______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended September 28, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to____ Commission file number 33-99622
BUSSE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2750516
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
141 East Michigan Avenue, Suite 300
Kalamazoo, Michigan 49007
(Address of principal executive offices)
(616) 388-8019
(Registrant's telephone number, including area code)
______________________________
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No ___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of November 12, 1997, 107,700 shares of the Common Stock of Busse
Broadcasting Corporation were outstanding. None of the outstanding shares were
held by non-affiliates.
_______________________________________________________________________________
BUSSE BROADCASTING CORPORATION
FORM 10-Q TABLE OF CONTENTS
PAGE
REFERENCE
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PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS.
BUSSE BROADCASTING CORPORATION
Condensed Consolidated Balance Sheets as of September 28, 1997
(Unaudited) and December 29, 1996 (Audited) 3
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended September 28, 1997 and September 29, 1996 4
Unaudited Condensed Consolidated Statements of Operations for the
Nine Months Ended September 28, 1997 and September 29, 1996 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 28, 1997 and September 29, 1996 6
Notes to Unaudited Condensed Consolidated Financial Statements for
the Nine Months Ended September 28, 1997 7
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
Condensed Consolidated Balance Sheets as of September 28, 1997
(Unaudited) and December 29, 1996 (Audited) 14
Unaudited Condensed Consolidated Statements of Operations and
Stockholder's Equity for the Three Months Ended
September 28, 1997 and September 29, 1996 15
Unaudited Condensed Consolidated Statements of Operations and
Stockholder's Equity for the Nine Months Ended
September 28, 1997 and September 29, 1996 16
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 28, 1997 and September 29, 1996 17
Notes to Unaudited Condensed Consolidated Financial Statements for
the Nine Months Ended September 28, 1997 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. 22
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 30
SIGNATURES 31
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Busse Broadcasting Corporation
Condensed Consolidated Balance Sheets
SEPTEMBER 28, DECEMBER 29,
1997 1996
UNAUDITED AUDITED
-------------- --------------
ASSETS (NOTE 1)
Current assets:
Cash and cash equivalents (NOTE 3) $ 10,876,808 $ 7,989,805
Receivables, net 3,513,559 3,848,990
Other current assets 1,056,842 856,200
-------------- --------------
Total current assets 15,447,209 12,694,995
Property, plant and equipment, net 13,419,561 14,327,392
Deferred charges and other assets 1,966,026 2,424,312
Intangible assets and excess reorganization value 49,740,093 52,707,124
-------------- --------------
Total assets $ 80,572,889 $ 82,153,823
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 1)
Current liabilities:
Accounts payable and accrued expenses $ 5,892,690 $ 3,174,795
-------------- --------------
Total current liabilities 5,892,690 3,174,795
Long-term debt (NOTE 3) 60,798,493 60,464,182
Other long-term liabilities 69,326 941,501
Stockholders' equity:
Series A cumulative convertible preferred stock (non-voting) -
$.01 par value, $1,000 per share liquidation preference;
65,524.41 shares authorized, issued and outstanding;
including dividends in arrears of $8,280,311 and $4,663,471
at September 28, 1997 and December 29, 1996, respectively 25,610,971 21,994,131
Common stock (voting) - $.01 par value; 2,154,000 shares
authorized, and 107,700 shares issued and outstanding 1,077 1,077
Additional paid-in capital - common stock 9,185,772 9,185,772
Accumulated deficit (20,985,440) (13,607,635)
-------------- --------------
Total stockholders' equity 13,812,380 17,573,345
-------------- --------------
Total liabilities and stockholders' equity $ 80,572,889 $82,153,823
-------------- --------------
-------------- --------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations
Unaudited
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
-------------- -------------
Net revenue from continuing operations $ 4,372,310 $ 4,412,598
Operating costs and expenses,
excluding depreciation and amortization (NOTE 6) 1,826,777 2,031,247
Depreciation 530,269 524,656
Amortization of intangibles and excess
reorganization value 977,127 996,350
-------------- -------------
Total operating costs and expenses of continuing
operations 3,334,173 3,552,253
Corporate expenses 370,150 368,079
-------------- -------------
Income from continuing operations 667,987 492,266
Other income (expense) from continuing operations:
Interest expense (2,045,272) (2,068,082)
Interest income 103,296 51,309
Gain on disposition of assets -- 32,223
Other income 11,001 60,561
-------------- -------------
Other expense from continuing operations (1,930,975) (1,923,989)
-------------- -------------
Loss from continuing operations before income taxes (1,262,988) (1,431,723)
Provision for current income taxes (NOTE 4) -- --
-------------- -------------
Loss from continuing operations (1,262,988) (1,431,723)
Discontinued operations (NOTE 2) :
Income from operations -- 60,306
-------------- -------------
Net loss (1,262,988) (1,371,417)
Charges to stockholders' equity for Series A
preferred stock dividends in arrears (1,205,614) (1,205,613)
-------------- -------------
Net loss attributable to common stockholders $(2,468,602) $(2,577,030)
-------------- -------------
-------------- -------------
Per common share (NOTE 1) :
Loss from continuing operations $ (11.73) $ (13.30)
Income from discontinued operations -- 0.56
Series A preferred stock dividends in arrears (11.19) (11.19)
-------------- -------------
Net loss attributable to common stockholders $ (22.92) $ (23.93)
-------------- -------------
-------------- -------------
Weighted average common shares outstanding 107,700 107,700
-------------- -------------
-------------- -------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations
Unaudited
NINE MONTHS ENDED
-------------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
-------------- --------------
Net revenue from continuing operations $ 13,922,085 $ 13,832,003
Operating costs and expenses,
excluding depreciation and amortization
(NOTE 6) 6,172,414 6,307,468
Depreciation 1,590,807 1,533,740
Amortization of intangibles and excess
reorganization value 2,967,031 2,932,766
------------ --------------
Total operating costs and expenses of continuing
operations 10,730,252 10,773,974
Corporate expenses 1,110,704 1,192,416
------------ --------------
Income from continuing operations 2,081,129 1,865,613
Other income (expense) from continuing operations:
Interest expense (6,208,556) (6,331,837)
Interest income 289,872 198,545
Gain on disposition of assets 390 33,639
Other income 76,200 54,862
------------ --------------
Other expense from continuing operations (5,842,094) (6,044,791)
------------ --------------
Loss from continuing operations before income taxes (3,760,965) (4,179,178)
Provision for current income taxes (NOTE 4) -- (25,000)
------------ --------------
Loss from continuing operations (3,760,965) (4,204,178)
Discontinued operations (NOTE 2) :
Income from operations -- 177,681
------------ --------------
Net loss (3,760,965) (4,026,497)
Charges to stockholders' equity for Series A
preferred stock dividends in arrears (3,616,840) (3,457,858)
------------ --------------
Net loss attributable to common stockholders $ (7,377,805) $ (7,484,355)
------------ --------------
------------ --------------
Per common share (NOTE 1) :
Loss from continuing operations $ (34.92) $ (39.03)
Income from discontinued operations -- 1.65
Series A preferred stock dividends in arrears (33.58) (32.11)
------------ --------------
Net loss attributable to common stockholders $ (68.50) $ (69.49)
------------ --------------
Weighted average common shares outstanding 107,700 107,700
------------ --------------
------------ --------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
Busse Broadcasting Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
NINE MONTHS ENDED
----------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------ --------------
OPERATING ACTIVITIES:
Net loss $ (3,760,965) $ (4,026,497)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 4,557,838 4,679,503
Noncash interest expense 334,311 339,571
Amortization of deferred financing costs 463,054 446,954
Program payments over program amortization (55) (17,855)
Gain on disposition of property, plant and
equipment (390) (49,389)
Deferred compensation expense 265,521 274,247
Pension expense 63,060 80,000
Gain on pension plan curtailment (NOTE 6) (344,782) --
Change in current assets and liabilities:
Receivables 335,431 558,874
Other current assets 74,559 357,928
Accounts payable and accrued expenses 1,586,775 2,023,969
------------ --------------
Net cash provided by operating activities 3,574,357 4,667,305
INVESTING ACTIVITIES:
Capital expenditures (682,976) (1,575,201)
Proceeds from disposition of assets 390 49,389
Increase in other assets (4,768) (20,456)
------------ --------------
Net cash used in investing activities (687,354) (1,546,268)
FINANCING ACTIVITIES:
Issuance of indebtedness -- 580,000
Payments on indebtedness -- (35,277,669)
Payment of deferred financing costs -- (162,464)
------------ --------------
Net cash used in financing activities -- (34,860,133)
------------ --------------
Net increase (decrease) in cash and cash equivalents 2,887,003 (31,739,096)
Cash and cash equivalents at beginning of period 7,989,805 38,893,959
------------ --------------
Cash and cash equivalents at end of period $ 10,876,808 $ 7,154,863
------------ --------------
Supplemental disclosure of cash flow information:
Interest paid during the period $ 3,634,382 $ 3,655,487
------------ --------------
------------ --------------
Income taxes paid during the period $ -- $ --
------------ --------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
September 28, 1997
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include Busse Broadcasting
Corporation and its wholly owned subsidiaries (collectively, "BBC" or the
"Company") engaged in the following businesses:
TELEVISION:
KOLN/KGIN-TV CBS Affiliate Lincoln/Grand Island, Nebraska
WEAU-TV NBC Affiliate Eau Claire/La Crosse, Wisconsin
PRINTING:
Winnebago Color Press Menasha, Wisconsin
(Sold December 27, 1996)
All intercompany accounts and transactions have been eliminated in
consolidation.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. As the Company currently has no stock options,
the impact of Statement No. 128 on the calculation of primary and fully diluted
earnings per share for the three and nine months ended September 28, 1997 and
September 29, 1996, respectively, is not expected to be material.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in the
opinion of the Company, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results for such
interim periods are not necessarily indicative of the results for the respective
entire years.
7
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
financial statements and notes thereto of Busse Broadcasting Corporation
included in the Company's 1996 Annual Report on Form 10-K.
The Company and its then sole wholly-owned subsidiary filed voluntary petitions
for a joint plan of reorganization under Chapter 11 of the United States
Bankruptcy Code (the "Plan") on March 10, 1995. On April 20, 1995 the United
States Bankruptcy Court for the district of Delaware (the "Court") confirmed the
Plan, such Plan became effective May 3, 1995 (the "Effective Date") and the
respective Chapter 11 cases were closed by the Court on September 21, 1995.
2. DISCONTINUED OPERATIONS -- SALE OF WINNEBAGO COLOR PRESS
On December 27, 1996, the Company sold substantially all of the assets of its
Winnebago Color Press ("Winnebago") division to Winnebago Color Press, Inc., an
entity owned in part by Mr. Lawrence A. Busse, the Chairman and Chief Executive
Officer of BBC, for $3,327,856 in cash plus the assumption of certain
liabilities totaling $369,638 and, after payment of certain selling costs,
realized net proceeds of $3,242,235 from such sale. The Company's utilization of
such net proceeds is restricted under the terms of a certain indenture relating
to the Company's 11 5/8% Senior Secured Notes due October 15, 2000 (see Note 3).
In connection with the sale of Winnebago, the Company received an opinion from
an investment banking firm that the transaction was fair to the Company and its
stockholders. Winnebago was the Company's only operation within its printing
segment and accordingly, because of the sale, this segment has been presented as
a discontinued operation. The operations of Winnebago for the three and nine
months ended September 29, 1996 are classified as income from discontinued
operations. The net revenues of Winnebago included in the condensed consolidated
statements of operations were $1,705,770 and $4,863,411 for the three and nine
months ended September 29, 1996, respectively.
Corporate expenses and interest income, net of interest expense, have been
allocated to income from discontinued operations only if such were directly
attributable to Winnebago. For the three months ended September 29, 1996, the
corporate expenses and interest expense, net of interest income, allocated to
income from discontinued operations were $2,877 and $4,753, respectively and for
the nine months then ended the corporate expenses and interest expense, net of
interest income, allocated to income from discontinued operations were $8,630
and $4,180, respectively.
8
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT
Debt is summarized as follows:
SEPTEMBER 28, DECEMBER 29,
1997 1996
------------- -------------
Senior Secured Notes, net of unamortized
original issue discount of $1,728,507 and
$2,062,818 at September 28, 1997 and
December 29, 1996, respectively $ 60,798,493 $ 60,464,182
------------- -------------
------------- -------------
On October 26, 1995 the Company issued $62,527,000 principal amount of 11 5/8%
Senior Secured Notes due October 15, 2000 ("Senior Notes") at a price of 95.96%
of the aggregate principal amount thereof and received net proceeds of
$58,125,099 after payment of underwriting discounts and commissions of
$1,875,810. The net proceeds from the issuance of the Senior Notes, and the
interest earnings thereon, were used by the Company to redeem certain of the
Company's outstanding indebtedness in October 1995 and in January 1996.
Interest on the Senior Notes is payable semiannually in arrears on April 15 and
October 15 of each year, commencing April 15, 1996. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months.
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all existing
and future senior indebtedness of the Company. The Senior Notes are secured by
all of the Company's equity interests in, and certain intercompany indebtedness
of, its subsidiaries, including the subsidiaries which hold the Federal
Communications Commission ("FCC") licenses of the Company's two television
stations, certain agreements and contract rights related to such television
stations (including network affiliation agreements), certain machinery,
equipment and fixtures, certain general intangibles, mortgages on substantially
all of the owned and certain of the leased real property of the Company and its
subsidiaries, and proceeds thereof. In addition, the Company's subsidiaries
(collectively, the "Guarantors") have fully and unconditionally guaranteed the
Senior Notes on a joint and several and senior secured basis and each such
guarantee ranks senior in right of payment to all existing and future
subordinated indebtedness of such Guarantor and ranks pari passu with all
existing and future senior indebtedness of such Guarantor.
9
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
The Senior Notes may not, except in certain circumstances, be redeemed by the
Company before October 15, 1998. Thereafter, the Senior Notes will be subject to
redemption at the option of the Company, in whole or in part, at the redemption
prices of 106% and 103% (expressed as percentages of the face amount of the
Senior Notes), plus accrued and unpaid interest to the date of redemption, if
redeemed during the twelve-month period beginning on October 15 of 1998 and
1999, respectively.
The indenture relating to the Senior Notes (the "Indenture") restricts the use
of the net proceeds from the sale of Winnebago (which net proceeds consisted of
$3,207,000, as determined in accordance with the Indenture). Pursuant to the
Indenture, on February 12, 1997 the Company commenced an offer to purchase up to
$3,207,000 of aggregate principal amount of Senior Notes with the net proceeds
of the sale of Winnebago. The Company's offer to purchase expired, by its terms,
on March 14, 1997 with no Senior Notes having been tendered by their respective
holders and, consequently, no Senior Notes were purchased by the Company. Under
the terms of the Indenture, the Company may utilize the $3,207,000, and the
interest earnings thereon, only to make investments in or acquire properties and
assets directly related to television and/or radio broadcasting. Pending any
such investment or acquisition, such net proceeds may be invested in certain
permitted cash equivalents in accordance with the terms of the Indenture.
The Indenture contains various covenants and restrictions on the Company and its
subsidiaries including, but not limited to, incurring additional indebtedness,
issuing certain disqualified capital stock, making dividend payments or certain
other restricted payments, consummating certain asset sales, incurring liens,
entering into certain transactions with affiliates, creating or acquiring
additional subsidiaries, merging or consolidating with any other person, or
selling, assigning, transferring, leasing, conveying or otherwise disposing of
all or substantially all of the assets of the Company or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends or
make loans or advances to the Company.
10
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
4. INCOME TAXES
The Company has analyzed its current and deferred tax assets and liabilities and
has concluded that no provision for current or deferred federal or state taxes
is required for the three and nine months ended September 28, 1997 and for the
three months ended September 29, 1996. The income tax provision for the nine
months ended September 29, 1996 provides for current state taxes.
As of December 29, 1996 the Company had approximately $60.9 million of federal
net operating loss carryforwards ("NOL's") which will begin to expire in 2005.
Subsequent to the Effective Date (see Note 1), the Company elected treatment
under Section 382 (l)(5) of the Internal Revenue Code, as amended. This
treatment will allow the Company to utilize, subject to certain restrictions,
its NOL's to offset taxable income incurred after the Effective Date.
Utilization of a portion of these NOL's are assumed in the Company's calculation
of Post-Effective Date deferred taxes.
5. CORPORATE REORGANIZATION/SUBSIDIARY GUARANTORS
The Senior Notes are fully and unconditionally guaranteed, on a joint and
several and senior secured basis, by all of the Company's direct and indirect
subsidiaries, each of which is wholly-owned. To facilitate the collateral
arrangements required by the Senior Notes the Company effected the following
transactions on October 20, 1995:
1. The FCC licenses relating to the operation of WEAU-TV were conveyed to a
wholly-owned subsidiary, WEAU License, Inc., in exchange for a $4,880,000
note payable to Busse Broadcasting Corporation and 100% of the stock of the
subsidiary;
2. The assets and liabilities relating to the operation of KOLN/KGIN-TV were
conveyed to a wholly-owned subsidiary, KOLN/KGIN, Inc. (formerly known as
Busse Management, Inc. which was formerly known as WWMT, Inc.); and
3. KOLN/KGIN, Inc. conveyed the FCC licenses relating to the operation of
KOLN/KGIN-TV to its wholly-owned subsidiary, KOLN/KGIN License, Inc., in
exchange for all of the capital stock of the subsidiary.
11
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
5. CORPORATE REORGANIZATION/SUBSIDIARY GUARANTORS (CONTINUED)
The following tables present summarized combined balance sheet and operating
statement information for (i) KOLN/KGIN, Inc., (ii) KOLN/KGIN License, Inc. and
(iii) WEAU License, Inc. Separate financial statements of KOLN/KGIN, Inc.
immediately follow these notes to condensed consolidated financial statements of
Busse Broadcasting Corporation. Separate financial statements and other
disclosures concerning KOLN/KGIN License, Inc. and WEAU License, Inc. have not
been presented because management has determined that such financial statements
would not be material to investors.
SEPTEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
ASSETS
Current assets $ 3,456,111 $ 3,258,170
Non-current assets 46,552,165 49,097,117
------------ ------------
Total assets $ 50,008,276 $ 52,355,287
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities $ 1,341,753 $ 1,090,989
Non-current liabilities 6,491,685 6,703,675
Stockholder's equity 42,174,838 44,560,623
------------ ------------
Total liabilities and stockholder's equity $ 50,008,276 $ 52,355,287
------------ ------------
------------ ------------
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ---------------------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1997 1996
------------ ----------- ----------- -----------
Net revenue $ 2,856,551 $ 2,730,567 $ 9,017,834 $ 8,547,279
Total operating costs
and expenses 2,423,857 2,474,725 7,639,058 7,539,728
Income from operations 432,694 255,842 1,378,776 1,007,551
Net loss $ (832,917) $(1,284,191) $(2,385,785) $(2,340,569)
12
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
6. PENSION PLAN TERMINATION
On July 1, 1997 the Company amended its defined benefit plan (the "Pension
Plan") to freeze all benefit and service accruals thereunder and to terminate,
subject to governmental approval, the Pension Plan effective as of September 28,
1997. The Company has recorded a gain of $344,782 for the three and nine months
ended September 28, 1997 for the curtailment of the Pension Plan. Such gain is
included as a component of operating costs and expenses in the respective
statements of operations. Additional charges or gains, if any, for the
settlement of the Pension Plan will be recorded upon final settlement of the
Pension Plan obligations. Termination and settlement of the Pension Plan is
subject to various government agency approvals and the Company does not
currently anticipate such settlement to occur prior to the second half of the
1998 fiscal year.
An application for determination and notification with the Pension Benefit
Guaranty Corporation (the "PBGC") will be filed pursuant to PBGC regulations.
The Company anticipates that the Internal Revenue Service will rule that the
Pension Plan qualifies under Section 401(a) of the Internal Revenue Code and,
therefore, will not be subject to tax under present income tax laws. Upon plan
settlement, all active participants will become fully vested and will be able to
accept their settlement benefit as an annuity, a lump sum or roll over benefits
into the Company's 401(k) Savings Plan.
In anticipation of the settlement of the Pension Plan, on September 30, 1997 the
Company contributed $500,000 to the Pension Plan's trust fund.
13
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Balance Sheets
SEPTEMBER 28, DECEMBER 29,
1997 1996
UNAUDITED AUDITED
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 283,524 $ 299,008
Receivables, net 2,213,855 2,343,022
Program contract rights 600,325 438,219
Other current assets 32,406 29,919
------------- -------------
Total current assets 3,130,110 3,110,168
Property, plant and equipment, net 7,689,761 8,213,165
Due from Parent 504,576 237,465
Deferred charges and other assets 5,038 5,038
Intangible assets and excess reorganization value 33,043,840 34,992,682
------------- -------------
Total assets $44,373,325 $46,558,518
------------- -------------
------------- -------------
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 559,075 $ 609,878
Program contracts payable 527,828 364,094
------------- -------------
Total current liabilities 1,086,903 973,972
Deferred income tax liabilities 1,822,000 1,958,000
Stockholder's equity:
Common stock (voting) - $.01 par value, 1,000
shares authorized, issued and outstanding 10 10
Additional paid-in capital 46,568,577 46,568,577
Accumulated deficit (5,104,165) (2,942,041)
------------- -------------
Total stockholder's equity 41,464,422 43,626,546
------------- -------------
Total liabilities and stockholder's equity $44,373,325 $46,558,518
------------- -------------
------------- -------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
14
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Operations and Stockholder's Equity
Unaudited
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
Net revenue $ 2,678,551 $ 2,552,567
Operating costs and expenses, excluding
depreciation and amortization 1,180,435 1,217,714
Depreciation 274,525 286,110
Amortization of intangibles and excess
reorganization value 649,614 668,839
Corporate expenses 217,894 200,674
------------- -------------
Total operating costs and expenses 2,322,468 2,373,337
------------- -------------
Income from operations 356,083 179,230
Other income (expense):
Interest income 4,095 3,477
Other income (expense) -- (428)
------------- -------------
Other income 4,095 3,049
------------- -------------
Income before income taxes 360,178 182,279
(Provision) benefit for income taxes:
Current (1,175,000) (1,000,000)
Deferred 45,000 51,000
------------- -------------
(1,130,000) (949,000)
------------- -------------
Net loss (769,822) (766,721)
Stockholder's equity at beginning of period 42,234,244 44,910,087
------------- -------------
Stockholder's equity at end of the period $ 41,464,422 $ 44,143,366
------------- -------------
------------- -------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
15
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Operations and Stockholder's Equity
Unaudited
NINE MONTHS ENDED
---------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- ------------
Net revenue $ 8,479,834 $ 8,013,279
Operating costs and expenses, excluding
depreciation and amortization 3,865,486 3,828,089
Depreciation 823,575 818,170
Amortization of intangibles and excess
reorganization value 1,948,842 1,968,059
Corporate expenses 661,337 639,072
------------- ------------
Total operating costs and expenses 7,299,240 7,253,390
------------- ------------
Income from operations 1,180,594 759,889
Other income (expense):
Interest income 14,038 15,334
Other income (expense) (7,756) (8,261)
------------- ------------
Other income 6,282 7,073
------------- ------------
Income before income taxes 1,186,876 766,962
(Provision) benefit for income taxes:
Current (3,485,000) (3,065,000)
Deferred 136,000 145,000
------------- ------------
(3,349,000) (2,920,000)
------------- ------------
Net loss (2,162,124) (2,153,038)
Stockholder's equity at beginning of period 43,626,546 46,296,404
------------- ------------
Stockholder's equity at end of the period $41,464,422 $44,143,366
------------- ------------
------------- ------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
16
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Cash Flows
Unaudited
NINE MONTHS ENDED
---------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- ------------
OPERATING ACTIVITIES:
Net loss $(2,162,124) $(2,153,038)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,772,417 2,786,229
Program payments under (over) program amortization 1,628 (19,273)
Deferred income taxes (136,000) (145,000)
Change in current assets and liabilities:
Receivables 129,167 194,142
Other current assets (2,487) 10,834
Accounts payable and accrued expenses (50,803) (33,773)
------------- ------------
Net cash provided by operating activities 551,798 640,121
INVESTING ACTIVITIES:
Capital expenditures (300,171) (383,633)
Decrease in other assets -- 883
------------- ------------
Net cash used in investing activities (300,171) (382,750)
FINANCING ACTIVITIES:
Increase in due from Parent (267,111) (514,513)
------------- ------------
Net cash used in financing activities (267,111) (514,513)
------------- ------------
Net decrease in cash and cash equivalents (15,484) (257,142)
Cash and cash equivalents at beginning of period 299,008 380,938
------------- ------------
Cash and cash equivalents at end of period $ 283,524 $ 123,796
------------- ------------
------------- ------------
Supplemental information
Income taxes paid $ 3,485,000 $ 3,065,000
------------- ------------
------------- ------------
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
17
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements
Unaudited
September 28, 1997
1. BASIS OF PRESENTATION
The financial statements present the financial position, results of operations
and stockholder's equity, and cash flows of KOLN/KGIN, Inc., a wholly-owned
subsidiary of Busse Broadcasting Corporation (the "Company" or "Parent").
KOLN/KGIN, Inc. owns and operates KOLN/KGIN-TV, a CBS affiliate operating
channels 10 and 11 in the Lincoln - Hastings - Kearney, Nebraska television
market.
The accompanying financial statements include the accounts of KOLN/KGIN License,
Inc., a wholly-owned subsidiary of KOLN/KGIN, Inc. All intercompany accounts and
transactions have been eliminated in consolidation.
Net intercompany balances reflected in the due from Parent account are primarily
the result of KOLN/KGIN, Inc.'s participation in the Company's central cash
management program, wherein the month-end cash balances in excess of certain
levels are remitted to the Company. Other transactions include the allocation of
corporate expenses to KOLN/KGIN, Inc. and the current income taxes that would
have been due to the Company. There are no terms of settlement or interest
related to these balances which averaged $371,020 and $423,985 due from the
Parent during the nine months ended September 28, 1997 and September 29, 1996,
respectively.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in the
opinion of KOLN/KGIN, Inc., all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly KOLN/KGIN, Inc.'s financial position
and results of operations for the unaudited interim periods. Results for such
interim periods are not necessarily indicative of the results for the respective
entire years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
financial statements and notes thereto of KOLN/KGIN, Inc. included in the
Parent's 1996 Annual Report on Form 10-K.
18
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The Company and its then sole wholly-owned subsidiary, KOLN/KGIN, Inc. (then
named WWMT, Inc.), filed voluntary petitions for a joint plan of reorganization
under Chapter 11 of the United States Bankruptcy Code (the "Plan") on March 10,
1995. On April 20, 1995 the United States Bankruptcy Court for the district of
Delaware (the "Court") confirmed the Plan, such Plan became effective May 3,
1995 (the "Effective Date") and the respective Chapter 11 cases were closed by
the Court on September 21, 1995.
2. GUARANTEE OF PARENT'S SENIOR NOTES
On October 26, 1995 the Company issued $62,527,000 principal amount of 11 5/8%
Senior Secured Notes due October 15, 2000 ("Senior Notes") at a price of 95.96%
of the aggregate principal amount thereof.
To facilitate the collateral arrangements required by the Senior Notes the
Company effected the following transactions on October 20, 1995:
1. The assets and liabilities relating to the operation of KOLN/KGIN-TV were
conveyed to a wholly-owned subsidiary, KOLN/KGIN, Inc.; and
2. KOLN/KGIN, Inc. transferred the FCC licenses relating to the operation of
KOLN/KGIN-TV to its wholly-owned subsidiary, KOLN/KGIN License, Inc., in
exchange for all of the capital stock of the subsidiary.
Interest on the Senior Notes is payable semiannually in arrears on April 15 and
October 15 of each year, commencing April 15, 1996. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months.
19
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. GUARANTEE OF PARENT'S SENIOR NOTES (CONTINUED)
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all existing
and future senior indebtedness of the Company. The Senior Notes are secured by
all of the Company's equity interests in, and certain intercompany indebtedness
of, its subsidiaries, including the respective subsidiaries which own KOLN/KGIN-
TV and hold the FCC licenses of KOLN/KGIN-TV, certain agreements and contract
rights related to such television station (including network affiliation
agreements), certain machinery, equipment and fixtures, certain general
intangibles, mortgages on substantially all of the owned and certain of the
leased real property of the Company and its subsidiaries, and proceeds thereof.
In addition, the Company's subsidiaries (collectively, the "Guarantors") have
fully and unconditionally guaranteed the Senior Notes on a joint and several and
senior secured basis and each such guarantee ranks senior in right of payment to
all existing and future subordinated indebtedness of such Guarantor and ranks
pari passu with all existing and future senior indebtedness of such Guarantor.
The indenture relating to the Senior Notes (the "Indenture") contains various
covenants and restrictions on the Company and its subsidiaries, including, but
not limited to, incurring additional indebtedness, issuing certain disqualified
capital stock, making dividend payments or certain other restricted payments,
consummating certain asset sales, incurring liens, entering into certain
transactions with affiliates, creating or acquiring additional subsidiaries,
merging or consolidating with any other person, or selling, assigning,
transferring, leasing, conveying or otherwise disposing of all or substantially
all of the assets of the Company or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends or
make loans or advances to the Company.
20
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. PENSION PLAN TERMINATION
On July 1, 1997 the Company amended its defined benefit plan (the "Pension
Plan") to freeze all benefit and service accruals thereunder and to terminate,
subject to governmental approval, the Pension Plan effective as of September 28,
1997. KOLN/KGIN, Inc. participates in the Company's Pension Plan and
accordingly recorded a gain of $172,391 for the three and nine months ended
September 28, 1997 for the curtailment of the Pension Plan. Such gain is
included as a component of operating costs and expenses in the respective
statements of operations. Additional charges or gains, if any, for the
settlement of the Pension Plan will be recorded upon final settlement of the
Pension Plan obligations. Termination and settlement of the Pension Plan is
subject to various government agency approvals and the Company does not
currently anticipate such settlement to occur prior to the second half of the
1998 fiscal year.
An application for determination and notification with the Pension Benefit
Guaranty Corporation (the "PBGC") will be filed pursuant to PBGC regulations.
The Company anticipates that the Internal Revenue Service will rule that the
Pension Plan qualifies under Section 401(a) of the Internal Revenue Code and,
therefore, will not be subject to tax under present income tax laws. Upon plan
settlement, all active participants will become fully vested and will be able to
accept their settlement benefit as an annuity, a lump sum or roll over benefits
into the Company's 401(k) Savings Plan.
In anticipation of the settlement of the Pension Plan, on September 30, 1997 the
Company contributed $500,000 to the Pension Plan's trust fund.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The following discussion and analysis of financial condition
and results of operations should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements of the Company and notes thereto
included at Item 1, "Financial Statements," which provide additional
information regarding the Company's financial activities and condition. The
accompanying unaudited Condensed Consolidated Financial Statements, together
with the related notes to such financial statements, reflect, in the
Company's opinion, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results of such
interim periods are not necessarily indicative of the results for the
respective entire fiscal years.
The Company's fiscal year is the 52/53 week period ending on the Sunday
nearest to December 31 of each year. The Company's first three fiscal
quarters are each comprised of 13 consecutive weeks. Unless otherwise
indicated, references herein to 1997 and/or 1996 refer to the three or nine
month period ended September 28, 1997 or September 29, 1996, respectively.
RESULTS OF OPERATIONS
The net revenues of KOLN/KGIN-TV and WEAU-TV (collectively, the
"Stations") are derived primarily from advertising revenues and, to a much
lesser extent, from compensation paid by the networks to the Stations for
broadcasting network programming and revenues derived from other operations
incidental to television broadcasting. The Stations' primary operating
expenses are employee compensation and related benefits, programming, news
gathering, newscast production and promotional expenses.
In general, a television station receives revenues for advertising sold
for placement within and adjoining its locally originated programming and
adjoining national network programming. Advertising is sold in time
increments and is priced primarily on the basis of a program's popularity
within the demographic group an advertiser desires to reach, as measured
principally by quarterly audience surveys. In addition, advertising rates
are affected by the number of advertisers competing for the available time,
the size of the demographic make-up of the markets served by the television
station and the availability of alternate advertising media in the market
areas. Advertising rates are highest during the most desirable viewing hours
with corresponding reductions during other hours. The ratings of local
television stations affiliated with a national television network can be
affected by the ratings of the network programming.
22
Most advertising contracts are short-term and generally have a duration
running a few days to a few weeks. A large portion of the Stations' revenues
is generated from local and regional advertising, which is sold primarily by
the Stations' sales staff. The remainder of the advertising revenues
consists of national advertising, which is sold by an independent national
advertising sales representative. The Stations generally pay commissions to
advertising agencies on local, regional, and national advertising, and on
national advertising the Stations also generally pay commissions to the
national sales representative.
The advertising revenues of the Stations are generally highest in the
second and fourth quarters of each year, due in part to increases in consumer
advertising in the spring and retail advertising in the period leading up to
and including the holiday season. In addition, advertising revenues are
generally higher during election years due to spending by political
candidates, which spending typically is heaviest during the fourth quarter.
Operating expenses of the Stations are generally consistent throughout the
fiscal year.
The Company's sale of Winnebago on December 27, 1996 ended all Company
operations within its printing segment. The results of operations for the
three and nine months ended September 29, 1996 account for Winnebago as a
discontinued operation. See Note 2 to Notes to Condensed Consolidated
Financial Statements (Unaudited) included in "Financial Statements" at Item
1.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
Net revenue decreased $40,288, or 0.9%, to $4,372,310 from $4,412,598 for
the three months ended September 28, 1997 compared to the three months ended
September 29, 1996. KOLN/KGIN-TV recorded a year-to-year increase in net
local time sales, excluding net political revenues, of approximately 16.8%
due to a general increase in advertising demand for commercial time by
clients within that station's market. KOLN/KGIN-TV's net national time
sales, excluding net political revenues, decreased approximately 6.2% for the
three months ended September 28, 1997 when compared to the three months ended
September 29, 1996 due to decreased national advertiser demand within that
station's market. WEAU-TV's net local and national time sales, excluding net
political revenues, decreased approximately 7.4% and 3.3%, respectively,
during the three months ended September 28, 1997 compared to the three months
ended September 29, 1996 due to decreased advertiser demand within that
station's market. Net political revenue for the Stations during the three
months ended September 28, 1997 decreased by approximately $164,000, or
97.0%, to $5,000 from $169,000 between the fiscal periods reflecting 1997 as
the "off-year" of the biannual election cycle. Network compensation for the
Stations was consistent between the respective fiscal periods.
Operating expenses, excluding depreciation and amortization expenses,
decreased $204,470, or 10.1%, to $1,826,777 for the three months ended
September 28, 1997 from $2,031,247 for the comparable 1996 period. Such
decrease is attributable to a non-recurring gain of $344,782 reflecting the
curtailment of the Company's defined benefit retirement plan.
23
See Note 6 of Notes to Condensed Consolidated Financial Statements
(Unaudited) included in "Financial Statements" at Item 1.
Depreciation expenses increased $5,613, or 1.1%, to $530,269 for the
three months ended September 28, 1997 from $524,656 for the comparable 1996
period, reflecting depreciation related to capital assets acquired since
September 29, 1996.
Amortization expenses decreased $19,223, or 1.9%, to $977,127 for the
three months ended September 28, 1997 from $996,350 for the comparable 1996
period.
Corporate expenses increased $2,071, or 0.6%, to $370,150 during the
three months ended September 28, 1997 from $368,079 for the comparable 1996
period reflecting, in part, differences in the incurrence of charges for
professional services between the respective fiscal periods.
Income from continuing operations increased $175,721, or 35.7%, to
$667,987 for the three months ended September 28, 1997 from $492,266 for the
comparable 1996 period reflecting the non-recurring gain of $344,782
recognized upon the curtailment of the Company's defined benefit retirement
plan as discussed above.
Interest expense decreased $22,810, or 1.1%, to $2,045,272 for the three
months ended September 28, 1997 from $2,068,082 for the comparable 1996
period reflecting the Company's repayment of certain debt in October 1996
offset, in part, by increasing amortization of the original issue discount
related to the Senior Notes.
Interest income for the three months ended September 28, 1997 increased
$51,987, or 101.3% to $103,296 from $51,309 for the comparable 1996 period
primarily due to interest earnings on the net proceeds from the sale of
Winnebago on December 27, 1996.
The Company has analyzed its current and deferred tax assets and
liabilities and has concluded that no provision for current or deferred
federal or state taxes is required for the three months ended September 28,
1997.
Income from discontinued operations for the three months ended September
29, 1996 reflects the results for Winnebago, accounted for as a discontinued
operation for the 1996 period and includes $1,705,770 of net revenue for the
three months then ended. Winnebago was sold December 27, 1996. See Note 2
to Notes to Condensed Consolidated Financial Statements (Unaudited) included
in "Financial Statements" at Item 1.
24
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
Net revenue increased $90,082, or 0.6%, to $13,922,085 from $13,832,003
for the nine months ended September 28, 1997 compared to the nine months
ended September 29, 1996. Such increase was primarily attributable to
KOLN/KGIN-TV recording a year-to-year increase in net local and national time
sales, excluding net political revenues, of approximately 15.9% and 1.0%,
respectively, due to a general increase in advertising demand by clients
within that station's market. WEAU-TV recorded decreases of approximately
4.6% and 6.1% in net local and national time sales, excluding net political
revenues, respectively, during the nine months ended September 28, 1997
compared to the nine months ended September 29, 1996 due to decreased
advertiser demand within that station's market. Net political revenue for
the Stations during the nine months ended September 28, 1997 decreased by
approximately $420,000, or 87.4%, to $61,000 from $481,000 between the fiscal
periods reflecting 1997 as the "off-year" of the biannual election cycle.
Network compensation for the Stations was consistent between the respective
fiscal periods.
Operating expenses, excluding depreciation and amortization expenses,
decreased $135,054, or 2.1%, to $6,172,414 for the nine months ended
September 28, 1997 from $6,307,468 for the comparable 1996 period. Such
decrease is attributable to a non-recurring gain of $344,782 reflecting the
curtailment of the Company's defined benefit retirement plan. See Note 6 of
Notes to Condensed Consolidated Financial Statements (Unaudited) included in
"Financial Statements" at Item 1.
Depreciation expenses increased $57,067, or 3.7%, to $1,590,807 for the
nine months ended September 28, 1997 from $1,533,740 for the comparable 1996
period, reflecting depreciation related to capital assets acquired since
September 29, 1996.
Amortization expenses increased $34,265, or 1.2%, to $2,967,031 for the
nine months ended September 28, 1997 from $2,932,766 for the comparable 1996
period.
Corporate expenses decreased $81,712, or 6.8%, to $1,110,704 during the
nine months ended September 28, 1997 from $1,192,416 for the comparable 1996
period reflecting, in part, differences in the incurrence of charges for
professional services between the respective fiscal periods.
Income from continuing operations increased $215,516, or 11.6%, to
$2,081,129 for the nine months ended September 28, 1997 from $1,865,613 for
the comparable 1996 period reflecting the non-recurring gain of $344,782
recognized upon the curtailment of the Company's defined benefit plan as
discussed above.
Interest expense decreased $123,281, or 2.0%, to $6,208,556 for the nine
months ended September 28, 1997 from $6,331,837 for the comparable 1996
period reflecting the Company's redemption and/or repayment of certain debt
in January and October 1996 offset, in part, by increasing amortization of
the original issue discount related to the Senior Notes.
25
Interest income for the nine months ended September 28, 1997 increased
$91,327, or 46.0% to $289,872 from $198,545 for the comparable 1996 period
primarily due to interest earnings on the net proceeds from the sale of
Winnebago on December 27, 1996.
The Company has analyzed its current and deferred tax assets and
liabilities and has concluded that no provision for current or deferred
federal or state taxes is required for the nine months ended September 28,
1997.
Income from discontinued operations for the nine months ended September
29, 1996 reflects the results for Winnebago, accounted for as a discontinued
operation for the 1996 period and includes $4,863,411 of net revenue for the
nine months then ended. Winnebago was sold December 27, 1996. See Note 2 to
Notes to Condensed Consolidated Financial Statements (Unaudited) included in
"Financial Statements" at Item 1.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at September 28, 1997
totaled $10,876,808 compared to $7,989,805 at December 29, 1996. The
Company's cash balances at September 28, 1997 and December 29, 1996 include
the net proceeds, and the interest earnings thereon, from the sale of
Winnebago of $3,318,468 and $3,140,000, respectively. The Company's use of
such net proceeds, and the interest earnings thereon, is restricted, under
the terms of the Indenture, to making investments in or acquiring property
and assets directly related to television and/or radio broadcasting. Pending
any such investment or acquisition, such net proceeds may be invested in
certain permitted cash equivalents in accordance with the terms of the
Indenture. Although the Company has no immediate plans to use such net
proceeds to invest in or acquire assets directly related to television and/or
radio broadcasting, some or all of such proceeds may be used to fund the
capital expenditures described below, other capital expenditures, or for
other permitted uses. See Note 3 to Notes to Condensed Consolidated
Financial Statements (Unaudited) included in "Financial Statements" at Item
1. The primary changes in the Company's cash position reflect cash provided
by operating activities offset, in part, by capital expenditures.
The Company's primary source of liquidity is cash generated by
operations. There are no contractual restrictions on the ability of the
Company's subsidiaries to pay cash dividends or make loans or advances to the
Company. The Company's net cash provided by operations (including changes in
working capital) was $3,574,357 and $4,667,305 for the nine months ended
September 28, 1997 and September 29, 1996, respectively. The decrease in net
cash generated between the respective fiscal periods is due primarily to
changes in certain working capital accounts including the reclassification of
approximately $590,000 of certain incentive plan obligations from a long term
to a current liability during the 1997 period.
The Company continues to have a significant annual cash interest
obligation of approximately $7,268,000 with respect to the Senior Notes.
Such cash interest obligation is
26
payable in semi-annual installments of approximately $3,634,000 due on the
15th day of April and October.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. During the
nine months ended September 28, 1997 the Company's capital expenditures
totaled $682,976. The Company expects that it may incur up to approximately
$575,000 of additional capital expenditures during the fourth quarter of
fiscal year 1997. Such additional 1997 expenditures will be dependent on the
Company's assessment of its operational needs and evaluation of the technical
development of certain equipment systems. The Company currently anticipates
that its capital expenditure requirements for fiscal years 1998 and 1999,
excluding any expenditures for ATV as defined and discussed below, will
approximate $1,100,000 per year with such amount allocated approximately
evenly between the Stations.
It is anticipated that significant capital expenditures may be required
in the future to implement digital advanced television systems ("ATV") at
the Stations. The Federal Communications Commission ("FCC") has determined
the technical standards, the channel assignments and a time table for
implementation of ATV. The FCC has assigned the following ATV channels to
the Company's current channels:
Station Location Current Channel ATV Channel
------- -------- --------------- -----------
KOLN Lincoln, Nebraska 10 25
KGIN Grand Island, Nebraska 11 32
WEAU Eau Claire, Wisconsin 13 39
Generally, under the FCC's implementation schedule, the Company must
apply for ATV construction permits for each of its present television
stations by November 1, 1999 and then commence ATV operations by May 1, 2002.
Under the current FCC implementation schedule the Company would generally be
required to surrender to the government either the current channel or the ATV
channel by December 31, 2006 and continue its digital operations thereafter
on the retained channel. Recent legislation requires the FCC to extend the
December 31, 2006 surrender date with respect to certain stations within a
given television market if (i) at least one network affiliate is not
broadcasting a digital service in the given market and has exercised "due
diligence" in meeting the ATV buildout requirements for that market or (ii)
digital to analog converter technology is not generally available in the
given market or (iii) 15 percent or more of the television households in a
given market do not subscribe to a multichannel video programming distributor
that carries the digital service of each local station and those television
households do not have at least one advanced television set or at least one
digital to analog converter. The foregoing implementation schedule is
subject to review by the FCC each two years and may also be subject to future
legislation or judicial review, the effect of which cannot be predicted by
the Company.
The Company is currently studying the ATV channel assignments for the
Stations as well as the technical and capital expenditure requirements to
implement ATV at the Stations.
27
The Company currently intends to implement ATV at the Stations within the FCC
mandated implementation period. The Company cannot presently predict the
cost of such implementation but, based upon general industry estimates,
currently believes that such costs will be material and will require several
million dollars to commence initial ATV operations.
Although there can be no assurance that the Company will generate
earnings in the future sufficient to cover its fixed charges, including the
debt service obligations with respect to the Senior Notes, management
believes that the cash flow generated from the Company's operations and
available cash on hand should be sufficient to fund its interest
requirements, working capital needs, anticipated capital expenditures and
other operating expenses through the end of fiscal year 1999. The Company's
high degree of leverage will have important consequences, including the
following: (i) the ability of the Company to obtain additional financing for
working capital, capital expenditures, debt service requirements or other
purposes may be impaired; (ii) a substantial portion of the Company's
operating cash flow will be required to be dedicated to the payment of the
Company's interest expense; (iii) the Company may be more highly leveraged
than companies with which it competes, which may place it at a competitive
disadvantage; and (iv) the Company may be more vulnerable in the event of a
downturn in its business. The Company's future operating performance and
ability to service or refinance the Senior Notes will be subject to future
economic conditions and to financial, business and other factors, many of
which are beyond the Company's control.
The Company does not currently have additional credit availability under
any agreements and the Indenture governing the Senior Notes limits the
Company's ability to incur additional Indebtedness (as defined therein). The
limitation in the Indenture on the Company's ability to incur additional
Indebtedness, together with the highly leveraged nature of the Company, could
limit corporate and operating activities, including the Company's ability to
respond to market conditions, to provide for unanticipated capital
investments or to take advantage of business opportunities.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT
This quarterly report on Form 10-Q contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. When used in this report, the words "believes," "expects,"
"anticipates," "estimates" and similar words and expressions are generally
intended to identify forward-looking statements. Statements that describe the
Company's future strategic plans, goals or objectives are also forward-looking
statements. Readers of this report are cautioned that any forward-looking
statements, including those regarding the intent, belief, or current
expectations of the Company or management, are not guarantees of future
performance, results or events and involve risks and uncertainties, and that
actual results and events may differ materially from those in the forward-
looking statements as a result of various factors including, but not limited to
(i) general economic conditions in the markets in which the Company operates,
(ii) competitive pressures within the industry and/or the markets in which the
Company operates, (iii) the effect of future
28
legislation or regulatory changes on the Company's operations and (iv) other
factors described from time to time in the Company's filings with the
Securities and Exchange Commission. The forward-looking statements included
in this report are made only as of the date hereof. The Company undertakes
no obligation to update such forward-looking statements to reflect subsequent
events or circumstances.
INCOME TAXES
The Company estimated that its federal NOL carryover as of December 29,
1996 was approximately $60.9 million and that such NOL's will begin to expire
in 2005. The Company elected treatment under Section 382(l)(5) (the "L5
Election") of the Internal Revenue Code, as amended (the "Code"), when it
filed its 1995 federal income tax return. The L5 Election allows the Company
to utilize, subject to certain restrictions, its Pre-Effective Date NOL of
approximately $59.8 million to offset any taxable income incurred after the
Effective Date. The Company's use of its Post-Effective Date NOL is not
restricted, absent a future "ownership change" under Section 382 of the Code.
See Note 4 of Notes to Condensed Consolidated Financial Statements
(Unaudited) included in "Financial Statements" at Item 1.
RESIGNATION OF DIRECTOR
On September 10, 1997 Gary E. Hindes resigned as a member of the
Company's Board of Directors leaving three serving directors. As of the date
hereof, the directorship vacated by Mr. Hindes remains unfilled and the
Company can give no assurance as to when or if such directorship will be
filled.
EVALUATION OF STRATEGIC TRANSACTIONS BY CERTAIN STOCKHOLDERS
On October 15, 1997 the Company was informed by the holders of record of
approximately 97.4% of the Company's outstanding capital stock (the
"Controlling Stockholders") that they have instructed their financial
advisor, the investment banking firm of Morgan Stanley & Co. Incorporated
("Morgan Stanley"), to resume the evaluation of strategic transactions in
connection with the possible sale of the Company. The Company can make no
assurance as to whether any transaction will result from such evaluation or
as to value, timing or structure of any such transaction.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company from time to time is involved in litigation incidental to the
conduct of its business. The Company is not currently a party to any lawsuit
or proceeding which, in the opinion of the Company, could have a material
adverse effect on the Company.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K.
(A) EXHIBITS.
EXHIBIT NO. DESCRIPTION OF EXHIBITS
27 Financial Data Schedule for the Quarter ended September 28, 1997
(B) REPORTS ON FORM 8-K.
Form 8-K, dated October 15, 1997 filed with the Securities and
Exchange Commission incorporating the press release issued by the
Company announcing that the Controlling Stockholders had instructed
their financial advisor, Morgan Stanley, to resume the evaluation
of strategic transactions in connection with the possible sale of
the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSSE BROADCASTING CORPORATION
------------------------------
(Registrant)
DATED: November 12, 1997 BY: /s/ JAMES C. RYAN
______________________
James C. Ryan
Chief Financial Officer
(Authorized Officer and
Principal Accounting Officer)
31