated
fair values as of the acquisition date, as determined by independent
appraisal. The allocation of the purchase price is summarized as
follows:
Intangible assets $ 221,995,342
Property and equipment 62,285,634
Accounts receivable 13,313,252
Program rights 10,471,346
Prepaid and other current assets 164,898
Program rights payable (7,752,322)
Accounts payable and accrued expenses (2,672,495)
----------
Total purchase price 297,805,655
Assumption of debt, plus related
accrued interest (122,408,334)
-------------
$ 175,397,321
=============
In July 1995, the Partnership acquired certain assets of Keymarket
Communication and affiliated companies (Keymarket), as defined in the
underlying Asset Purchase Agreement, for total cash consideration of
approximately $131,000,000 and $10,000,000 of limited partner units.
Broadcast properties acquired consist of 19 radio stations within the
Los Angeles, California, Nashville, Tennessee, New Orleans, Louisiana,
Memphis, Tennessee, Buffalo, New York and Wilkes-Barre/Scranton,
Pennsylvania markets. Additionally, the Partnership acquired the
rights to operate three radio stations under LMAs.
In October 1995, the Partnership acquired a 60% interest in Twin Peaks
Radio (Twin Peaks) through its acquisition of Sandia Peak
Broadcasters, Inc. As discussed in note 17, the Partnership acquired
the remaining 40% interest in Twin Peaks in January 1996. Twin Peaks
is a partnership which owns and operates three radio stations in the
Albuquerque, New Mexico area. Total cash consideration paid in 1995
amounted to approximately $3,200,000.
In November 1995, the Partnership acquired certain assets of WVRV-FM in
St. Louis, Missouri, for cash consideration of approximately
$3,600,000. River City Broadcasting previously operated this station
under an LMA.
The 1995 acquisitions are purchase transactions and, accordingly, the
assets acquired and liabilities assumed have been recorded at their
estimated fair values as of the acquisition date, as determined by
independent appraisal. The allocation of the purchase price is
summarized as follows:
Intangible assets $ 134,375,077
Property and equipment 13,181,389
Prepaid and other current
assets 328,391
---------
Total purchase price 147,884,857
Issuance of limited partner units (10,000,000)
-----------
$ 137,884,857
==============
(Continued)
5
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
The following unaudited supplemental pro forma information presents
revenues, income (loss) before extraordinary item, and net earnings
(loss) as though River City Broadcasting had consummated the 1995
acquisitions on January 1, 1994 (1994) and January 1, 1995 (1995):
1994 1995
---- ----
Revenues $ 148,492,000 $ 213,749,000
=========== ===========
Loss before extraordinary item $ (22,907,000) $ (17,232,000)
=========== ===========
Net loss $ (26,255,000) $ (17,232,000)
=========== ===========
(4) Intangible Assets
-----------------
A summary of intangible assets follows:
Asset
lives in
1994 1995 years
---- ---- -----
Network affiliation agreements, net
of amortization of approximately
$3,077,000 and $9,724,000 in 1994
and 1995, respectively $ 143,950,815 $ 137,813,988 20
Broadcasting licenses, net of amortiza-
tion of approximately $1,506,000 and
$4,605,000 in 1994 and 1995, respec-
tively 47,529,039 114,567,600 20
Deferred financing costs, net of amor-
tization of approximately $382,000
and $1,817,000 in 1994 and 1995,
respectively 4,068,376 7,052,734 8
Covenants not to compete, net of amor-
tization of approximately $5,900,000
and $11,410,000 in 1994 and 1995,
respectively 18,100,004 12,669,639 5
Going-concern value, net of amortiza-
tion of approximately $636,000 and
$1,168,000 in 1994 and 1995, respec-
tively 5,554,642 8,502,935 20
Other intangible assets, net of amorti-
zation of approximately $16,754,000
and $27,118,000 in 1994 and 1995,
respectively 20,072,564 70,271,461 2-20
----------- ----------- ====
$ 239,275,440 $ 350,878,357
=========== ===========
(Continued)
(5) Property and Equipment
----------------------
A summary of property and equipment follows:
Lives
1994 1995 in years
---- ---- --------
Land $ 7,129,861 $ 11,622,969 -
Buildings and improvements 21,284,574 25,150,610 31.5
Equipment, furniture, and fixtures 79,261,457 96,668,728 5-15
====
Construction in progress 3,550,525 1,436,638
---------- ----------
111,226,417 134,878,945
Less accumulated depreciation 27,708,054 38,609,001
----------- -----------
$ 83,518,363 $ 96,269,944
=========== ===========
(6) Long-Term Debt
A summary of long-term debt follows:
1994 1995
---- ----
Revolving Credit and Term Loan Agreements
-----------------------------------------$ 308,000,000 $ 443,000,000
Senior subordinated notes 1,550,000 -
---------- -------------
309,550,000 443,000,000
Less current installments - 38,587,000
----------- -----------
$ 309,550,000 $ 404,413,000
=========== ===========
Upon the acquisition of the Continental broadcast properties in 1994, the
Partnership assumed $120,000,000 of 10-5/8% senior subordinated notes.
Interest is payable semiannually on January 1 and July 1 of each year.
Pursuant to terms of the underlying indenture, subsequent to their
assumption, River City Broadcasting offered to redeem the underlying
notes from the holders at 101% of the principal amount thereof. In
connection with this offer, $118,450,000 of the outstanding notes were
redeemed in 1994. A put premium of $1,184,500 was charged to expense
in 1994. The balance of the senior subordinated notes was redeemed in
1995.
Concurrent with the acquisition of the Continental broadcast properties
in 1994, the Partnership entered into a Senior Credit Facility
providing a $120,000,000 term loan commitment and a revolving loan
commitment of $230,000,000. In December 1994, the Partnership
exercised the $120,000,000 term loan commitment in connection with the
redemption of the senior subordinated notes described above.
In April 1995 the Partnership amended the Senior Credit Facility (Amended
Senior Credit Facility). The Amended Senior Credit Facility provided
for an additional term loan commitment of $110,000,000. In July 1995,
the Partnership exercised the $110,000,000 term loan commitment in
connection with the Keymarket acquisition.
(Continued)
7
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
At December 31, 1995 the Partnership had outstanding borrowings of
$213,000,000 under the revolving loan commitment. The revolving loan
commitment of $230,000,000 is reduced as follows: $9,200,000 each
quarter beginning December 31, 1995 through December 31, 1999;
$10,750,000 each quarter through December 31, 2000; and $15,300,000
each quarter through June 30, 2001. The term loan is payable in
increasing quarterly installments through December 2002. Accelerated
principal payments are required upon the Partnership meeting certain
financial objectives or upon the occurrence of certain other events as
defined in the Amended Senior Credit Facility. Borrowings are secured
by substantially all of the Partnership's assets and by a lien on all
limited partner interests. The Amended Senior Credit Facility includes
certain covenants which, among other things, require the Partnership
to meet certain financial performance goals and maintain certain
financial ratios, limit capital expenditures, and limit the incurrence
of additional indebtedness.
Under terms of the Amended Senior Credit Facility, the Partnership has
the option to elect from various interest rate options. The Amended
Senior Credit Facility also includes a provision whereby the interest
rate is adjusted each quarter based on River City Broadcasting's
financial performance. Substantially all amounts borrowed under the
Amended Senior Credit Facility accrue interest based on the LIBOR
rate. At December 31, 1995, the Company's effective borrowing rate
under this agreement, including the effect of interest rate risk
management activities, was 8.7%. The Amended Senior Credit Facility
requires the Partnership to pay unused commitment fees (term and
revolver) at 3/8 of 1%, payable quarterly.
Theaggregate maturities of long-term debt reflect scheduled principal
payments due under the term loan commitment and the required principal
reductions on the revolving loan commitment and are as follows:
Year ending December 31:
1996 $ 38,587,000
1997 46,387,000
1998 51,175,000
1999 55,963,000
2000 73,663,000
Thereafter 177,225,000
-----------
$ 443,000,000
===========
(7) Interest Rate Risk Management
-----------------------------
The Partnership uses a combination of financial instruments, including
interest rate swaps, interest rate caps, interest rate collars, and
forward rate agreements, as part of its program to manage the floating
interest rate risk of its debt portfolio and related overall cost of
borrowing. These financial instruments, which are for nontrading
purposes, allow the Partnership to maintain a target range of fixed
rate debt. The Amended Senior Credit Facility requires the Partnership
to hedge 50% of its floating rate risk through December 1997.
Interest rate swaps involve the exchange of floating rate for fixed rate
interest payments to effectively convert floating rate debt to fixed
rate debt. The interest rate swap agreement is for a term of
approximately three years and matures December 1997.
(Continued)
8
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
The Partnership purchased interest rate caps to convert floating rate
debt to a fixed rate if such rates rise above 9.5%. The cost of the
interest rate caps totaled approximately $613,000 and is being
amortized over the term of the agreements, generally three years. The
unamortized balance is approximately $408,000 at December 31, 1995.
Interest rate cap agreements mature in December 1997 and January 1998.
Interest rate collars involve the conversion of floating rate debt to a
fixed rate if such rates exceed 9.5% or fall below a specified floor
rate (generally 4.0%-4.2%). Such agreements mature in December 1997.
Forward rate agreements are short-term contracts (generally 3-6 months)
which allow the Partnership to lock in its effective LIBOR rates over
short-term periods. Such agreements mature January 1996 through April
1996.
The following financial instruments were held at December 31, 1995:
Notional Fair
amounts value
-------- -----
Interest rate swap $ 50,000,000 $(2,103,000)
Interest rate caps 105,000,000 12,000
Interest rate collars 70,000,000 (91,000)
Forward rate agreements 411,000,000 (304,000)
=========== =========
Estimated fair values shown above only represent the value of the hedge
or swap component of these transactions, and thus are not indicative
of the Partnership's overall hedged position. As fully hedged
transactions, the estimated fair values of the interest rate financial
instruments do not affect income and are not recorded in the
consolidated financial statements, but rather only represent the
amount which would be required to close the Partnership's position in
the financial instruments at December 31, 1995.
(8) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
Cash and Cash Equivalents, Receivables, and Payables - The carrying
amount approximates fair value because of the short-term maturity
of these instruments.
Long-Term Investment - The Partnership holds a 16% interest in a
partnership for which there are no quoted market prices. A
reasonable estimate of fair value could not be made. The
investment is carried at its cost of $1,654,000 in the
consolidated balance sheet.
Long-Term Debt - The fair value of the Partnership's debt is estimated
based on the current rates offered to the Partnership for debt of
the same remaining maturities. The carrying amount approximates
fair value because of the variable interest rate attached to the
debt.
(Continued)
9
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
Program Rights Payable - The fair value of film contracts payable is
the present value of the future obligations based on the current
rates available to the Partnership for debt of similar maturity.
The carrying amount and fair value of program rights payable at
December 31, 1995 were $56,223,000 and $48,494,000, respectively.
(9) Local Marketing Agreement
In August 1995 the Partnership entered into a five-year LMA with KRRT,
Inc. (Licensee). In a related transaction, the Partnership loaned
$10,000,000 to the Licensee. The related note bears interest at 8%.
Pursuant to the LMA, KRRT-TV of Kerrville, Texas (the brokered
station) will air programming provided by River City Broadcasting in
exchange for specified compensation. Such compensation is principally
based on certain station operating costs of the brokered station,
including debt service. River City Broadcasting will retain all
advertising revenues derived from programming for which it has
provided. The LMA is cancellable by the Licensee or River City
Broadcasting.
(10) Equity Debentures
In connection with the purchase of KDSM-TV and the first amendment of the
Limited Partnership Agreement, River City Broadcasting issued two
debentures totaling $2,500,000. These debentures were issued in
consideration of, among other things, consent granted by a certain
partner allowing River City Broadcasting to complete certain
transactions as contained in the respective debenture agreements.
Amounts due under the debenture agreements were to be satisfied
through equity distributions made in accordance with terms of the
Limited Partnership Agreement. Accordingly, for financial reporting
purposes, the debentures were treated as equity preference items and
the related principal and accrued interest were not reflected (as
liabilities or as equity) in the consolidated financial statements of
River City Broadcasting. Concurrent with the Recapitalization, these
debentures were satisfied through an equity distribution to the
partner.
(11) Supplemental Cash Flow and Other Financial Information
Cash paid for interest totaled approximately $6,106,000, $11,523,000,
and $29,249,000 for the years ended December 31, 1993, 1994, and 1995,
respectively.
River City Broadcasting purchased program rights, on an installment
basis, amounting to approximately $16,285,000, $15,749,000, and
$38,401,000 in 1993, 1994, and 1995, respectively. Amounts reflected
as retirements of program rights payable represent amounts actually
paid to vendors under various program rights agreements.
In connection with the Keymarket acquisition, the Partnership granted
$10,000,000 of limited partner units to the Keymarket seller.
Cash overdrafts amounting to approximately $3,959,000 were included in
accounts payable at December 31, 1995.
Based on certain events, including network affiliation changes at certain
broadcast properties, management performed a review of program rights
to determine projected usage and revenue streams. Based on this
review, the Partnership wrote off certain programming and recognized a
charge of approximately $7,100,000 to operations for the year ended
December 31, 1995.
Pursuant to the deferred compensation agreements and Phantom Warrant
Units described in note 2, the Partnership recognized approximately
$1,161,000, $3,236,000, and $1,143,000 of deferred compensation
expense in 1993, 1994, and 1995, respectively.
At December 31, 1994, the Partnership recorded a distribution payable of
$2,274,613 in anticipation of income taxes due by the partners as
described in note 2. In accordance with the Limited Partnership
Agreement this distribution was paid in 1995.
In 1993, River City Broadcasting retired a $1,000,000 subordinated
debenture for $8,191,527. This amount includes accrued interest of
$350,443 of which $101,327
(Continued)
10
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
represents 1993 interest expense. The debenture contained a contingent
interest provision, determined based on certain equity like features,
which was triggered concurrent with the Recapitalization. Retirement
of this debenture was effected through its conversion to a limited
partnership interest and a charge to interest expense of $7,191,527
(see note 16).
(12) Extraordinary Items
-------------------
Concurrently with the Recapitalization in 1993, the Partnership
redeemed, through conversion to equity, the $1,000,000 1989
subordinated debenture for $8,191,527, including accrued interest of
$350,443. This redemption was treated as an early extinguishment of
debt for financial reporting purposes.
As described in note 7, the Partnership redeemed $118,450,000 of the
outstanding Continental notes with a put premium of $1,184,500.
Additionally, in connection with the extinguishment of its prior
Amended Senior Credit Facility, the Partnership expensed approximately
$2,164,000 of related deferred financing fees. These items were
treated as an early extinguishment of debt for financial reporting
purposes.
(13) Related Party Transactions
--------------------------
Prior to the Recapitalization, the general partner received a management
fee from each station primarily based on the individual station's
revenues. Subsequent to the Recapitalization, the general partner no
longer received management fees. Pursuant to the Recapitalization,
corporate expenses are allocated to each station to cover the
salaries and expenses of senior management. Such allocation is based
upon certain financial information and management's estimate of
actual time spent. Management believes the allocation is reasonable
and approximates what the expenses would have been on a stand-alone
basis. In 1993, management fees totaling approximately $1,220,000
were paid to a general partner whose interest was redeemed concurrent
with the Recapitalization. Beginning in 1994, costs associated with
certain members of senior management were allocated to corporate
expenses. Previously, these costs were included in station operating
expenses. Total management fees and expenses, including corporate
expenses, for the years ended December 31, 1993, 1994, and 1995
amounted to approximately $1,873,000, $2,498,000 and $4,482,000,
respectively.
(Continued)
11
RIVER CITY BROADCASTING
Notes to Consolidated Financial Statements
(14) Employee Benefits
-----------------
River City Broadcasting maintains a qualified profit-sharing plan with a
trustee, which includes a thrift provision qualifying under Section
401(k) of the Internal Revenue Code, covering substantially all
employees. The provision allows the participants to contribute up to
12% of their compensation in the plan year, subject to statutory
limitations. River City Broadcasting contributed approximately
$121,000, $215,000, and $388,000 for the years ended December 31,
1993, 1994, and 1995, respectively, to the Plan.
In 1994, River City Broadcasting began contributing to a multi-employer
plan on behalf of certain union employees. Contributions to the plan
totaled approximately $20,000 and $31,000 for the years ended
December 31, 1994 and 1995, respectively.
(15) Commitments and Contingencies
-----------------------------
In conjunction with River City Broadcasting's commitment to obtain new
programming, the Partnership has purchased approximately $34,579,000
of future program rights, including $14,089,000 of sports rights, of
which approximately $4,047,000 will become payable in 1996. These
rights are generally for a period ranging from one to four years.
Program rights and related obligations in the accompanying
consolidated financial statements do not include these future
commitments.
The Partnership loaned approximately $6,200,000 to Keymarket of South
Carolina (KSC), a Company owned by a member of Keymarket management.
The loan bears interest at the applicable federal rate, is secured by
all of the assets of KSC, and is payable upon demand by the
Partnership. KSC owns three radio stations and operates two additional
radio stations under an LMA. River City Broadcasting holds an option
to acquire KSC for consideration totaling the amount of the loans
outstanding, including accrued interest, plus $1,000,000.
The Partnership has capitalized approximately $1,400,000 of fees
associated with a bond offering filed with the SEC in 1995. In the
event the offering is aborted, the Partnership will recognize a charge
to operations of $1,400,000. If the offering is consummated, these
fees will be amortized over the life of the bonds.
River City Broadcasting is involved in certain litigation matters arising
in the normal course of business. In the opinion of management, these
matters are not significant and will not have a material adverse
effect on the Partnership's financial position.
(16) Subsequent Event
----------------
In January 1996, the Partnership acquired the remaining 40% partnership
interest in Twin Peaks Radio which owned and operated three radio
stations in the Albuquerque, New Mexico area.
(Continued)
Schedule 1
----------
Schedule 2
----------
RIVER CITY BROADCASTING
Supplementary Information - Consolidating Balance Sheet
December 31, 1995
WTTV-TV/
Assets KDNL-TV KABB-TV KDSM-TV WTTK-TV KOVR-TV
------ ------- ------- ------- ------- -------
Current assets:
Cash and cash equiva-
lents $ 136,987 663,728 61,963 257,698 276,919
Receivables, net 9,446,816 6,475,645 1,971,162 7,524,596 5,333,369
Current portion of
program rights 5,048,222 4,990,635 990,783 7,557,344 2,270,161
Prepaid and other
current assets 2,762,779 404,158 177,762 115,647 101,716
---------- -------- -------- -------- --------
Total current
assets 17,394,804 12,534,166 3,201,670 15,455,285 7,982,165
Property and equipment,
net 13,398,013 6,071,055 1,628,463 6,306,885 25,573,822
Program rights, less
current portion 3,804,258 3,727,993 805,856 9,598,582 458,149
Intangible assets, net 13,834,974 330,825 2,979,140 4,981,976 53,061,805
Other noncurrent assets 18,862,013 114,830 - 577,465 1,034,217
Intracompany receivable
(payable) 419,533,197 6,829,155 (5,474,147) (6,508,035) (81,859,044)
----------- ---------- --------- ---------- ----------
Total assets $ 486,827,259 29,608,024 3,140,982 30,412,158 6,251,114
=========== ========== ========= ========== ==========
WLOS-TV/ KPNT-FM/
Assets WSYX-TV WFBC-TV WVRV-FM KEYMARKET Consolidated
------ ------- ------- ------- ------- -------
Current assets:
Cash and cash equiva-
lents 150,287 167,249 418 1,294,700 3,009,949
Receivables, net 6,767,482 4,861,239 1,094,329 12,226,334 55,700,972
Current portion of
program rights 1,432,430 986,192 - - 23,275,767
Prepaid and other
current assets 302,959 399,386 18,945 173,000 4,456,352
---------- -------- -------- -------- --------
Total current
assets 8,653,158 6,414,066 1,113,692 13,694,034 86,443,040
Property and equipment,
net 15,504,051 15,949,746 2,081,073 9,756,836 96,269,944
Program rights, less
current portion 917,035 338,344 - - 19,650,217
Intangible assets, net 113,401,363 33,195,000 4,375,786 124,717,488 350,878,357
Other noncurrent assets - - - - 20,588,525
Intracompany receivable
(payable) (128,728,876) (48,106,061) (11,616,036) (144,070,153) -
----------- ---------- ---------- ----------- ----------
Total assets $ 9,746,731 7,791,095 (4,045,485) 4,098,205 573,830,083
========== ========== ========== ========== ===========
Liabilities and
Partners' Capital (Deficit)
Current liabilities:
Current installments of
long-term debt 38,587,000 - - - -
Current installments of
Program rights payable 6,152,592 4,610,141 1,322,747 10,670,157 2,992,716
Accrued expenses 5,881,279 849,425 534,880 912,655 987,257
Accounts payable 3,907,463 573,611 372,024 306,187 13,758
---------- -------- -------- -------- -------
Total current
liabilities 54,528,334 6,033,177 2,229,651 11,888,999 3,993,731
Long-term debt, less
current installments 404,413,000 - - - -
Program rights payable,
less current install-
ments 7,655,070 6,095,348 1,339,883 9,919,146 1,104,898 1,173,874
Deferred compensation 5,459,000 - - - 57,833
---------- --- --- --- -------
Total liabilities 472,055,404 12,128,525 3,569,534 21,808,145 5,156,462
Partners' capital (deficit) 14,771,855 17,479,499 (428,552) 8,604,013 1,094,652
----------- ---------- --------- ---------- ----------
Total liabilities
and partners'
capital
(deficit) $ 486,827,259 29,608,024 3,140,982 30,412,158 6,251,114
=========== ========== ========= ========== ==========
Liabilities and
Partners' Capital (Deficit)
Current liabilities:
Current installments of
long-term debt - - - - 38,587,000
Current installments of
Program rights payable 1,726,769 1,343,423 - 1,253,000 30,071,545
Accrued expenses 515,993 980,540 422,952 1,377,435 12,462,416
Accounts payable 282,022 52,453 1,207 1,415,521 6,924,246
-------- ------- ------ ---------- ----------
Total current
liabilities 2,524,784 2,376,416 424,159 4,045,956 88,045,207
Long-term debt, less
current installments - - - - 404,413,000
Program rights payable,
less current install-
ments 7,655,070 291,382 - - 27,579,601
Deferred compensation - - - - 5,516,833
--- --- --- --- ----------
Total liabilities 3,698,658 2,667,798 424,159 4,045,956 525,554,641
Partners' capital (deficit) 6,048,073 5,123,297 (4,469,644) 52,249 48,275,442
---------- ---------- ---------- ------- -----------
Total liabilities
and partners'
capital
(deficit) $ 9,746,731 7,791,095 (4,045,485) 4,098,205 573,830,083
========== ========== ========== ========== ===========
<FN>
Note: Financing for the Partnership's acquisitions and working capital needs,
the acquisition of Twin Peaks, and Partnership distributions are included
in KDNL-TV.
</FN>
See accompanying independent auditors' report.
RIVER CITY BROADCASTING
Supplementary Information - Consolidating Schedule of Operations
Year ended December 31, 1995
WTTV-TV/
KDNL-TV KABB-TV KDSM-TV WTTK-TV KOVR-TV WSYX-TV
------- ------- ------- ------- ------- -------
Net operating revenues:
Local time sales $ 15,219,598 9,291,868 4,327,637 14,617,850 10,941,996 15,378,536
National time sales 10,572,978 10,260,740 2,844,380 10,481,144 12,358,279 12,067,694
Other revenues 1,438,516 1,544,350 306,137 924,624 2,045,354 1,320,056
---------- ---------- -------- -------- ---------- ----------
Total operating
revenues 27,231,092 21,096,958 7,478,154 26,023,618 25,345,629 28,766,286
---------- ---------- --------- ---------- ---------- ----------
Operating costs:
Station operating expenses 9,043,580 6,355,009 1,972,370 4,927,980 11,095,313 8,133,543
Selling expenses 3,654,498 2,993,809 1,516,619 3,038,069 2,945,963 2,452,770
Program amortization
expense 7,571,430 3,979,706 1,504,520 8,385,108 5,386,975 2,623,583
Corporate expenses 649,508 500,000 - 550,000 400,000 700,000
Depreciation 633,464 713,700 897,220 2,283,646 2,680,064 2,107,422
Amortization of intangi-
ble assets 1,010,731 97,507 936,720 2,239,389 3,771,848 9,779,555
---------- ------- -------- ---------- ---------- ----------
Total operating
costs 22,563,211 14,639,731 6,827,449 21,424,192 26,280,163 25,796,873
---------- ---------- --------- ---------- ---------- ----------
Operating income
(loss) 4,667,881 6,457,227 650,705 4,599,426 (934,534) 2,969,413
---------- ---------- -------- ---------- --------- ----------
Other income (expense):
Interest expense (32,986,956) - - (100,677) - -
Amortization of de-
ferred financing
costs and debt
discount (1,434,904) - - - - -
Interest income 1,697,599 3,965 - - - -
Other - - 12,041 (98,111) 170,633 (56,771) (50,408
---------- --- ------- -------- -------- -------- --------
(32,724,261) 3,965 12,041 (198,788) 170,633 (56,771
---------- ------ ------- --------- -------- --------
Net earnings
(loss) $(28,056,380) 6,461,192 662,746 4,400,638 (763,901) 2,912,642
========== ========== ======== ========== ========= ==========
WLOS-TV/ KPNT-FM/
WFBC-TV WVRV-FM KEYMARKET Consolidated
------- ------- --------- ------------
Net operating revenues:
Local time sales 9,350,343 4,334,425 24,128,844 107,591,097
National time sales 8,407,648 322,655 2,629,669 69,945,187
Other revenues 1,566,790 363,859 1,144,174 10,653,860
---------- -------- ---------- -----------
Total operating
revenues 19,324,781 5,020,939 27,902,687 188,190,144
---------- --------- ---------- -----------
Operating costs:
Station operating expenses 6,808,280 2,313,721 11,390,894 62,040,690
Selling expenses 2,310,355 1,407,484 5,654,093 25,973,660
Program amortization
expense 1,600,930 - 2,400,000 33,452,252
Corporate expenses 400,000 204,333 1,078,523 4,482,364
Depreciation 1,930,747 (91,281) 368,544 11,523,526
Amortization of intangi-
ble assets 2,463,069 378,430 6,971,924 27,649,173
---------- -------- ---------- -----------
Total operating
costs 15,513,381 4,212,687 27,863,978 165,121,665
---------- --------- ---------- -----------
Operating income
(loss) 3,811,400 808,252 38,709 23,068,479
---------- -------- ------- -----------
Other income (expense):
Interest expense - - - (33,087,633)
Amortization of de-
ferred financing
costs and debt
discount - - - (1,434,904)
Interest income - - 13,540 1,715,104
Other - - - (22,616)
---------- --- --- --------
(50,408) - 13,540 (32,830,049)
-------- --- ------- -----------
Net earnings
(loss) 3,760,992 808,252 52,249 (9,761,570)
========== ======== ======= ===========
<FN>
Note: Interest expense related to the financing of the Partnership's
acquisitions and working capital needs, organization costs of the
Partnerships, the acquisition of Twin Peaks, and deferred compensation
expense are included in KDNL-TV.
</FN>
See accompanying independent auditors' report.