-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E8mNSm8afA5TohKLbKs7z20rS6oS++Ux2DQBOeGqtnc2DUje6ZPZbEwjRyeyjj+a icD0Kejc3ithzlRDi1Pc1g== 0000912057-97-011280.txt : 19970401 0000912057-97-011280.hdr.sgml : 19970401 ACCESSION NUMBER: 0000912057-97-011280 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACKERLEY COMMUNICATIONS INC CENTRAL INDEX KEY: 0000319120 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 911043807 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10321 FILM NUMBER: 97570129 BUSINESS ADDRESS: STREET 1: 800 FIFTH AVE STE 3770 CITY: SEATTLE STATE: WA ZIP: 98104 BUSINESS PHONE: 2066242888 MAIL ADDRESS: STREET 1: 800 FIFTH AVE SUITE 3770 CITY: SEATTLE STATE: WA ZIP: 98104 FORMER COMPANY: FORMER CONFORMED NAME: ACKERLEY INC DATE OF NAME CHANGE: 19830814 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /XX/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from _____________ to _____________________________ Commission File Number 1-10321 THE ACKERLEY GROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 91-1043807 ------------------------------- ----------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1301 Fifth Avenue, Suite 4000 Seattle, Washington 98101 ------------------------------- ----------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (206) 624-2888 Securities registered pursuant to Section 12(b) of the Act: Common Stock Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /___/ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Aggregate market value of voting Common Stock held by nonaffiliates of Registrant as of March 14, 1997: $120,030,253. Number of shares of common stock, $.01 par value, outstanding as of March 14, 1997: 19,813,002 Common Stock and 11,353,810 Class B Common Stock. Documents incorporated by reference and parts of Form 10-K into which incorporated: Registrant's Definitive Proxy Statement for May 5, 1997 Annual Meeting--Part III PART I ITEM 1 - BUSINESS General The Ackerley Group, Inc. (the "Company"), formerly known as Ackerley Communications, Inc., was founded in 1975. It is a diversified communications company which, through its operating subsidiaries, engages in three principal businesses: (i) out-of-home media, including outdoor and airport advertising; (ii) television and radio broadcasting; and (iii) sports marketing and promotion, primarily through its Full House Sports & Entertainment division, which includes the ownership of the Seattle SuperSonics (the "SuperSonics"), a franchise of the National Basketball Association ("NBA"), and the Seattle SeaDogs, a franchise of the Continental Indoor Soccer League. The Company's businesses generally are leaders in their respective markets, positions that the Company believes to be sustainable by virtue of the substantial governmental regulation of outdoor advertising and broadcasting and the exclusive franchising practices in airport advertising and professional sports. The Company believes that the diversity of its operations minimizes its reliance on any particular geographic region, advertising medium or customer. Strategy. Since 1993, the Company's strategy has been to build its more mature and stable out-of-home media business and to control costs in each business segment. Additionally, the Company instituted plans to expand and enhance its broadcasting business and to pursue additional revenue producing opportunities through the development of a new arena in Seattle. The Company's continuing strategy includes: - - Improving the profitability of its outdoor advertising business by increasing revenue while controlling operating costs. Prior to 1993, the Company had increased net revenue and improved operating performance in its existing markets by constructing and, in some cases, acquiring additional displays, thereby achieving comprehensive coverage and economies of scale in those markets. Since 1993, however, the Company has focused its management and sales efforts on optimizing the mix of rate and usage of its current display inventory in each of its markets. In order to increase sales, the Company expanded its sales force and instituted a commission-based sales compensation plan. - - Renegotiating its airport advertising franchise agreements when they expire to improve their economic terms. Alternatively, to the extent that an expiring franchise agreement does not meet the Company's selection criteria for new franchise agreements, generally based on projected Operating Cash Flow, the Company will not renew or bid on the agreement. - - Pursuing television broadcast station acquisitions generally in Designated Market Area ("DMA") markets ranking from 50 to 150. The Company's television business historically has grown through opportunistic acquisitions. The Company intends to pursue acquisitions of 2 stations in situations where the Company believes its management approach can be successfully employed. Specifically, the Company will seek to acquire, on financially attractive terms, stations that currently generate positive cash flow but which offer opportunities for revenue and cash flow enhancement. The purchase of television station KFTY in Santa Rosa in April 1996 exemplifies this strategy. - - Creating additional interest in sports marketing and promotion through the development of a new arena in Seattle and pursuing other revenue-generating opportunities related to the new arena. Construction of the new arena was completed in time for the 1995-1996 NBA season. In-arena advertising and additional seating in the new arena provides opportunities for greater revenue generation, while the luxury boxes and concessions provide sources of revenue not previously available to the Company. Since the Company shares in revenues generated by events at the arena, the Company has acquired an indoor soccer franchise and will consider acquiring additional sports franchises under certain circumstances. Out-of-Home Media The Company's out-of-home media business segment involves the sale of advertising space on outdoor displays and on display units located in airport terminal facilities. National advertisers generally categorize outdoor and airport advertising as out-of-home media because, unlike radio and television broadcasting, newspapers and magazines, the primary focus of outdoor and airport advertising is to disseminate the advertiser's message outside the home environment. Outdoor Advertising Industry Overview. During the nineteenth century, companies began to lease out space on wooden boards for advertising messages, or "bills." Today, outdoor advertising extends nationwide, providing advertisers with a low-cost means of reaching large audiences. It is currently used by large national advertisers as part of multi-media advertising campaigns and increasingly by local merchants as a means of contacting their target markets. The Company believes that outdoor advertising is one of the most cost-effective forms of advertising. Poster space generally is sold in packages called "showings," which comprise a given number of displays in a market area. Posters provide advertisers with access either to a specified percentage of the general population or to a specific target audience. Displays making up a showing are placed in well-traveled areas and are distributed so as to reach a wide audience in a particular market. An outdoor advertising company establishes and publishes rate cards periodically, typically once a year, which set monthly rates for painted bulletins, poster panels and junior posters for each market it covers. Rates are based, in part, on surveys made by independent traffic audits that determine a given display's exposure to the public. Actual rates charged to customers are subject to negotiation. Advertising contracts relating to painted bulletins, poster panels and junior posters generally have terms of one year or less. 3 In addition to cost-effectiveness, outdoor advertising has other advantages for certain types of advertisers. Because the advertising message can be placed to reach potential customers close to the point of sale, restaurants, motels, service stations and similar businesses find outdoor advertising particularly attractive. In addition, repeated viewings by people traveling the same route on a daily basis makes outdoor advertising especially suitable for companies, such as banks, insurance companies, soft drink manufacturers and radio and television stations, that sell their products by promoting a particular image. While outdoor advertising remains a stable and predictable source of revenue, the Company believes that the number and diversity of advertisers using the medium has increased. Over the past few years the emphasis has shifted from national to local and regional sales and to customers who have not traditionally used outdoor advertising. Advertisers shifting a significant portion of their advertising dollars into outdoor advertising include city and state governments (lottery advertising), health care services, specialty retailers, food products companies and telephone equipment and service companies. Operations. The Company's outdoor advertising business involves the sale of space on advertising display faces and includes, in many cases, the design of advertisements and the construction of outdoor structures that carry these displays. The Company operates its outdoor advertising business primarily in the greater metropolitan areas of Seattle and Tacoma, Washington; Portland, Oregon; Boston and Worcester, Massachusetts; and Miami, Fort Lauderdale and West Palm Beach, Florida. The Company, which has a total of approximately 9,070 advertising displays nationwide, is the dominant operator of outdoor advertising in each of its markets. The Company believes that its strong market position, the geographical diversity of its operations and its emphasis on local advertisers lend stability to its revenue base, reduce its reliance on any single local economy or advertiser and mitigate the effects of fluctuations in national advertising expenditures. The Company also believes that its outdoor advertising operation will continue to be a substantial source of revenue but anticipates that any future growth in this business will result primarily through diversification of its customer base and increased demand brought about by creative marketing. The principal outdoor advertising display used by the Company is the billboard, of which there are three standardized types: - - Painted bulletins, which generally are 14 feet high and 48 feet wide, consist of panels that are hand painted at the Company's facilities in accordance with design specifications supplied by the advertiser or, less frequently, panels covered with a single sheet of vinyl on which an image has been printed by computer. The panels are then transported to the site of the billboard and mounted to the face of the display. To attract more attention, panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Painted bulletins are usually located near major highways for maximum impact. Space is usually sold to advertisers for periods of four to twelve months. 4 - - Poster panels, which generally are 12 feet high by 25 feet wide, are the most common type of billboard. Lithographed or silk-screened paper sheets that are supplied by the advertiser are prepasted and packaged in airtight bags by the Company and applied, like wallpaper, to the face of the display. Poster panels are usually located on major traffic arteries. Space is usually sold to advertisers for periods of one to twelve months. - - Junior posters are usually 6 feet high by 12 feet wide. The displays are prepared and mounted in the same manner as poster panels. Most junior posters, because of their smaller size, generally are concentrated on city streets and are targeted to pedestrian traffic. Space on junior posters usually is sold to advertisers for periods of one to twelve months. At December 31, 1996, the Company owned 1,414 painted bulletins, 6,244 poster panels and 1,411 junior posters distributed among markets served as follows: DMA Painted Poster Junior Market Rank(1) Bulletins Panels Posters ------ ------ --------- ------ ------- Northwest: Seattle/Tacoma.......... 12 224 1,635 329 Portland................ 24 144 1,152 -- Boston: Boston/Worcester........ 6 345 1,983 83 Florida: Miami/Fort Lauderdale... 16 502 1,136 999 West Palm Beach......... 45 199 338 -- _______________ (1) Source: Stations Volume of the Television-Cable Fact Book, 1996 Edition. DMA rank is a common measure of market size based on population used by the media industry and reported upon by the Nielsen Rating Service. The Company owns all of its outdoor displays, which generally are located on leased property. The typical lease provides for a term ranging from five to 15 years and for a reduction in or termination of rental payments in the event the view of the advertising structure becomes obstructed during the lease term. Usually, a property owner may terminate the lease in the event the site undergoes development. In the event of such lease termination, the Company seeks to relocate the structure at an alternate site, subject to zoning requirements, in order to maintain its inventory of advertising displays in the particular geographic region. Sales and Marketing. The Company sells advertising space on the Company's outdoor displays directly to advertisers, especially in the case of local and regional sales. The Company also sells advertising space to advertising agencies and specialized media buying services acting on behalf of national advertisers. These agencies charge the Company a commission for their services. In recent years, the Company has focused increasingly on selling to local and regional advertisers. A broad cross-section of advertisers utilize the Company's outdoor advertising services, including tobacco, food and beverage, financial service, automotive and entertainment companies. 5 As a result of the Company's efforts to diversify its advertiser base and to reduce the percentage of its net revenue attributable to the advertising of tobacco products, the Company's largest outdoor advertising customer accounted for less than 3% of the Company's gross revenue in 1996. Competition. The Company's outdoor advertising business competes directly with others engaged in the same business and indirectly with other types of advertising media, including television, radio, magazines, newspapers, business publications and direct mail marketing. Substantial competition exists among the various advertising media on a cost-per-rating-point basis and on the ability to reach effectively a particular demographic section of the market. As a general matter, competition is confined to a defined geographic market. While there are a few companies in the outdoor advertising business that are substantially larger than the Company, the Company is the largest owner and operator of outdoor advertising displays in the geographic markets in which it operates. The Company believes that it provides higher graphic quality, more timely installation and better sign maintenance than other outdoor advertisers in its markets. Regulation. The location of outdoor advertising structures is regulated through zoning regulations adopted by state and local governments. Typically, the Company's outdoor advertising structures are located in commercial and industrial zones. In some jurisdictions there is a limitation on the number of outdoor advertising structures that can be located within the city limits. Local zoning ordinances either restrict or prohibit outdoor advertising structures in specific areas in the various markets in which the Company operates. In addition, the 1965 Federal Highway Beautification Act (the "FHBA") requires states to adopt programs of effective regulation of outdoor advertising along federal highways in order to qualify for their full share of federal highway aid. However, the FHBA provides for the payment of compensation to the owner of a lawfully erected outdoor advertising structure that is removed by operation of the statute. In the event that a governmental entity seeks to compel the removal of one of the Company's outdoor advertising structures, the Company follows a policy of actively resisting unless adequate compensation is paid. The Company has initiated several lawsuits of this character and has prevailed in each such action. In addition, the Company has negotiated resolutions to other disputes without recourse to litigation. Airport Advertising Industry Overview. Practically all airport complexes across the United States grant franchises for the use of displays, signs and other units to provide advertising services. Airport advertising is particularly attractive to advertisers targeting an affluent audience with travel-related needs. The airport advertising business is dominated by less than five competitors, with the Company the largest by a significant margin based on revenues. The airport advertising business requires a prospective franchisee to obtain from the appropriate airport authority a franchise agreement authorizing the franchisee to install, maintain and sell advertising space on advertising display units in the airport's terminal facilities. Many airport authorities have established advertising guidelines for, and some airport authorities reserve the right to approve, the location and content of advertising materials. 6 Airport franchise agreements are individually negotiated with the appropriate authority charged with the management of the airport facility, usually a county, city or other governmental authority. In some instances, the franchisee enters into agreements with individual airlines maintaining separate terminal facilities under terms similar to those negotiated with the relevant airport authority. The franchise agreements have an average initial term of three to five years and require the payment of a concession fee to the airport authority based on a negotiated percentage of gross revenue derived from advertising in the airport facility. The amount generally is based on the size of the facility, the number of display units that can be located in the facility and the size and demographic characteristics of travelers using the facility. Many franchise agreements also require guaranteed minimum annual payments to be made in the event the fees otherwise payable to the airport authority are less than such minimum amount. Typically, at the conclusion of the initial franchise term, the franchise is either extended indefinitely, on an at-will basis, or subjected to a competitive bidding process. Operations. The Company is the largest owner and operator of airport advertising displays in the United States. It owns, maintains and sells advertising space on approximately 4,800 advertising display units in over 110 airport terminals throughout the United States, including principal airports serving the greater metropolitan areas of Boston, Washington, D.C., Miami, Houston, St. Louis and Seattle. Airport advertising display units generally consist of freestanding displays (primarily 4 x 4 feet in size, with some 8 x 8 feet and some 10 x 20 feet), interior-lighted units (3 x 5 feet) and multiple display hotel and motel reservation boards with direct telephone lines to the advertised facilities. With the permission of the governing authority, the Company may install other types of display units at an airport. The Company sells advertising space on airport advertising display units for periods ranging from one month to one year. Sales and Marketing. National and local advertisers purchase airport advertising from the Company at rates based on passenger traffic surveyed at the relevant airport. The Company sells advertising space on the Company's airport advertising display units directly to the advertisers and also sells to advertising agencies and specialized media buying services acting on behalf of national advertisers. A broad cross-section of advertisers utilize the Company's airport advertising services, including hotels, motels and automobile rental companies, media and telecommunication companies and financial services companies. The Company's largest airport advertising customer accounted for less than 1% of the Company's gross revenue in 1996. Competition. The award of an advertising franchise at each airport terminal facility generally is the result of a competitive process. Franchises are awarded based on the amount of any guaranteed minimum payment offered and the percentage of gross revenue to be paid to the airport authority, the franchisee's ability to meet specialized needs set forth in the governing agency's specifications and the franchisee's reputation and experience. The Company believes that its position as industry leader, its history in the business, its reputation for quality service and reliability and the size and expertise of its sales force generally provides it with a competitive advantage. 7 Broadcasting The Company's broadcasting business segment involves the sale of air time to a broad range of national and local advertisers. The Company operates in six geographically diverse markets that offer a large and affluent population base attractive to many advertisers. Television Industry Overview. Television station revenue is derived primarily from local, regional and national advertising and, to a lesser extent, from network compensation from studio rental and commercial production activities. Advertising rates are based upon a program's popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. The size of a television station's audience is determined by independent rating service surveys. Affiliation with one of the major networks has a significant impact on the composition of the station's revenue, expenses and operations. A typical affiliate receives the majority of its programming each day from the network. This programming, together with cash payments, is provided to the affiliate by the network in exchange for a substantial majority of the advertising time during network programs. The network sells this advertising time and retains the revenue so generated. 8 Operations. The following table sets forth certain information with respect to the Company's television stations and the markets in which they operate:
No. of Commercial Stations Call Date Network DMA Ranked in Market Letters Acquired Affiliation Rank(1) Market(2) Frequency(3) - ------ ------- -------- ----------- ------- -------- ------------ Syracuse, New York...................... WIXT May 1982 ABC 69 3 VHF VHF 2 UHF(4) Colorado Springs/Pueblo, Colorado....... KKTV January CBS 97 3 VHF VHF 1983 1 UHF(5) Bakersfield, California................. KGET October NBC 132 4 UHF(6) UHF 1983 Vancouver, British Columbia and portions of Seattle, Washington (station located in Bellingham, Washington)............................. KVOS June 1985 None (7) (7) VHF Salinas/Monterey, California............ KCBA June 1986 FOX 122 1 VHF UHF KION (8) CBS 3 UHF(9) UHF Santa Rosa, California................... KFTY April 1996 None 5 6 VHF UHF 12 UHF
_______________ (1) Source: Stations Volume of the Television Cable Fact Book, 1996 Edition . (2) Source: Stations Volume of the Television Cable Fact Book, 1996 Edition. Does not include public broadcasting stations, satellite stations or translators which rebroadcast signals from distant stations. (3) Very high frequency ("VHF") stations transmit on channels 2 through 13; ultra high frequency ("UHF") stations transmit on channels 14 through 69. Technical factors, such as station power, antenna location and height and topography of the area, determine the geographic market served by a television station. In general, a UHF station requires greater power or antenna height to cover the same area as a VHF station. (4) Two additional UHF channels have been allocated in the Syracuse market; however, there has been no construction activity to date with respect to these channels. (5) Two additional UHF channels have been allocated in the Colorado Springs/Pueblo market; however, there has been no construction activity to date with respect to these channels. (6) Two additional UHF channels have been allocated in the Bakersfield market; however, there has been no construction activity to date with respect to these channels. (7) KVOS, located in Bellingham, Washington, serves primarily the Vancouver, British Columbia market (located in size between the markets of Sacramento-Stockton-Modesto, California, and Orlando-Daytona Beach-Melbourne, Florida, which have DMA rankings of 21 and 22, respectively) and a portion of the Seattle, Washington market (DMA rank 12) and Whatcom County, Washington (equivalent in size to Eureka, California , with an DMA rank of 188). The station's primary competition consists of 4 Canadian VHF stations. (8) The Company did not purchase the station. It entered into a local marketing agreement with Harron Television of Monterey, the owner of television station KION (formerly KCCN) licensed to the market of Monterey, California. The Company provides programming and sales services to KION and makes a monthly payment to Harron in exchange for the right of the Company to receive all revenues from network compensation and advertising sold on the station (9) One additional UHF channel has been allocated in the Salinas/Monterey market; however, there has been no construction activity to date with respect to this channel. The Company's major-network affiliated television stations operate under standard contracts which are automatically renewed for successive terms unless the Company or the network 9 exercises its right to cancel. Under the terms of a network contract, the networks offer the Company's network-affiliated stations a variety of programs. The Company's network-affiliated stations have a right of first refusal to broadcast network programs before those programs can be offered to any other television station in the same market. The Company generally seeks to maximize the amount of commercial time it has available to sell to advertisers to attract broader and better defined audiences within its markets by emphasizing non-network programming during certain significant time periods. Such programming includes locally produced news, as well as syndicated and first-run talk programs, children's programming and movies acquired from independent sources. In the case of KVOS, which is located in Bellingham, Washington and serves primarily the market of Vancouver, British Columbia, Canada, the percentage of network programming preempted by alternate programming is substantial. This preemption is due primarily to Canadian regulations that require Canadian cable television operators to delete the signals of United States-based stations broadcasting network programs in regularly scheduled time slots and replace them with the signals of the Canadian-based network affiliates broadcasting at the same time. By substituting this alternate programming, KVOS is able to maximize the amount of time it is on the air in the Vancouver market. On April 2, 1996, the Company purchased for approximately $7.8 million television station KFTY, licensed to the market of Santa Rosa, California. On April 24, 1996, the Company entered into a local marketing agreement with Harron Television of Monterey, the owner of television station KION (formerly KCCN) licensed to the market of Monterey, California. The Company provides programming and sales services to KCCN and makes a monthly payment to Harron in exchange for the right of the Company to receive all revenues from network compensation and advertising sold on the station Sales and Marketing. The principal sources of television broadcasting revenue for the Company are the sale of time to advertisers in the form of local, regional and national spot or schedule advertising and, to a much lesser extent, network compensation. Spot or schedule advertising consists of short announcements and sponsored programs either on behalf of advertisers in the immediate area served by the station (local) or on behalf of national and regional advertisers (national). During 1996, local spot or schedule advertising, which is sold by the Company's personnel at each station, accounted for approximately 40% of the total revenue generated by the Company's television stations. National spot or schedule advertising, which is sold primarily through national sales representative firms on a commission-only basis, accounted for approximately 55% of the total revenue generated by the Company's television stations in 1996. Network compensation revenue is based upon network hourly rates payable to a station by a network and is tied to the number of network programs broadcast. Network hourly rates are fixed by the terms of the contract between the network and the station and are subject to change by the network, although the station has the right to terminate the contract if the change involves a 10 decrease in rates. In the aggregate, network compensation revenue does not represent a significant portion of the total net revenue generated by the Company's stations. Competition. The Company's television stations compete for revenue with other television stations in their respective markets, as well as with other advertising media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail and local cable systems. Factors material to maintaining an individual station's competitive position in the television broadcast industry include the station's management experience, authorized power, assigned frequency, network affiliation, audience identification and local program acceptance, together with the strength of the local competition. The Company's television stations compete for both audience and advertising with stations within their markets, as well as with cable television and other news and entertainment media serving the same markets. Cable television systems, which operate generally on a subscriber-payment basis, compete by carrying television signals from outside the broadcast market and by distributing programming originated exclusively for cable systems. Cable operators historically have not sought to compete with broadcast stations for a share of the local news audience. To the extent they elect to do so, increased competition from cable operators for local news audiences could have an adverse effect on the Company's advertising revenue. The Company also faces competition from high-powered direct broadcast satellite services which transmit programming directly to homes equipped with special receiving antennas or to cable television systems for transmission to their subscribers. In addition, the Company's television stations compete for audience with other forms of home entertainment, such as home videotape and disc players. Moreover, the television industry is continually faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, changes in labor conditions and in government regulations. Radio Industry Overview. Radio stations in the United States operate either on the amplitude modulation ("AM") band, comprising 107 different frequencies located between 540 and 1600 kilohertz ("KHz") in the low frequency band of the electromagnetic spectrum, or the frequency modulation ("FM") band, comprising approximately 100 different frequencies located between 88 and 108 megahertz ("MHz") in the very high frequency band of the electromagnetic spectrum. FM radio stations have captured a high percentage of the listening audience, in part because of the perception that stereo broadcasting, which was once only available on FM radio stations, provides enhanced sound quality. Radio station revenue is derived substantially from local, regional and national advertising and, to a lesser extent, from network compensation. Approximately 76% of the Company's radio broadcasting revenue, realized through its investment in the Partnership, is derived from local advertising generated by a station's local sales staff. National sales are made on a station's behalf by a national independent sales representative. The representative obtains advertising from national advertising agencies and receives a commission based on a percentage of gross advertising revenue generated. The principal costs incurred in the operation of radio stations are salaries, programming, 11 promotion and advertising, sports broadcasting rights fees, rental of premises for studios and transmitting equipment and music license royalty fees. Operations. The Company purchased KJR(AM), located in Seattle, Washington, in May 1984. KJR(AM) acquired the broadcast rights to SuperSonics games from the Company in the 1987-1988 season, and now serves as the SuperSonics' flagship radio station. In October 1987, the Company acquired KLTX(FM), also located in Seattle and changed the name to KJR(FM). On February 4, 1994, the Company entered into an agreement with Century Management, Inc. which resulted in the formation of New Century Seattle Partners, L.P. (the "Partnership") for the purpose of owning and operating the assets of KJR(AM), KJR(FM) and KUBE(FM). This venture was approved by the Federal Communications Commission ("FCC") and closed on July 14, 1994. Under the terms of the Amended and Restated Limited Partnership Agreement dated July 14, 1994, the Partnership purchased certain assets of KUBE(FM) from affiliated companies of Cook Inlet, Inc., an Alaska-based Native American corporation, and KJR Radio, Inc. contributed certain assets of KJR(AM) and KJR(FM) to the Partnership. Century Management, Inc. is the general partner of the Partnership and, as such, controls the operations of the three radio stations. KJR Radio, Inc., a wholly-owned subsidiary of the Company, along with ASDP/New Century, Inc., a Massachusetts corporation, and Union Venture Corporation, a California corporation, are limited partners of the Partnership. The following table sets forth certain information with respect to the radio stations owned by the Partnership:
Radio Station Radio No. of Format and Station Commercial Primary Call Date Power Arbitron Stations in Demographic Market Letters Acquired (WATTS) Rank(1) Market(1) Target ------ ------- -------- ------- -------- ------------ ------------ Seattle/Tacoma, KJR (AM) May 1984 5,000 13 11 AM Sports Talk; Washington Men 25-54 KJR (FM)(2) October 1987 100,000 20 FM 70's Hits Adults 25-54 KUBE (FM) July 1994 100,000 Top 40 CHR Persons 18-34
__________________________ (1) Source: Arbitron, Fall 1996 Edition. (2) Formerly KLTX (FM) On March 9, 1994, the Company sold radio station WAXY(FM) in Fort Lauderdale, Florida, to Clear Channel Radio, Inc. for approximately $14.0 million in cash, of which $13.0 million was for the assets of the radio station and $1.0 million was for a prepaid outdoor advertising contract. At December 31, 1993, the net book value of WAXY(FM) was approximately $10.7 million. 12 Sales and Marketing. The principal source of radio broadcasting revenue for the Company, through its interest in the Partnership, is the sale of air time to local advertisers. Advertising rates charged by each of the Partnership's radio stations are based primarily on the station's ability to attract audiences in the target demographic groups and the number of stations competing in the market area. The size of a radio station's audience is measured by independent rating service surveys. During 1996, local spot or schedule advertising, which is sold by the Partnership's personnel at each station, accounted for approximately 76% of the revenue generated by the Partnership's radio stations. National spot or schedule advertising, which is sold primarily through national sales representative firms on a commission-only basis, accounted for approximately 22% of the Partnership's radio broadcasting revenue in 1996. The remaining revenue consisted of tower rentals and production fees. Competition. Radio stations compete with other broadcasting stations in their respective market areas, as well as with other advertising media such as newspapers, television, cable television, magazines, outdoor advertising, transit advertising and mail marketing. Competition within the radio broadcasting industry occurs primarily in individual market areas, and a station in one market generally does not compete with stations in other market areas. In addition to management experience, factors material to competitive position include the station's rank in its market, transmitter power, assigned frequency, audience characteristics, local program acceptance and the number and characteristics of the stations in the market area. A competing station or a station changing its format could enter into direct competition with, and precipitate a decline in the ratings of, any one of the Partnership's stations. In addition, because a radio station's success in the ratings may depend to a large extent upon the presence of radio personalities who are able to develop large followings among listeners in a particular radio market, the arrival of a radio personality at a competing station or the loss of such person at one of the Partnership's radio stations could adversely affect that station's ratings. Congress and the FCC have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that may have an adverse competitive impact on the Partnership's radio broadcast properties. See "-- Broadcasting Regulation" below. Broadcasting Regulation The television and radio industries are subject to extensive federal regulation under the Communications Act of 1934, as amended (the "Communications Act"), which, among other things, requires approval by the FCC of transfers, assignments and renewals of broadcasting licenses, limits the number of broadcasting properties the Company may acquire and restricts alien ownership of capital stock of licensees. The FCC's multiple ownership rules limit certain ownership of media interests in the same market, such as stations of the same type (radio or television) serving the same geographic market, a radio station and a television station serving the 13 same geographic market, a cable system and a television station serving the same geographic market and a radio station and a daily newspaper serving the same geographic market. On February 8, 1996, the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, was enacted. The new law requires the FCC to substantially change many of its rules regulating the television and radio industries. In general, the new law requires the FCC to conduct various rulemaking proceedings to change its existing rules as required by the new law. The FCC has issued a tentative timetable for conducting the various rulemaking proceedings, which indicates that many FCC rules may change between March 1996 and the end of the year. The rule changes required by the new law will include changes (i) allowing one entity to own an unlimited number of radio stations nationwide, and allowing one entity to own an increased number of radio stations in a market, (ii) allowing one entity to own television stations reaching up to thirty five percent of the national audience, (iii) extending radio and television license terms to eight years, and (iv) relaxing the radio and television license renewal process. The new law also requires the FCC to conduct a rulemaking proceeding to determine whether to change its rule limiting the number of television stations an entity can own in a single market. The final rules that the FCC may adopt to implement the above-referenced provisions of the new law, as well as rules implementing other provisions of the new law and not referenced above, may have an adverse competitive impact on the Company's business. The Company currently is in compliance with the FCC's rules governing the number of stations which may be owned. These limitations on ownership may affect the Company's ability to acquire additional stations in the future. The success of the Company's broadcasting segment depends upon its continuing to hold broadcast licenses from the FCC. Radio and television station licenses are issued for terms of eight years. The Company's television stations have licenses which expire (subject to renewal) as follows: KCBA, KGET and KCTY, December 1, 1998; KVOS, February 1, 1998; KKTV, April 1, 1998; and WIXT, June 1, 1999. Television stations KGET and KKTV each has a license renewal application currently pending at the FCC. No competing applications have been filed, although petitions to deny the license renewal applications of television stations KKTV and KGET have been filed by various parties. The Partnership's radio stations, KJR(AM), KJR(FM) and KUBE (FM), have licenses which expire (subject to renewal) on February l, 1998. While in the vast majority of cases licenses are renewed by the FCC, there can be no assurance that the Company's broadcasting licenses will be renewed, especially if competing applications to obtain the licenses are filed. In determining whether to grant or renew a broadcast license, the FCC considers a number of factors pertaining to the licensee, including compliance with the Communications Act's limitations on alien ownership, compliance with various rules limiting common ownership of broadcast, cable and newspaper properties and the "character" of the licensee and those persons holding attributable interests therein. The Communications Act requires broadcasters to serve the "public interest." Since the late 1970s, the FCC gradually has relaxed or eliminated many of the more formalized procedures it 14 developed to promote the broadcast of certain types of programming responsive to the needs of a station's community of license. However, licensees continue to be required to present programming that is responsive to community problems, needs and interests and to maintain certain records demonstrating such responsiveness. Complaints from listeners or viewers concerning a station's programming often will be considered by the FCC when it evaluates renewal applications of a licensee, although such complaints may be filed at any time. Stations also must follow various rules promulgated under the Communications Act that regulate, among other things, political advertising, sponsorship identifications, the advertisement of contests and lotteries and technical operations, including limits on radio frequency radiation. In addition, licensees must develop and implement affirmative action programs designed to promote equal employment opportunities and must submit reports to the FCC with respect to these matters on an annual basis and in connection with a renewal application. Licenses must also provide specific informational and educational programming for children and limit the amount of commercials aired during children's programming. In March 1993, the FCC issued new rules establishing must-carry rights and retransmission consent rights for television stations, as required by the Cable Television Consumer Protection and Competition Act of 1992 (the "Cable Act"). By June 17, 1993, each local television station had to elect either (i) to require its local cable television operator to carry its signal (the "must-carry option"), or (ii) to grant its consent to the local cable operator (the "retransmission consent option"). If a broadcaster chooses the must-carry option, the cable operator generally is required to carry such broadcaster's signal. However, the must-carry rights are not absolute, and their exercise depends on variables such as the number of activated channels on, and the location and size of, the cable system and the amount of duplicative programming on a broadcast station. If a broadcaster chooses the retransmission consent option, it may prohibit cable systems from carrying its signal or permit carriage under a negotiated compensation arrangement. The Company's four network-affiliated stations have chosen the retransmission consent option within their respective markets. By September 6, 1993, all cable systems were required to notify their subscribers which TV stations they would be carrying when the new cable TV rules went into full effect on October 6, 1993. Of the Company's four network-affiliated television stations, three (KKTV, KCBA and KGET) granted retransmission consents to their local cable systems, while the other (WIXT) agreed to extend for one year the deadline to complete its negotiations with its local cable systems. WIXT has continued to extend that deadline by subsequent agreements. While the Company believes that the remaining negotiation will be concluded successfully and that even if it is not successful the Company's operation would suffer no material adverse effect, there can be no assurance that this will be the case. FCC rules are subject to change. These changes may have an adverse competitive impact on the Company. For example, the FCC has adopted rule changes which will result in the expansion of the AM radio band, addition of more AM and FM stations, or increased power for existing AM and FM stations, by reducing the mileage spacing between existing stations and allowing the utilization of certain other engineering techniques (e.g., directional antennas and terrain shielding). Investigations by Congressional committees, the FCC and other governmental agencies into certain practices and conditions in the broadcasting industry (including broadcasting 15 spectrum and/or license fees, copyright law revisions, advertising practices, cable television and trafficking rules) have resulted in various proposals or inquiries now pending or which may be considered in the future by such governmental bodies. Congress and the FCC have under consideration, and may in the future consider and adopt, additional new laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership and profitability of the Company's broadcast properties. Such matters include, for example, proposals to impose spectrum use or other governmentally imposed fees upon licensees; proposals to amend the FCC's equal employment opportunity rules and other matters relating to minority and female involvement in the broadcasting industry; proposals to change rules relating to political broadcasting; technical and frequency allocation matters, including those relative to the implementation of digital audio broadcasting on both a satellite and terrestrial basis; proposals to permit expanded use of FM translator stations; proposals to restrict or prohibit the advertising of beer, wine and other alcoholic beverages on radio; changes to broadcast technical requirements; proposals to auction the right to use the radio and television broadcast spectrum to the highest bidders; and proposals for the expansion of operating hours of daytime-only stations. The Company cannot predict whether, or to what extent, any of these matters will be adopted, nor can it judge in advance what impact, if any, any such matters might have on its business. In addition, the Company cannot predict what other changes might be considered in the future, nor can it judge in advance what impact, if any, such other changes might have on its business. The FCC has proposed the adoption of rules for implementing advanced (including high-definition) television service ("ATV") in the United States. Implementation of ATV will improve the technical quality of television. Under certain circumstances, however, conversion to ATV operations may reduce a station's geographical coverage area. Implementation of ATV will impose additional costs on television stations providing the new service, due to increased equipment and operating costs. At the same time, there is a potential for increased revenues derived through the use of high-definition television. While the Company believes the FCC will authorize ATV in the United States, the Company cannot predict when such authorization might be given or the effect such authorization might have on the Company's business. Television station KVOS, which derives much of its revenue from the Vancouver, British Columbia market, is regulated by certain aspects of Canadian law. In particular, although under Canadian tax laws advertising expenses are ordinarily deductible as business expenses, a Canadian firm may not deduct the cost of advertising on a United States-based television station which is directed into a Canadian market. In order to compensate for this disparity, KVOS sells advertising time in Canada at a discount from its standard rate. KVOS also is subject to certain restrictions on its broadcast of network programming. See "-- Operations" above. Other Businesses The Company's third business segment includes its basketball and indoor soccer operations. This segment, however, also incorporates the operations of the Company's real estate holdings and the expenses of the Company's corporate office. 16 The Seattle SuperSonics The SuperSonics franchise is one of 29 members of the NBA. Teams in the NBA play a regular season schedule of 82 games from November through April and play several preseason exhibition games. Based on their regular season records, 16 teams qualify for post-season play, which culminates in the NBA championship. The SuperSonics have qualified for post-season play in each of the last three years. Industry Overview. NBA members share equally in the association's profits and have joint and several liability for its obligations. NBA affairs are supervised by a Board of Governors made up of a representative selected by each of the members. Through its elected Commissioner, the Board of Governors arbitrates disputes between members, assures that the conduct of members, players and officials is in accordance with the NBA Constitution and Bylaws, reviews and authorizes player transactions between members and imposes sanctions (including fines and suspensions) on members, players and officials who are found to have breached NBA rules. The sale of any NBA franchise is subject to the approval of a majority of the association's owners. Operations. Since 1983 the Company has owned and operated the SuperSonics, the NBA franchise for Seattle, Washington. The franchise has been operated in Seattle since it was granted by the NBA in 1966. The franchise, which is subject to the Constitution and Bylaws of the NBA, operates for an indefinite term of years so long as the Company maintains its membership in good standing. Currently, the SuperSonics maintain a full roster of 12 active players. The minimum roster under NBA rules is 11 players. The SuperSonics acquire new players primarily through the college draft, by signing veteran free agents uncommitted to another NBA franchise or by trading players with another franchise. NBA rules limit the aggregate annual salaries payable by each team to its players. Sales and Marketing. A major source of revenue for the SuperSonics is ticket sales for home games, as 100% of the revenue from these sales are retained by the home team. Average paid attendance per game increased from 13,250 for the 1993-94 regular season to 13,846 for the 1994-95 regular season, and to 15,277 for the 1995-96 regular season. Average paid attendance for the 1996-97 through February 28, 1997 regular season increased to 15,621. The SuperSonics maintained consistent growth in average paid attendance from the 1993-94 season through the 1995-96 season, attributable mainly to the team's improved win/loss record. The substantial increase in the 1995-96 average paid attendance is mainly due to the SuperSonics move to the new Key Arena in November 1995. In November 1993, the NBA granted franchises to the cities of Toronto and Vancouver, Canada for $125 million each to begin play in the 1995-96 season. The SuperSonics has received its proportionate share of the franchisee fees received from these additional franchises. The SuperSonics share equally with the other NBA teams in revenue resulting from NBA agreements with television networks for the broadcast of league games and other NBA activities. The 17 proportion of revenue resulting from the sale of broadcast rights, particularly television broadcast rights, has increased significantly in recent years and is expected to become a more significant portion of total NBA revenue, primarily because of the growth of cable television. In the spring of 1993, the NBA entered into a new contract with NBC providing for the television broadcast of certain league games through the 1997-98 season. This contract provides for a minimum payment to the NBA of $750 million over the four-year term of the contract. Other sources of revenue for the Company derived from its ownership of the SuperSonics include broadcast licensing, team advertising sponsorships and in-arena advertising. All of the SuperSonics' games are broadcast exclusively over KJR(AM), the Partnership-owned radio station in Seattle. Broadcasting rights to the SuperSonics' games are licensed to local cable systems and, outside the Seattle/Tacoma market, additional radio stations not affiliated with the Company. Broadcast revenue related to the SuperSonics, including the current contracts with NBC and Turner Network Television, is included in the Company's broadcasting segment. Employees As of December 31, 1996, the Company employed approximately 370 persons in its out-of-home media segment, 768 persons in its broadcasting segment and 71 persons in its other businesses segment. A sales force of approximately 54 employees based in New York, St. Louis and the Washington, D.C. area and in other regional offices, which is responsible for selling advertising space on the Company's outdoor advertising structures and airport displays, is included in this tabulation. Approximately 280 of the Company's employees are represented by various unions under 14 collective bargaining agreements. The Company believes that its employee relations are good. Collective bargaining agreements covering approximately 10% of the Company's employees are terminable during 1997. The Company believes that these collective bargaining agreements will be renegotiated or automatically extended and that any renegotiation will not materially adversely affect its operations. Financial Information Regarding Business Segments Financial information concerning each of the business segments in which the Company is engaged is set forth in Note 13 to the Notes to Consolidated Financial Statements. Restrictions on Operations On September 30, 1996, the Company entered into an Amended and Restated Credit Agreement (the "1996 Credit Agreement") with the senior bank lenders, increasing the aggregate principal amount under the lending facility from $65.0 million to $77.5 million. The 1996 Credit Agreement, the Indenture dated October 7, 1993 (the "Indenture") respecting its 10 3/4% Senior Secured Notes Due 2003 ("Senior Notes"), and its Note Agreements dated December 20, 1988 and Note Agreements dated December 1, 1989, with certain insurance company lenders as amended (collectively the "Subordinated Note Agreements") contain restrictions on the Company's 18 operations. The 1996 Credit Agreement, Indenture and Subordinated Note Agreements include restrictions on aggregate indebtedness, acquisitions of securities or assets of operating businesses, stock issuances, the creation of liens, loans and advances, investments, capital expenditures, guarantees, dividends on or purchases of its capital stock, changes in lines of business, and transactions with affiliates. The 1996 Credit Agreement and Indenture also restrict the Company's ability to prepay other debt. The 1996 Credit Agreement and Subordinated Note Agreements generally prohibit the Company from engaging in a merger or certain sales of assets without the consent of the respective lenders. Additionally, acquisitions of additional business operations would generally require consents or waivers from certain of the Company's lenders with respect to several of the above restrictions. The Company has pledged the stock of all its subsidiaries to secure its obligations under the 1996 Credit Agreement and Indenture. In the event of a monetary default under the 1996 Credit Agreement or Senior Notes, the pledgee under the Pledge Agreement, on behalf of the bank lenders and Senior Noteholders, could force a sale of all or a portion of the stock of the subsidiaries to satisfy the Company's obligations. Additional information concerning the 1996 Credit Agreement, Senior Notes and Subordinated Note Agreements is set forth in Note 7 to the Notes to Consolidated Financial Statements. ITEM 2 - PROPERTIES The principal executive offices of the Company are located at 1301 Fifth Avenue, Suite 4000, Seattle, Washington 98101. These offices, which consist of approximately 16,800 square feet, are leased by the Company pursuant to a lease that expires in 2006. 19 The following table sets forth certain information regarding the Company's operating facilities as of December 31, 1996:
Approximate Square Approximate Footage Square Footage Location Nature of Facility Owned Leased - -------- ------------------ ----------- ------------- Out-of-Home Media: Seattle, Washington (Outdoor) Plant 35,889 -- Boston, Massachusetts (Outdoor) Plant 31,882 4,900 Miami, Florida (Outdoor) Plant 242,980 -- Airport Advertising Offices -- 12,544 Broadcasting: Syracuse, New York (WIXT) Station Operations 25,000 -- Colorado Springs, Colorado (KKTV) Station Operations 31,100 753 Bakersfield, California (KGET) Station Operations -- 13,440 Bellingham, Washington (KVOS) Station Operations 13,130 11,856 Salinas, California (KCBA) Station Operations 30,000 3,000 Santa Rosa, California (KFTY) Station Operations 13,000 Portland, Oregon Antenna Facility 3,500 -- Other Businesses: Seattle, Washington (Sports Operations) Offices & Practice 30,000 19,325 Seattle, Washington (Corporate) Facility Offices -- 30,014
The Company believes that its facilities are adequate for its present business and that additional space is generally available for expansion without significant delay. In 1996, the Company paid aggregate annual rentals on office space of approximately $1.6 million. Effective October 1, 1995, the Company entered into a fifteen-year lease with the City of Seattle for the new Key Arena, a 17,100-seat events facility. Construction for the arena was completed in September 1995. It was first occupied and used by the SuperSonics in November 1995, the beginning of the 1995-1996 season. In 1996, the SeaDogs also began using Key Arena. At December 31, 1996, the Company owned 292 vehicles and leased 65 vehicles of various types for use in its operations. The Company owns a variety of broadcast-related equipment, including broadcast towers, transmitters, generators, microwave systems and audio and video equipment used in its broadcasting business. The Company leases two airplanes under private carrier agreements: one is used for executive travel between the various Company facilities, and the other is used by the SuperSonics. The Company believes that all of its buildings and equipment are adequately insured in accordance with industry practice. 20 ITEM 3 - LEGAL PROCEEDINGS The Company reported in its Current Report on Form 8-K, filed with the Securities and Exchange Commission on or around February 29, 1996, a $13 million award against certain of the Company's subsidiaries and officers in connection with a wrongful termination claim by former Company employees. The Company is appealing the verdict. See Note 12 to the Company's Consolidated Financial Statements. The Company becomes involved from time to time in various claims and lawsuits incidental to the ordinary course of its operations, including such matters as contract and lease disputes and complaints alleging employment discrimination. In addition, the Company participates in various governmental and administrative proceedings relating to, among other things, condemnation of outdoor advertising structures without payment of just compensation, disputes regarding airport franchises and matters affecting the operation of broadcasting facilities. Other than as indicated above, the Company believes that the outcome of any such pending claims or proceedings, individually or in the aggregate, will not have a material adverse effect upon its business or financial condition. The NBA regularly becomes involved in litigation with present or former players, league employees, persons with interests in franchises and others. The Company is unaware of any pending or threatened litigation which would have a material adverse effect upon the business or financial condition of the NBA or any of its members, including the SuperSonics. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders in the fourth quarter of 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company currently are as follows: Barry A. Ackerley 62 Chairman of the Board, President and Chief Executive Officer William N. Ackerley 36 President and Chief Operating Officer Denis M. Curley 49 Executive Vice President and Chief Financial Officer, Treasurer and Secretary Keith W. Ritzmann 44 Vice President and Controller Mr. Barry Ackerley, one of the founders of the Company, assumed the responsibilities of President and Chief Operating Officer of the Company following the resignation of Donald E. Carter effective March 1991 and until the appointment of William N. Ackerley as Senior Vice President and Chief Operating Officer effective April 1992. He has been the chief executive officer and a director of the Company and its predecessor and subsidiary companies since 1975 and is the Chairman of the Board. 21 Mr. William Ackerley was elected President in August 1993. He has served as Chief Operating Officer of the Company since 1991 during which time he also served as General Manager of Ackerley Communications of the Northwest, Inc. (from March through July 1993) and as General Manager of KJR Radio, Inc. (from September through November 1991). He has been with the Company since 1986 and has served in the following capacities: from March 1986 to October 1988, as Vice President of the SuperSonics, in front office administration; from October 1988 to September 1989, as Vice President of the Company, working on special projects; from September 1989 to April 1991, as Project Manager with the Company's subsidiary, The New Seattle Arena, Inc., responsible for the development of a proposed sports arena. Mr. Curley, who joined the Company in December 1984, was named on March 1, 1995 to the position of Executive Vice President and Chief Financial Officer after having served as Senior Vice President and Chief Financial Officer of the Company since January 1990. He has been Vice President of Finance, serving as Chief Financial Officer of the Company, since May 1988, and Treasurer and Assistant Secretary of the Company since November 1985. Mr. Ritzmann, who joined the Company in November 1980, was named in January 1990 to the position of Vice President. He has been the Controller of the Company since 1986. Barry A. Ackerley and William N. Ackerley are father and son. Gail A. Ackerley, Co-Chairman of the Board of Directors and a nominee for re-election as a director at the 1997 annual shareholder's meeting, is Barry Ackerley's wife and William Ackerley's mother. There are no other family relationships among any of the directors or executive officers. All officers serve at the pleasure of the Board of Directors. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On September 19, 1996, the Board of Directors declared an increase of all classes of its common stock which the Company is authorized to issue from 56,972,230 shares to 61,406,510 shares. In conjunction with this increase, the Board also declared a two-for-one stock split effective October 15 for stockholders of record on October 4. The stock split resulted in the issuance of 15,582,794 additional shares. All share and per share data have been restated to reflect this split. As of March 14, 1997, the Company had 31,166,812 shares of outstanding common stock, 19,813,002 shares of which are voting common stock ("Common Stock") and 11,353,810 of which are Class B voting common stock ("Class B Common Stock"). As of the same date, there were 583 and 29 shareholders of record of Common Stock and Class B Common Stock, respectively. First Union National Bank of North Carolina is the stock transfer agent for all common stock. The Board of Directors declared a dividend of $.03 a share in 1995 and $.04 in 1996. Recently, the Company declared its third annual cash dividend of $.02 per share (reflecting the 22 October 1996 stock split) payable on April 15, 1997 to shareholders of record on March 25, 1997. The Company's Board of Directors presently intends to pay a similar dividend next year. Such payment and any other future payment of dividends will depend upon, among other things, the Company's earnings and financial condition, capital requirements and general economic conditions. In this respect, payment of dividends is restricted by the terms of the 1996 Credit Agreement and Subordinated Note Agreements and the Indenture. Additionally, the Delaware general corporation law would restrict the payment of dividends under certain circumstances. The Company's Common Stock is listed and traded on AMEX under the symbol AK. The table below sets forth the high and low sales prices according to AMEX, for each full quarterly period within the two most recent fiscal years. These quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions.
1996 High Low 1995 High Low - ---- ---- --- ---- ---- --- First Quarter $10 1/4 $ 9 7/16 First Quarter $5 1/4 $3 1/4 Second Quarter $13 15/16 $11 15/16 Second Quarter $6 1/4 $4 3/8 Third Quarter $16 15/16 $13 5/8 Third Quarter $7 13/16 $6 1/8 Fourth Quarter $12 7/8 $11 1/8 Fourth Quarter $7 15/16 $6 5/8
As of March 14, 1997, the high and low sales price of the Common Stock were $13 3/8 and $13 1/4 and respectively. No market has existed for the Class B Common Stock since its initial issuance in June 1987. Moreover, there are significant restrictions, set forth in the Company's Third Restated Certificate of Incorporation, on the ability of a stockholder to transfer shares of Class B Common Stock. As a consequence, there does not exist an established trading market for the Class B Common Stock. 23 ITEM 6 - SELECTED FINANCIAL DATA The following selected consolidated financial data with respect to the Company for the years ended December 31, 1992 through 1996 have been derived from the audited consolidated financial statements of the Company. The information set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Consolidated Financial Statements" and Notes thereto included elsewhere in this report.
Year End December 31, ---------------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (In thousands except per share data) Consolidated Statement of Operations Data: Revenue $279,662 $235,820 $211,728 $192,958 $187,295 Less agency commissions and discounts (32,364) (28,423) (25,626) (22,341) (22,769) -------- --------- -------- --------- -------- Net revenue 247,298 207,397 186,102 170,617 164,526 Expenses and other income Operating expenses 186,846 156,399 143,469 132,774 125,441 Disposition of assets -- -- (2,506) 759 (2,147) Depreciation and Amortization 16,996 13,243 10,883 12,018 13,915 Interest expense 24,461 25,010 25,909 22,431 23,809 Litigation expense -- 14,200 -- -- -- Other (Income) expense 108 (56) (657) (458) 13 -------- --------- -------- --------- -------- Total expenses and other income 228,411 208,796 177,098 167,524 161,031 -------- --------- -------- --------- -------- Income (loss) before income taxes and extraordinary item 18,887 (1,399) 9,004 3,093 3,495 Income taxes 2,758 1,515 73 133 1,188 -------- --------- -------- --------- -------- Income (loss) before extraordinary item 16,129 (2,914) 8,931 2,960 2,307 Extraordinary item - loss on extinguishment of debt in 1996, 1994 and 1993; utilization of tax loss carry forward in 1992 (355) -- (2,009) (625) 1,188 -------- --------- -------- --------- -------- Net income (loss) applicable to common shares $ 15,774 $ (2,914) $ 6,832 $ 2,335 $ 3,495 -------- --------- -------- --------- -------- -------- --------- -------- --------- -------- Per common share: Income (loss) before extraordinary item $ .51 $ (.09) $ .28 $ .09 $ .07 Extraordinary item (.01) -- (.06) (.02) .04 -------- --------- -------- --------- -------- Net income (loss) $ .50 $ (.09) $ .22 $ .07 $ .11 -------- --------- -------- --------- -------- -------- --------- -------- --------- -------- Dividends $ .02 $ .015 $ -- $ -- $ -- -------- --------- -------- --------- -------- -------- --------- -------- --------- -------- Common shares used in per share computation 31,760 31,545 31,483 31,204 30,900 Consolidated Balance Sheet Data (at end of period): Working capital $ 1,154 $ 15,110 $ 16,783 $ 7,970 $ (17,375) Total assets 224,912 189,882 170,783 160,491 165,824 Total long-term debt 229,350 215,328 225,613 213,165 195,448 Total debt 235,141 220,147 228,646 224,080 233,617 Stockholder's deficiency (83,839) (99,093) (95,958) (102,852) (105,228)
24 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company reported net income of $15.8 million in 1996, a net loss of $2.9 million in 1995, and net income of $6.8 million in 1994. Historically, the Company has sought to expand its businesses through acquisitions. This acquisition strategy has led the Company to incur substantial depreciation and amortization expense and interest expense on long-term debt. Financial results for the past three years reflect the decreased acquisition activity of the early 1990s combined with the increased profitability of the Company's existing operations. On February 17, 1995, the Company completed a refinancing of its senior indebtedness (the "1995 Refinancing") to obtain more favorable interest rates and repayment terms respecting its senior bank indebtedness. In connection with the 1995 Refinancing, the Company entered into a credit agreement with a new group of bank lenders (the "1995 Credit Agreement") providing for up to $65 million in borrowings including up to $7.5 million dollars in standby letters of credit. The net proceeds from the initial borrowing under the 1995 Credit Agreements were used to repay all outstanding indebtedness of approximately $51.3 million under the 1993 Credit Agreement. On April 2, 1996, the Company purchased for approximately $7.8 million television station KFTY, licensed to the market of Santa Rosa, California. On April 24, 1996, the Company entered into a local marketing agreement ("LMA") with Harron Television of Monterey, the owner of television station KION (formerly KCCN) licensed to the market of Monterey, California. The Company provides programming and sales services to KION and makes a monthly payment to Harron in exchange for the right of the Company to receive all revenues from network compensation and advertising sold on the station. In conjunction with the transaction, the Company paid Harron Television approximately $5.6 million dollars for an option to purchase the station. All of the above transactions were financed through its credit facilities. On September 30, 1996, the Company entered into an Amended and Restated Credit Agreement with the senior bank lenders (the "1996 Credit Agreement"), increasing the aggregate principal amount under the lending facility from $65.0 million to $77.5 million. On October 1, 1996, the Company amended its Certificate of Incorporation to change its name from Ackerley Communications, Inc. to The Ackerley Group, Inc. and implemented a new marketing plan for its businesses. On October 15, 1996, the Company effected a two-for-one stock split of its outstanding common stock, including its outstanding Class B Common Stock, for the shareholders of record at the close of business on October 4. In order to effect the split, the Company amended its Certificate of Incorporation on September 26 to increase the number of shares of its authorized capital stock from 59,972,230 to 61,406,510 shares, including the number of shares of its Class B Common Stock from 6,972,230 to 11,406,510 shares. The stock split resulted in the issuance of 15,582,794 additional shares. 25 In November 1996, the Company purchased for approximately $13.0 million 60 billboard faces and three land parcels in the Boston area. Certain subsidiaries of the Company and two of its executive officers were defendants in a wrongful termination suit brought by former employees. On February 29, 1996, a jury issued a verdict awarding the plaintiffs compensatory and punitive damages of approximately $13.0 million. The Company has recorded an accrual of $14.2 million related to the verdict including an estimate for additional legal costs. The Company is appealing the verdict. In addition, during the past three years, the Company maintained growth in net revenue, completed the development of a new sports arena, purchased television station KFTY in Santa Rosa, California, and continued the cost containment program initiated in 1991. One by-product of the cost containment effort that has remained an important part of the Company's operating strategy is increased scrutiny of expenses. Rather than concentrating solely on maximizing revenues, the Company focuses on maximizing the Operating Cash Flow of each of its business segments. Proposed expenses are evaluated in light of the enhancements to revenue anticipated to flow from such expenditures. As with many media companies that have grown through acquisitions, the Company's acquisitions and dispositions of television and radio stations have resulted in significant non-cash and non-recurring charges to income. For this reason, in addition to net income (loss), management believes that Operating Cash Flow (defined as net revenue less operating expenses plus other income before amortization, depreciation, interest expense, litigation expense and disposition of assets) is an appropriate measure of the Company's financial performance. This measure excludes expenses consisting of depreciation, amortization, interest, litigation expense, and disposition of assets because these expenses are not considered by the Company to be costs of ongoing operations. The Company uses Operating Cash Flow to pay interest and principal on its long-term debt as well as to finance capital expenditures. Operating Cash Flow, however, is not to be considered as an alternative to net income (loss) as an indicator of the Company's operating performance or to cash flows as a measure of the Company's liquidity. The regional markets the Company serves, from time to time, experience varying degrees of recessionary influences. Management cannot presently determine the potential negative impact of such recessionary influences on the Company's operations and its financial condition. 26 Results of Operations The following tables set forth certain historical financial and operating data of the Company for the three-year period ended December 31, 1996, including separate net revenue, operating expense and other income and Operating Cash Flow information by segment:
Year Ended December 31, ----------------------------------------------------------- 1996 1995 1994 ----------------- ----------------- ----------------- As % As % As % of Net of Net of Net Amount Revenue Amount Revenue Amount Revenue ------ ------- ------ -------- ------ ------- (In thousands) Net revenue $247,298 100.0% $207,397 100.0% $186,102 100.0% Operating expenses and other (income) expense: Operating expenses 186,846 75.6 156,399 75.4 143,469 77.1 Other (income) expense, net 108 (0.0) (56) (0.0) (657) (0.4) ------- ----- ------- Total operating expenses and other income 186,954 75.6 156,343 75.4 142,812 76.7 ------- ----- ------- Operating Cash Flow 60,344 24.4 51,054 24.6 43,290 23.3 Other expenses: Depreciation and amortization 16,996 6.9 13,243 6.4 10,883 5.8 Interest expense 24,461 9.9 25,010 12.1 25,909 13.9 ------- ----- ------- Total other expenses 41,457 16.8 38,253 18.5 36,792 13.9 Income before disposition of assets, income taxes, and litigation expense, and extraordinary item 18,887 7.6 12,801 6.1 6,498 3.5 Litigation expense -- -- 14,200 6.8 -- -- Disposition of assets -- -- -- -- (2,506) 1.3 Income tax expense 2,758 1.1 1,515 0.7 73 -- ------- ----- ------- Income (loss) before extraordinary item 16,129 6.5 (2,914) (1.4) 8,931 4.8 Extraordinary item (355) (0.1) -- -- (2,099) (1.1) ------- ----- ------- Net income (loss) $ 15,774 6.4 $(2,914) (1.4) $ 6,832 3.7 ------- ----- ------- ------- ----- -------
27
Year Ended December 31, ------------------------------------------------- 1996 1995 1994 -------- -------- ---------- (Dollars in thousands) Net revenue: Out-of-home media $ 99,833 $ 93,177 $ 85,436 Broadcasting 118,171 94,108 83,463 Other 29,294 20,112 17,203 -------- -------- -------- Total net revenue $247,298 $207,397 $186,102 -------- -------- -------- -------- -------- -------- Operating expense and other income: Out-of-home media $ 63,924 $ 61,199 $ 58,409 Broadcasting 69,291 54,601 49,901 Other 53,739 40,543 34,502 -------- -------- -------- Total operating expenses and other income $186,954 $156,343 $142,812 -------- -------- -------- -------- -------- -------- Operating Cash Flow: Out-of-home media $ 35,909 $ 31,978 $ 27,027 Broadcasting 48,880 39,507 33,562 Other (24,445) (20,431) (17,299) -------- -------- -------- -------- -------- -------- Total Operating Cash Flow $ 60,344 $ 51,054 $ 43,290 -------- -------- -------- -------- -------- -------- Change in net revenue from prior periods: Out-of-home media 7.1% 9.1% 14.1% Broadcasting 25.6 12.8 7.9 Other 45.7 16.9 (6.6) Change in total net revenue 19.2 11.4 9.1 Operating data as a percentage of net revenue: Operating expenses and other income: Out-of-home media 64.0% 65.7% 68.4% Broadcasting 58.6 58.0 59.8 Other 183.4 201.6 200.6 Total operating expenses and other income 75.6 75.4 76.7 Operating Cash Flow: Out-of-home media 36.0% 34.3% 31.6% Broadcasting 41.4 42.0 40.2 Other (83.4) (101.6) (100.6) Total Operating Cash Flow 24.4 24.6 23.3
1996 Compared with 1995 Net Revenue. Net revenue for 1996 increased by $39.9 million, or 19.2%, to $247.3 million from $207.4 million in 1995. Net revenue in the Company's out-of-home media segment increased by $6.7 million, or 7.1%, in 1996 from 1995. This increase was due to increased sales volume 28 reflecting a strengthening market for national advertising. The net revenue of the Company's broadcasting segment increased $24.1 million or 25.6% resulting from local broadcast revenue related to sports operations, the addition of KFTY, and increased rates and sale volumes. The Company's other businesses segment's net revenue increased $9.1 million or 45.7% mainly due to the SuperSonics participating in 21 games of the 1996 NBA playoffs compared to 4 games in 1995. Operating Expenses and Other Income. Operating expenses and other income increased $30.6 million, or 19.6%, to $186.9 million from $156.3 million in 1995. In 1996, the Company's out-of-home media operating expenses and other income increased $2.7 million or 4.5%, from the previous year's level due to expenses related to increased business activity. Operating expenses and other income in the Company's broadcasting segment increased $14.7 million or 26.9% to $64.3 million due to broadcast expenses related to sports operations, the addition of KFTY, the addition of the KION LMA and higher programming, promotion, and production expenses. Operating expenses and other income from the Company's other segment increased $13.2 million to $53.7 million or 32.5% mainly from increased basketball operating expenses related to the SuperSonics participating in 17 more NBA playoff games in 1996 than in 1995. Operating Cash Flow. Because the increase in revenues exceeded the increase in operating expenses and other income for the same period, Operating Cash Flow increased by $9.3 million or 18.2% in 1996 from 1995. The increase in Operating Cash Flow in the out-of-home media and broadcasting segments more than offset the decrease in the other businesses segment's Operating Cash Flow. Operating Cash Flow as a percentage of net revenue slightly decreased to 24.4% in 1996 from 24.6% in 1995. Depreciation and Amortization. Depreciation and amortization expenses increased by $3.8 million, or 28.3%, to $17.0 million in 1996 as compared to $13.2 million in 1995. The increase is mainly the result of depreciation expense related to the Key Arena leasehold improvements in October 1995 and the addition of KFTY in April 1996. Interest Expense. Interest expense for 1996 decreased by $0.5 million, or 2.2%, to $24.5 million from $25.0 million in 1995. This decrease was due mainly to a combination of lower average debt balances in 1996 and to favorable interest rate contracts in 1996. Litigation Expense. In 1995, the Company recorded an accrual for a litigation expense of $14.2 million. There was no such accrual in 1996. Income Tax Expense. In 1996, the Company incurred $2,758,000 of income tax expense the majority of which was for state income taxes ($1,088,000) related to a pending settlement of certain prior year tax returns and for the federal alternative minimum tax ($1,561,000). Management anticipates that the Company will continue to incur income tax expense under the alternative minimum tax until operating loss carryforwards are substantially reduced. The Company will also incur income tax expense in certain states in which it operates. 29 Extraordinary Item. As a result of the 1996 Amended and Restated Credit Agreement, the Company wrote off in 1996 deferred costs of $0.4 million related to the 1995 Credit Agreement. There were no extraordinary items for 1995. Net Income (Loss). Net income for 1996 was $15.8 million, an increase of $18.7 million from the net loss of $2.9 million in 1995. The increase was mainly due to the effect of recording an accrual for a litigation expense in 1995. Net income as a percentage of net revenue increased to 6.4% in 1996 from (1.4%) in 1995. 1995 Compared with 1994 Net Revenue. Net revenue for 1995 increased by $21.3 million, or 11.4%, to $207.4 million from $186.1 million in 1994. Net revenue in the Company's out-of-home media segment increased by $7.7 million, or 9.1%, in 1995 from 1994. This increase was due to increased sales volume reflecting a strengthening market for national advertising. The Company's broadcasting segment showed an increase in net revenue of $10.6 million, or 12.8%, for 1995 mainly due to increased rates and sales volumes. Year-to-date net revenue for the Company's other businesses segment increased $2.9 million, or 16.9%, in 1995 as compared with the same period in the previous year, mainly due to increased ticket sales from SuperSonics home games. Operating Expenses and Other Income. Operating expenses and other income increased $13.5 million, or 9.5%, to $156.3 million from $142.8 million in 1994. However, operating expenses and other income as a percentage of net revenue decreased to 75.4% for 1995 from 76.7% for 1994. In 1995, the Company's out-of-home media operating expenses and other income increased $2.8 million or 4.8%, from the previous year's level due to expenses related to increased business activity. Operating expenses and other income in the Company's broadcasting segment increased by $4.7 million or 9.4% to $54.6 million in 1995 from $49.9 million in 1994, mainly because of the addition of the operations of KUBE(FM). The other businesses segment's operating expenses and other income increased $6.0 million, or 17.5%, to $40.5 million in 1995 from $34.5 million in 1994 principally because of increases in SuperSonics player compensation. Operating Cash Flow. Because the increase in revenues exceeded the increase in operating expenses and other income for the same period, Operating Cash Flow increased by $7.8 million or 17.9% in 1995 from 1994. The increase in Operating Cash Flow in the out-of-home media and broadcasting segments more than offset the decrease in the other businesses segment's Operating Cash Flow. As a result, Operating Cash Flow as a percentage of net revenue slightly increased to 24.6% in 1995 from 23.3% in 1994. Depreciation and Amortization. Depreciation and amortization expenses increased by $2.4 million, or 21.7%, to $13.2 million in 1995 as compared to $10.9 million in 1994. The majority of this increase resulted from the amortization of film broadcasting rights. Depreciation and amortization expenses were further increased by a full year's depreciation and amortization of the assets of radio station KUBE(FM) which was purchased in July 1994. 30 Interest Expense. Interest expense for 1995 decreased by $0.9 million, or 3.5%, to $25.0 million from $25.9 million in 1994. This decrease was due mainly to a combination of lower average interest rates and a slightly lower average debt level during 1995 compared to 1994. Litigation Expense. In 1995, the Company recorded an accrual for a litigation expense of $14.2 million. There was no such accrual in 1994. Income Tax Expense. In 1995, the Company's income tax expense increased to $1.5 million from $0.1 million in 1994 mainly due to the settlement of a state income tax matter and the effects of alternative minimum taxes. The Company benefited from its ability to utilize operating loss carryforwards to minimize income tax expense in 1995 and anticipates to continue to incur income tax expense under the alternative minimum tax until operating loss carryforwards are substantially reduced. Extraordinary Item. As a result of the 1995 Refinancing, the Company wrote off deferred costs of $2.1 million related to the 1993 Credit Agreement in 1994. There were no extraordinary items for 1995. Net Income (Loss). Net loss for 1995 was $2.9 million, a decrease of $9.7 million from the net income in 1994. This was mainly due to the effect of recording an accrual for a litigation expense. Net income as a percentage of net revenue decreased to (1.4%) in 1995 from 3.7% in 1994. Liquidity and Capital Resources On February 17, 1995, the Company completed the 1995 Refinancing to obtain more favorable interest rates and repayment terms respecting its senior bank indebtedness. In connection with the 1995 Refinancing, the Company entered into the 1995 Credit Agreement, initially providing for up to $65 million in borrowings including up to $7.5 million dollars in standby letters of credit. The net proceeds from the initial borrowing under the 1995 Credit Agreements were used to repay all outstanding indebtedness of approximately $51.3 million under the 1993 Credit Agreement. On September 30, 1996, the Company entered into an Amended and Restated Credit Agreement with the senior bank lenders, increasing the aggregate principal amount under the lending facility from $65.0 million to $77.5 million. Under the 1996 Credit Agreement, the Company presently has approximately $18.0 million available for borrowing under the revolving credit facility. The 1996 Credit Agreement and Subordinated Note Agreements require the consent of the banks and other lenders prior to any material expansion of the Company's operations. Borrowings under the 1996 Credit Agreement bear annual interest at either the prime rate plus 0.75% or LIBOR plus 2.00% for up to $77.5 million. The Credit Agreement also provides for up to $7.5 million in a letter of credit facility, which constitutes part of the $77.5 million maximum borrowings and incurs 2% annual fees. These borrowings and the Senior Notes are subject to 31 the Company's compliance with certain financial covenants and are secured by a pledge of stock of the Company's subsidiaries. The Company's working capital decreased to $11.2 million at December 31, 1996 from $15.1 million at December 31, 1995. Cash from operating activities was used to finance capital expenditures in the amount of $14.4 million in 1996. The Company's working capital decreased to $15.1 million at December 31, 1995 from $16.8 million at December 31, 1994. Cash from operating activities was used to finance capital expenditures in the amount of $15.1 million in 1995. For the periods presented, the Company has financed its working capital needs from cash provided by operating activities. Historically, the Company's long-term liquidity needs for acquisitions have been financed through additions to its long-term debt, principally through bank borrowings or private placements of subordinated debt. Capital expenditures for new property and equipment have been financed with both cash provided by operating activities and long-term debt. Cash provided by operating activities for 1996 decreased to $23.2 million from $36.7 million in 1995 mainly due to advance payments made in 1996 related to SuperSonic players' contracts. At December 31, 1996, the Company's capital resources consisted of $2.9 million in cash and cash equivalents and $21.0 million available under the 1996 Credit Agreement. The Company expended $8.8 million, $23.1 million and $14.4 million for capital additions in 1994, 1995 and 1996, respectively. The Company anticipates that 1997 capital expenditures consisting primarily of construction and maintenance of billboard structures, broadcasting equipment, and other capital additions will be between $13.0 million and $16.0 million. On April 2, 1996, the Company purchased for approximately $7.8 million television station KFTY, licensed to the market of Santa Rosa, California. On April 24, 1996, the Company entered into a local marketing agreement with Harron Television of Monterey, the owner of television station KION licensed to the market of Monterey, California. The Company provides programming and sales services to KION and makes a monthly payment to Harron in exchange for the right of the Company to receive all revenues from network compensation and advertising sold on the station. In conjunction with the transaction, the Company paid Harron Television approximately $5.6 million dollars for an option to purchase the station and has guaranteed a Harron debt totaling $4.8 million. No impact on liquidity is expected from this guarantee. All of the above transactions were financed through its credit facilities. In November 1996, the Company purchased for approximately $13.0 million 60 billboard faces and three land parcels in the Boston area. On March 9, 1994, the Company sold radio station WAXY(FM), in Fort Lauderdale, Florida, to Clear Channel Radio, Inc. for approximately $14.0 million in cash, of which $13.0 million was for the assets of the radio station and $1.0 million was for a prepaid outdoor advertising contract. At 32 the date of sale, the net book value of WAXY(FM) was approximately $10.5 million. The funds received from the sale were used to reduce long-term debt. On February 4, 1994, the Company entered into an agreement with Century Management, Inc. which resulted in the formation of New Century Seattle Partners, L.P. (the "Partnership") for the purpose of owning and operating the assets of KJR(AM), KJR(FM) and KUBE(FM). On July 14, 1994, the Partnership purchased certain assets of KUBE(FM) from affiliated companies of Cook Inlet, Inc., an Alaska-based native American corporation. In order to effect the purchase, the Partnership incurred approximately $18.1 million of debt. Quarterly Variations The Company's results of operations may vary from quarter to quarter due in part to the timing of acquisitions and to seasonal variations in the operations of the broadcasting segment. In particular, the Company's net revenue and Operating Cash Flow historically have been affected positively during the NBA basketball season (the first, second and fourth quarters) and by increased advertising activity in the second and fourth quarters. Taxes At December 31, 1996 the Company had a net operating loss carryforward for federal income tax purposes of approximately $59.5 million and an investment tax credit carryforward of approximately $1.3 million. These carryforwards expire during the years 1997 to 2007. Inflation The effects of inflation on the Company's costs generally have been offset by the Company's ability to correspondingly increase its rate structure. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information called for by this item is included in Item 14, pages F-1 through F-20. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 33 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning directors and certain executive officers of the Company, see the section entitled "Election of Directors" in the Company's definitive Proxy Statement dated March 28, 1997 ("Proxy Statement") which is incorporated herein by reference and "Executive Officers of the Registrant" under Part I of this report. ITEM 11 - EXECUTIVE COMPENSATION For information concerning executive compensation see the section entitled "Election of Directors" in the Proxy Statement, which information is incorporated herein by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 14, 1997, Barry A. Ackerley and Gabelli Funds, Inc. were the only persons to the Company's knowledge owning beneficially more than 5% of the outstanding shares of Common Stock and Class B Common Stock. For information concerning Mr. Ackerley's security ownership and the ownership of management see the section entitled "Election of Directors" in the Proxy Statement, which information is incorporated herein by reference. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning certain relationships and related transactions, see the Section entitled "Election of Directors" in the Proxy Statement, which information is incorporated herein by reference, except for the Sections entitled "Board Report on Executive Compensation" and "Shareholder Return Performance Presentation". 34 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) and (2) Financial Statements and Schedules. The following documents are being filed as part of this Report: INDEX TO FINANCIAL STATEMENTS Page Number Report of Ernst & Young, LLP, independent auditors....................... F-1 Consolidated balance sheets as of December 31, 1996 and 1995............................................................... F-2 Consolidated statements of operations for the years ended December 31, 1996, 1995 and 1994........................... F-3 Consolidated statements of stockholders' deficiency for the years ended December 31, 1996, 1995 and 1994................... F-4 Consolidated statements of cash flows for the years ended December 31, 1996, 1995 and 1994................................. F-5 Notes to consolidated financial statements............................... F-6 Schedules are omitted for the reason that they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. 35 (3) Exhibits:
Exhibit No. Exhibit - --------- ---------- 3.1 Third Restated Certificate of Incorporation(1) 3.2 Certificate of Amendment dated May 11, 1994 to Third Restated Certificate of Incorporation(1) 3.3 Certificate of Amendment dated October 1,1996 to Third Restated Certificate of Incorporation(2) 3.4 Certificate of Amendment dated September 26,1996 to Third Restated Certificate of Incorporation(2) 3.5 Amended and Restated Bylaws(4) 4.1 Indenture dated October 1, 1993 between the Company and First Bank National Association, relating to the 10 3/4% Series A Senior Secured Notes and the 10 3/4% Senior Secured Notes Due 2003(5) 4.2 Form of Specimen 10 3/4% Senior Secured Note Due 2003(5) 10.1 Amended and Restated Credit Agreement dated as of September 30, 1996, by and among First Union National Bank of North Carolina, Natwest Bank, N.A., Key Bank, Union Bank and Long-Term Credit Bank of Japan, Ltd.(2) 10.2 Pledge Agreement dated as of October 1, 1993 between the Company and First Trust of California, National Association(5) 10.3 Composite Conformed Copies of Note Agreement between the Company and certain insurance companies, dated as of December 1, 1988(4) 10.4 Composite Conformed Copies of Note Agreement between the Company and certain insurance companies, dated as of December 1, 1989(6) 10.5 Amendment No. 1 dated October 18, 1991 to Note Agreements dated December 1, 1988 and December 1, 1989(7) 10.6 Agreements of Waiver and Amendment dated as of September 30, 1990, relating to the Note Agreements(8) 10.7 Implementation and Waiver Agreement dated October 18, 1991(7) 10.8 Interest Rate Conversion Agreement dated June 20, 1989 and between the Company and The Bank of California, N.A.(6) 10.9 ISDA Master Agreement dated June 23, 1994 between the Company and National Westminster Bank USA(1) 10.10 The Company's Employee Stock Option Plan, as amended and restated on March 4, 1996(9) 10.11 Nonemployee-Director's Equity Compensation Plan(10) 10.12 Amended and Restated Limited Partnership Agreement of New Century Seattle Partners, L.P. dated July 14, 1994(3)
36
10.13 Premises Use and Occupancy Agreement between The City of Seattle and SSI Sports, Inc. dated March 2, 1994(1) 21 Subsidiaries of the Company (9) 23 Consent of Ernst & Young LLP 24 Power of Attorney for each of Gail A. Ackerley, Richard D. Cooley, M. Ian G. Gilchrist and Michel C. Thielen dated March 12, 1997 27 Financial Data Schedule __________ (1) Incorporated by reference to Exhibits 3.1, 3.2, 10.1, 10.8 and 10.22, respectively, to the Company's 1994 Annual Report on Form 10-K (2) incorporated by reference to Exhibits 3.1, 3.2, and 10, respectively, the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (3) Incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 (4) Incorporated by reference to Exhibits 3.3 and 10.12, respectively, to the Company's 1988 Annual Report on Form 10-K (5) Incorporated by reference to Exhibits 4.1, 4.2 and 10.21 of the Company's Registration Agreement on Form S-1, File No. 33-70936 (6) Incorporated by reference to Exhibits 10.13 and 10.16, respectively, to the Company's 1989 Annual Report on Form 10-K (7) Incorporated by reference to Exhibits 10.9, 10.10 and 10.16, respectively, to the Company's 1991 Annual Report on Form 10-K (8) Incorporated by reference to Exhibit 10.20 to the Company's 1990 Annual Report on Form 10-K (9) Incorporated by reference to Exhibits 10.10 and 27.1, respectively, to the Company's 1995 Annual Report on Form 10-K (10) Incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8, filed on May 14, 1996.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the fourth quarter ending December 31, 1996. (c) Exhibits required by Item 601 of Regulation S-K are being filed herewith. See Item 14(a)(3) above. (d) Financial statements required by Regulation S-X are being filed herewith. See Item 14(a)(1) and (2) above. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 27th day of March, 1997. THE ACKERLEY GROUP, INC. By: /s/ BARRY A. ACKERLEY ----------------------------- Barry A. Ackerley, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated, on the 27th day of March, 1997. A Majority of the Board of Directors: Principal Executive Officer: /s/ BARRY A. ACKERLEY /s/ BARRY A. ACKERLEY - ---------------------------- -------------------------------- Barry A. Ackerley, Chairman Barry A. Ackerley, Chairman of the Board of the Board and Chief Executive Officer /s/ GAIL A. ACKERLEY* Principal Financial Officer: - ---------------------------- Gail A. Ackerley, Director /s/ DENIS M. CURLEY -------------------------------- /s/ RICHARD P. COOLEY* Denis M. Curley, Executive Vice - ---------------------------- President and Chief Financial Richard P. Cooley, Director Officer, Treasurer and Secretary /s/ M. IAN G. GILCHRIST* Principal Accounting Officer: - ---------------------------- M. Ian G. Gilchrist, Director /s/ KEITH W. RITZMANN -------------------------------- /s/ MICHEL C. THIELEN* Keith W. Ritzmann - ---------------------------- Vice President and Controller Michel C. Thielen, Director *By:/s/ DENIS M. CURLEY - ---------------------------- Attorney-in-Fact 38 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors The Ackerley Group, Inc. We have audited the accompanying consolidated balance sheets of The Ackerley Group, Inc. as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' deficiency, and cash flows for each of the three years in the period ended December 31, 1996. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Ackerley Group, Inc. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP ---------------------------------------- Seattle, Washington February 28, 1997 F-1 THE ACKERLEY GROUP, INC. CONSOLIDATED BALANCE SHEETS ----------- ASSETS
December 31, 1996 1995 ------ ------ (In thousands) Current assets: Cash and cash equivalents $ 2,910 $ 6,421 Accounts receivable, net 43,754 43,590 Current portion of broadcast rights 5,656 5,779 Prepaid and other current assets 16,845 9,423 ----------- ----------- Total current assets 69,165 65,213 Property and equipment, net 88,136 81,368 Intangibles 41,856 31,412 Other assets 25,755 11,889 ----------- ----------- Total assets $ 224,912 $ 189,882 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current liabilities: Accounts payable $ 5,019 $ 4,284 Accrued interest 3,959 3,628 Other accrued liabilities 16,160 12,958 Deferred revenue 20,050 18,269 Current portion of broadcasting obligations 7,032 6,145 Current portion of long-term debt 5,791 4,819 ----------- ----------- Total current liabilities 58,011 50,103 Long-term debt 229,350 215,328 Litigation accrual 13,248 14,200 Other long-term liabilities 8,142 9,344 ----------- ----------- Total liabilities 308,751 288,975 Stockholders' deficiency: Common stock, par value $.01 per share-authorized 50,000,000 shares; issued 21,186,724 and 20,777,012 shares at December 31, 1996 and 1995 respectively; and outstanding 19,811,778 and 19,402,066 shares at December 31, 1996 and 1995 respectively 212 208 Class B common stock, par value $.01 per share-authorized 11,406,510 shares;issued and outstanding 11,353,810 and 11,731,522 shares at December 31, 1996 and 1995 respectively 114 117 Capital in excess of par value 3,195 3,093 Deficit (77,271) (92,422) Less common stock in treasury, at cost (10,089) (10,089) ----------- ----------- Total stockholders' deficiency (83,839) (99,093) ----------- ----------- Total liabilities and stockholders' deficiency $ 224,912 $ 189,882 ----------- ----------- ----------- -----------
See accompanying notes F-2 THE ACKERLEY GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31, ----------------------------------------- 1996 1995 1994 ---- ---- ---- (In thousands, except per share amounts) Revenue $ 279,662 $ 235,830 $ 211,728 Less Agency commissions and discounts 2,364 28,423 25,626 ----------- ----------- ----------- Net Revenue 247,298 207,397 186,102 Expenses and other income: Operating expenses 186,846 156,399 143,469 Amortization 6,404 5,734 3,794 Depreciation 10,592 7,509 7,089 Interest expense 24,461 25,010 25,909 Other (income) expense 108 (56) (657) Litigation expense --- 14,200 --- Disposition of assets --- --- (2,506) ----------- ----------- ----------- Total expenses and other income 228,411 208,796 177,098 Income (loss) before income taxes and extraordinary items 18,877 (1,399) 9,004 Income taxes 2,758 1,515 73 ----------- ----------- ----------- Income (loss) before extraordinary items 16,129 (2,914) 8,931 Extraordinary items: loss on debt extinguishment in 1996 and 1994 (355) --- (2,099) ----------- ----------- ----------- Net income (loss) $ 15,774 $ (2,914) $ 6,832 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) per common share, before extraordinary items $ .51 $ (.09) $ .28 Extraordinary items (.01) --- (.06) ----------- ----------- ----------- Net income (loss) per common share $ .50 $ (.09) $ .22 ----------- ----------- ----------- ----------- ----------- ----------- Weighted average number of shares 31,760 31,545 31,483
See accompanying notes F-3 THE ACKERLEY GROUP, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Common Class B Capital in stock in Common common excess of par treasury stock stock value Deficit (at cost) ------------------------------------------------------------------- Balance, January 1, 1994 $ 204 $ 118 $ 2,789 $ (95,876) $ (10,089) Exercise of stock options and stock conversions 1 --- 62 --- --- Net income --- --- --- (6,832) --- -------- ------- --------- ------------- ----------- Balance, December 31, 1994 205 118 2,851 (89,044) (10,089) Exercise of stock options and stock conversions 3 (1) 242 --- --- Cash dividend, $0.015 per share --- --- --- (464) --- Net income --- --- --- (2,914) --- -------- ------- --------- ------------- ----------- Balance, December 31, 1995 208 117 3,093 (92,422) (10,089) Exercise of stock options and stock conversions 4 (3) 102 --- --- Cash dividend, $0.02 per share --- --- --- (623) --- Net income --- --- --- 15,744 --- -------- ------- --------- ------------- ----------- Balance, December 31, 1996 $ 212 $ 114 $ 3,195 $ (77,271) $ (10,089) -------- ------- --------- ------------- ----------- -------- ------- --------- ------------- -----------
See accompanying notes F-4
Year ended December 31, ------------------------------------------- 1996 1995 1994 ------ ----- ------ (In thousands) Cash flows from operating activities: Cash received from customers $ 238,209 $ 215,321 $ 178,524 Cash paid to suppliers and employees (193,518) (154,564) (144,073) Interest paid, net of amount capitalized (21,524) (24,032) (22,784) ------------ ------------ ------------ Net cash provided by operating activities 23,167 36,725 11,667 Cash flows from investing activities: Proceeds from the sale of properties 1,474 478 13,306 Payments from acquisitions (20,445) --- (17,397) Capital expenditures (13,124) (15,098) (8,794) Other, net (7,524) (457) (6,162) ------------ ------------ ------------ Net cash used in investing activities (39,619) (15,077) (19,047) Cash flows from financing activities: Borrowings from Credit Agreements 38,000 64,379 30,126 Payments under Credit Agreements (21,907) (79,695) (27,180) Dividends paid (623) (464) --- Other, net (2,529) (1,735) (10) ------------ ------------ ------------ Net cash provided (used in) financing activities 12,941 (17,515) 2,936 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents (3,511) 4,133 (4,444) Cash and cash equivalents at beginning of period 6,421 2,288 6,732 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 2,910 $ 6,421 $ 2,288 ------------ ------------ ------------ ------------ ------------ ------------ Reconciliation of net income to net cash provided by operating activities: Net income (loss) applicable to common shares $ 15,774 $ (2,914) $ 6,832 Adjustment to reconcile net income to net cash provided by operating activities: Litigation expense --- 14,200 --- Disposition of assets --- --- (2,506) Loss on debt extinguishment 355 --- 2,099 Depreciation and amortization 16,996 13,243 10,883 Gain on sale of property and equipment (423) (50) (209) NBA expansion proceeds (3,132) 5,165 --- Changes in assets and liabilities, net (6,403) 7,081 (5,432) ------------ ------------ ------------ Net cash provided by operating activities $ 23,167 $ 36,725 $ 11,667 ------------ ------------ ------------ ------------ ------------ ------------ Supplemental disclosure of noncash transactions: Broadcast rights acquired and broadcast obligations assumed 9,165 $ 10,337 $ 6,020 Assets acquired through barter transactions 1,342 1,065 479 Capitalized leases --- 7,982 ---
See accompanying notes F-5 THE ACKERLEY GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of significant accounting policies (a) Organization - The Ackerley Group, Inc. (formerly know as Ackerley Communications, Inc.) and its subsidiaries (the "Company") is a diversified communications company that engages in three principal business: (i) out-of-home media, including outdoor and airport advertising; (ii) television and radio broadcasting; and (iii) other businesses consisting principally of professional basketball through ownership of the Seattle SuperSonics, a franchise of the National Basketball Association, and professional indoor soccer through ownership of the Seattle Sea Dogs, a franchise of the Continental Indoor Soccer League. Outdoor advertising operations are conducted principally in the Seattle, Portland, Boston, Miami, Ft. Lauderdale, and West Palm Beach markets, whereas airport advertising operations are conducted in airports throughout the United States. The markets served by the Company's television stations and their affiliations are as follows: Syracuse, New York (ABC affiliate); Colorado Springs, Colorado (CBS affiliate); Santa Rosa, California (independent), Bakersfield, California (NBC affiliate); Salinas/Monterey, California (FOX affiliate and CBS affiliate through a local management agreement); and Bellingham, Washington/Vancouver, British Columbia (independent). Radio broadcasting consists of one AM and two FM stations serving the Seattle/Tacoma area. (b) Principles of consolidation - The accompanying financial statements consolidate the accounts of The Ackerley Group, Inc. and its subsidiaries, substantially all of which are wholly owned. Minority interest is not material. All significant intercompany transactions have been eliminated in consolidation. (c) Revenue recognition - Display advertising revenue is recognized ratably on a monthly basis over the period in which advertisement displays are posted on the advertising structures or in the display units. Broadcast revenue is recognized in the period in which the advertisements are aired. Payments from clients, which are received in excess of one month's advertising, are recorded as deferred revenue. Ticket payments are recorded as deferred revenue when received and recognized as revenue ratably as home basketball and soccer games are played. (d) Barter transactions - The Company engages in nonmonetary transactions in which it provides advertising in exchange for goods or services. The barter transactions are recorded at the estimated fair value of the asset or service received in accordance with Financial Standards Board Statement No. 29, "Accounting for Nonmonetary Transactions." Revenue is recognized when the advertising is provided and assets or expenses are recorded when assets are received or services used. Advertising provided for which goods or services have not yet been received is recorded in prepaid and other current assets. Goods and services received for which advertising has not yet been provided are recorded in other accrued liabilities. F-6 (e) Property and equipment - Property and equipment are carried on the basis of cost. Maintenance, repairs, and renewals, which neither materially add to the value of the property nor appreciably prolong its life, are charged to expense as incurred. When operating property and equipment are retired or sold, any funds received are credited to an asset pool with no gain or loss recognized, unless all assets in the pool are fully depreciated. Depreciation of property and equipment, including the cost of assets recorded under capital lease agreements, is provided on the straight-line and accelerated methods over the estimated useful lives of the assets or lease terms. (f) Intangible assets - Intangible assets are carried on the basis of cost and are amortized principally on the straight-line method over estimated useful lives, ranging from 1 to 40 years. Franchises are recorded at cost and represent the acquisition cost of the rights to operate display units in airports. Goodwill represents the cost of acquired businesses in excess of amounts assigned to certain tangible and intangible assets at the dates of acquisition. (g) Broadcast rights and obligations - Television films and syndication rights acquired under license agreements (broadcast rights) and the related obligations incurred are recorded as assets and liabilities at the time the rights are available for broadcasting based upon the gross amount of the contract. The capitalized costs are amortized on an accelerated basis over the contract period or the estimated number of showings, whichever results in the greater aggregate monthly amortization. Broadcast rights are carried at the lower of unamortized cost or net realizable value. The estimated cost of broadcast rights to be amortized during the next year has been classified as a current asset. (h) Deferred compensation - Certain player and other personnel contracts include deferred compensation provisions. The present value of such deferred compensation is recorded as an obligation and charged to operating expenses ratably over the contract period. (i) Stock based compensation - The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company has elected to account for stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations, and recognizes no compensation expense for the stock option grants. In management's opinion, the alternative fair value accounting method provided for under FASB No. 123, "Accounting for Stock-Based Compensation," does not necessarily provide a reliable single measure of the fair value of its employee stock options. The effect of valuing the stock option grants using FASB No. 123's method results in net income and earnings per share amounts that are not materially different from the reported amounts. (j) Stock split - In October, 1996, the Company declared a two-for-one stock split. All share, per share, and exercise price information has been restated to reflect the increase in stock shares and decrease in exercise price caused by the split. F-7 (k) Income per common share - Income per common share is calculated by dividing net income by the weighted average number of shares of common stock, Class B common stock, and if dilutive, common stock equivalents outstanding during the period. (l) Cash equivalents - The Company considers investments in highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. (m) Concentration of credit risk and financial instruments - The Company sells advertising to local and national companies throughout the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. The Company invests its excess cash in short-term investments with major banks. The Company has not experienced any losses on these investments. The carrying value of financial instruments, which include cash, receivables, payables, and long-term debt, approximates market value at December 31, 1996. The Company uses interest rate swap and cap agreements to modify the interest rate characteristics of its long-term debt and attempts to effectively maintain a portion of the debt with floating interest rates. These agreements generally involve the exchange of fixed or floating rate payment obligations without an exchange of the underlying principal amount. The differential to be paid or received is accrued as interest rates change and is recognized as an adjustment to interest expense related to the debt. The related amount payable to or receivable from counterparties is included in other current liabilities or assets. The fair values of the swap and cap agreements are not recognized in the financial statements. (n) Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (o) Reclassifications - Certain prior years' amounts have been reclassified to conform to the 1996 presentation. 2. Investment in radio partnership The Company entered into an agreement with Century Management, Inc., which resulted in the formation of New Century Seattle Partners, L.P. (the "Partnership") for the purpose of owning and operating the assets of this radio stations in the Seattle market. Upon the venture's approval by the Federal Communications Commission ("FCC") on July 14, 1994, the Company contributed the assets of two stations, with a book value of $5.5 million, to the Partnership. Also in July 1994, the Partnership purchased the assets of a third station for approximately $17.7 million financed by bank borrowings. F-8 Century Management, Inc. is the general partner of the Partnership and KJR Radio, Inc., a wholly owned subsidiary of the Company, is a limited partner in the Partnership. The following table summarizes on an unaudited, pro forma basis the consolidated results of operations of the Company for 1994 giving pro forma effect to the investment in New Century Seattle Partners, L.P. as if the investment had been made at the beginning of the years presented. These pro forma consolidated statements do not necessarily reflect the results of operations which would have occurred had such investment taken place on the date indicated. The result of the partnership's operations after the actual date of investment are included in the Company's financial statements. Minority interests are not material. (In thousands except per share amounts): 1994 ------ Net revenue $ 188,945 Operating expenses 182,762 Income before extraordinary items 8,282 Net income applicable to common shares 6,183 Net income per common share .20 3. Allowance for Doubtful Accounts The allowance for doubtful accounts is summarized as follows (in thousands): 1996 1995 1994 ------ ------ ------ Balance at beginning of year $ 1,163 $ 1,160 $ 941 Additions charged to operating expense 1,386 979 1,375 Write-offs of receivables, net of recoveries (1,123) (976) (1,156) ---------- ---------- ---------- Balance at end of year $ 1,426 $ 1,163 $ 1,160 ---------- ---------- ---------- ---------- ---------- ---------- 4. Current Assets and Current Liabilities At December 31, 1996 and 1995, prepaid and other current assets consist of the following (in thousands): 1996 1995 ------- ------ Prepaid assets $ 13,336 $ 7,421 Other current assets 3,509 2,002 ---------- --------- $ 16,845 $ 9,423 ---------- --------- ---------- --------- F-9 At December 31, 1996 and 1995, other accrued liabilities consist of the following (in thousands): 1996 1995 ------ ------ Accrued wages $ 3,969 $ 1,861 Other accrued liabilities 12,191 11,097 ----------- ---------- $ 16,160 $ 12,958 ----------- ---------- ----------- ---------- 5. Property and equipment At December 31, 1996 and 1995, property and equipment consisted of the following (in thousands): Estimated 1996 1995 useful life -------- -------- ------------ Land $ 6,976 $ 6,906 Advertising structures 82,325 76,904 9-15 years Broadcast equipment 52,712 49,635 10 years Building and improvements 33,264 29,959 20-40 years Office furniture and equipment 22,738 19,170 10 years Transportation and other equipment 9,238 9,964 5-15 years Equipment under capital leases 7,982 7,982 10 years -------- -------- 215,235 200,520 Less accumulated depreciation 127,099 119,152 -------- -------- $ 88,136 $ 81,368 -------- -------- -------- -------- 6. Intangibles At December 31, 1996 and 1995, intangibles consisted of the following (in thousands): Estimated 1996 1995 useful life -------- -------- ----------- Goodwill $ 48,923 $ 32,660 3-40 years Favorable leases and contracts 15,294 15,294 1-10 years Broadcasting licenses and agreements 7,083 7,083 1-10 years Other 4,250 4,302 1-30 years ------- -------- 75,550 59,339 Less accumulated amortization 33,694 27,927 ------- -------- $ 41,856 $ 31,412 ------- -------- ------- -------- F-10 Cost represents the net assets' appraised value or management's best estimate of the fair value at the dates of acquisition. During 1996, the majority of the additions to Intangible Assets came from two acquisitions: $4,482,000 from the Santa Rosa, California television station, and $11,274,000 from billboards and three land parcels in the Boston area. The Company does not consider the acquisitions' operating results to have a material impact on the Company's consolidated results. 7. Debt Long-term debt at December 31, 1996 and 1995 reflected the following (in thousands):
1996 1995 ------------- ------------ Credit Agreement $ 55,000 $ 35,000 Senior notes 120,000 120,000 Subordinated notes payable 35,000 35,000 Partnership debt 13,903 16,879 Capital lease obligation 7,268 7,982 Deferred employment compensation, net of imputed interest discount of $1,395 in 1996 and $955 in 1995 3,378 4,137 Other 592 1,149 ------------- ------------ 235,141 220,147 Less amounts classified as current 5,791 4,819 ------------- ------------ $ 229,350 $ 215,328 ------------- ------------ ------------- ------------
Aggregate annual payments of long-term debt during the next five years are as follows (in thousands): Credit Agreement Deferred And Subordinated Compensation Notes And Other ---------------- ---------------- 1997 $ 5,125 $ 740 1998 15,610 520 1999 29,406 963 2000 29,149 271 2001 19,414 594 F-11 Future minimum payments under the capitalized lease obligation are as follows (in thousands): Capitalized Lease ----------------- 1997 $ 1,237 1998 1,237 1999 1,237 2000 1,237 2001 1,237 Later years 2,937 ----------------- 9,122 Less amount representing interest 1,854 ----------------- Present value of lease payments 7,268 Less amount classified as current 750 ----------------- Long-term capitalized lease obligation $ 6,518 ----------------- ----------------- On September 30, 1996, the Company entered into an Amended and Restated Credit Agreement (the "Credit Agreement") with the senior bank lenders increasing the aggregate principal amount under the lending facility from $65.0 million to $77.5 million. Losses of $355,000 related to the amendment of Credit Agreement are reflected as an extraordinary item in the 1996 statement of operations. Losses of $2,099,000 related to refinancing the Company's senior bank debt in 1994 are reflected as an extraordinary item in 1994. At December 31, 1996, the Credit Agreement provided for borrowings up to $77.5 million from five banks which includes the availability of up to $7.5 million of a letter of credit facility. Usage of the letter of credit facility reduces total available borrowings. At December 31, 1996, $55.0 million of borrowings were outstanding, and $1.5 million of the letter of credit facility was utilized. Interest on borrowings is payable quarterly based on either the prime rate or LIBOR, at the discretion of the Company, plus a margin determined by the Company's total leverage ratio, as defined in the Credit Agreement. At December 31, 1996, interest on borrowings was payable at LIBOR (5.6875% at December 31, 1996) plus 2.00%. The fee on the letter of credit facility is payable quarterly at a rate determined by the Company's total leverage ratio. At December 31, 1996, the fee on the letter of credit facility was payable at 2.00%. Based on the balance outstanding, principal payments are due quarterly from March 31, 1998, through March 31, 2002. The Credit Agreement has certain restrictive covenants which require, among other things, that the Company maintain certain debt coverage ratios. In addition, the Company is restricted as to borrowings, the amount of dividend payments on common stock, stock repurchases, and sales of assets. The Company has $120 million borrowed at December 31, 1996 under senior secured notes, with an effective interest rate of 10.75%. Interest payments are due semiannually in April and October. All principal is due in a single payment of $120 million on October 1, 2003. The senior notes include certain restrictive covenants similar to the Credit Agreement mentioned above. All outstanding stock of the Company's subsidiaries is pledged as collateral for the Credit Agreement and senior notes. In addition, the F-12 Company and its subsidiaries are subject to restrictions on the transfer of assets by the Company's senior debt covenants. The Company has $35 million borrowed at December 31, 1996 from several insurance companies under various subordinated notes payable agreements, with effective interest rates ranging from 10.48% to 11.2%. Interest payments are due quarterly. Principal payments of $2.5 million, $12.5 million, $10 million, and $10 million are due in 1997 through 2000, respectively. The subordinated notes payable agreements include certain restrictive covenants similar to the Credit Agreement mentioned above. Partnership debt is related to the Company's interest in the New Century Seattle Partners, L.P., and includes the following: A senior term loan of $7,300,000 bearing interest at the election of the Partnership of either prime plus 1.25% or the Eurodollar rate plus 2.5%. Principal and interest is payable quarterly through September 30, 2000. The loan requires additional payments from excess cash flow, and includes certain penalties if repaid prior to July 15, 1997. A senior term loan of $1,000,000 due December 31, 2000 bearing interest at the election of the Partnership of either prime plus 3.75% or the Eurodollar rate plus 5.0%. Substantially all of the Partnership's assets are pledged as collateral for these senior term loans. Subordinated notes payable of $5,602,847 bearing interest at 18.0% per annum due July 7, 2001. The notes can be repaid without penalty after July 15, 1998. Miscellaneous contracts payable of $333,274. At December 31, 1996, the Company had outstanding an interest rate contract with a financial institution which involves the exchange of fixed for floating rate of LIBOR (5.625% at December 27, 1996) on a notional principal amount of $30 million. The Company's risk in this transaction is the cost of replacing, at current market rates, the contract in the event of default by the counterparty. At December 31, 1996, the fair value of the contract, as quoted by the counterparty, was $110,000. Management believes the risk of incurring a loss as a result of non-performance by the counterparty is remote as the contract is with a major financial institution. F-13 8. Income taxes At December 31, 1996, the Company has net operating loss carryforwards of approximately $59.5 million that expire in the years 2002 through 2007 and investment tax credit carryforwards of approximately $1.3 million that expire in the years 1997 through 2000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At December 31, 1996 and 1995 significant components of the Company's deferred tax liabilities and assets are as follows (in thousands): 1996 1995 ------ ------ Deferred tax liabilities: Tax over book depreciation $ 8,701 $ 8,265 Prepaid play compensation 4,457 0 Total deferred tax liabilities 13,158 8,265 Deferred tax assets: Net operating loss carryforwards 22,752 25,793 Book over tax amortization 5,210 1,990 Tax credit carryforwards 951 2,116 Deferred compensation agreements 1,293 1,582 Litigation accrual 5,067 5,432 Deferred NBA expansion revenue 1,958 3,166 Other 3,129 2,657 ---------- ---------- Total deferred tax assets 40,360 42,736 Valuation allowance for deferred tax assets (27,202) (34,471) ---------- ---------- Net deferred tax assets 13,158 8,265 ---------- ---------- Net deferred taxes $ 0 $ 0 ---------- ---------- ---------- ---------- Significant components of the provision for income taxes attributable to continuing operations are as follows (in thousands): 1996 1995 1994 ---- ---- ---- Current: Federal $ 1,561 $ 422 $ 68 State 1,197 1,093 5 ------- ------ ----- Provision for income taxes $ 2,758 $1,515 $ 73 ------- ------ ----- ------- ------ ----- At December 31, 1996, 1995, and 1994 the reconciliation of income taxes attributable to continuing operations computed at the U.S. federal statutory tax rate to income tax expense is as follows (in thousands): F-14 1996 1995 1994 ---- ---- ---- Tax at U.S. statutory rate (34%) $ 6,422 $ (476) $ 2,348 State income taxes and other 1,732 1,569 283 Net operating loss carryforwards (7,004) --- (2,626) Alternative minimum tax 1,608 422 68 --------- --------- --------- Provision for income taxes $ 2,758 $ 1,515 $ 73 --------- --------- --------- --------- --------- --------- The Company made income tax payments of $2,157,000 in 1996, $538,000 in 1995, and $1,302,000 in 1994. 9. Employee benefit plan The Company has a voluntary defined contribution 401(k) savings and retirement plan for the benefit of its nonunion employees, who may contribute from 2% to 15% of their compensation. This amount, plus a matching amount up to 4% provided by the Company, is contributed to the plan ($1,058,000 in 1996, $831,000 in 1995, and $700,000 in 1994). The Company may also make an additional voluntary contribution to the plan. 10. Stockholders' deficiency On September 19, 1996, the Board of Directors declared an increase of all classes of its common stock which the Company is authorized to issue from 56,972,230 shares to 61,406,510 shares. In conjunction with this increase, the Board also declared a two-for-one stock split effective October 15 for stockholders of record on October 4. The stock split resulted in the issuance of 15,582,794 additional shares. The Class B common stock has the same rights as common stock, except that the Class B common stock has ten times the voting rights of common stock and is restricted as to its transfer. The Class B common stock may be converted into common stock at any time at the option of the stockholder. Giving effect to the stock split in 1996, the amount of authorized shares of Class B on December 31, 1995 was 11,784,222 shares. Between January and June 1981, the Company agreed to sell shares of its common stock and Class B common stock to key employees and officers at fair market value at the time the agreements were executed. The stock is issued upon payment to the Company of the agreed purchase price. At December 31, 1995 and 1996, rights to purchase 52,500 shares of common stock and Class B common stock were outstanding at $2.00 per share (an aggregate of $105,000). In 1995, rights to purchase 82,500 shares of common and 82,500 shares of Class B common were exercised at an average price of $0.9287 per share. No rights were exercised in 1996. The Company's Employee Stock Option Plan (the "Plan") was approved by the Board of Directors and the stockholders of the Company in 1983. In 1994, the F-15 Plan was amended to extend the term of the plan and to increase the amount of common stock reserved for issuance to 1,000,000 shares. In connection with the Class B common stock dividend in June 1987, the Company amended the Plan to provide for the distribution of one share of Class B common stock for each share of common stock subject to outstanding options under the Plan on such date, which distribution occurs at the time an optionee exercises an option. At December 31, 1996, options to purchase 658,000 shares of common stock were outstanding under the Plan at prices ranging from $0.688 to $7.625 (an aggregate of $1,947,725). Options to purchase 690,000 of common stock were outstanding at December 31, 1995. Options to purchase 20,000 shares of common stock were exercisable at December 31, 1995. No options were exercisable at December 31, 1996. Options to purchase 32,000 shares of common stock were exercised in 1996 at an average price of $3.22 per share. Options to purchase 20,000 shares of common stock and 20,000 shares of Class B common stock were exercised in 1995 at a price of $2.25 per share. 11. Commitments and contingencies The Company becomes involved from time to time in various claims and lawsuits incidental to the ordinary course of its operations, including such matters as contract and lease disputes and complaints alleging employment discrimination. In addition, the Company participates in various governmental and administrative proceedings relating to, among other things, condemnation of outdoor advertising structures without payment of just compensation, disputes regarding airport franchises and matters affecting the operation of broadcasting facilities. Other than as indicated above, the Company believes that the outcome of any such pending claims or proceedings, individually or in the aggregate, will not have a material adverse effect upon its business or financial condition. The Company incurred expenses of $457,000 in 1996, $290,000 in 1995, and $288,000 in 1994, for legal services provided by a law firm, one of whose partners is an officer of the Company. The Company has incurred transportation costs of $2,041,000 and made advance payments of $38,000 at December 31, 1996, to a company controlled by the Company's major stockholder. The Company has employment contracts extending beyond December 31, 1996. Most of these contracts require that payments continue to be made if the F-16 individual should be unable to perform because of death or disability. Future minimum obligations under these contracts are as follows (in thousands): 1997 $ 29,121 1998 32,015 1999 23,418 2000 22,726 2001 22,487 Later years 44,350 ------------- $ 174,117 ------------- ------------- The Company is required to make the following minimum operating lease payments for equipment and facilities under non-cancelable lease agreements, guaranteed display advertising franchises, and broadcasting obligations which expire in more than one year as follows (in thousands):
Equipment/Facilities Franchises Broadcast Obligations --------------------- ----------- ---------------------- 1997 $ 4,675 $ 11,937 $ 5,363 1998 4,297 7,325 2,384 1999 3,819 5,087 1,105 2000 3,133 4,252 285 2001 2,876 2,624 133 Later years 13,864 704 0 ---------- --------- --------- $ 32,664 $ 31,929 $ 9,270 ---------- --------- --------- ---------- --------- ---------
Rent expense for operating leases aggregated $4,513,000 in 1996, $3,167,000 in 1995, and $2,609,000 in 1994. Franchise fee expense aggregated $16,116,000 in 1996, $17,236,000 in 1995, and $17,551,000 in 1994. Broadcasting film and programming expense aggregated $8,205,000 in 1996, $6,679,000 in 1995, and $7,507,000 in 1994. At December 31, 1996, in conjunction with a time brokerage agreement with a FCC licensee, the Company has guaranteed a bank loan obligation of the licensee which had an aggregate principal amount of $4,825,000 maturing in April 1999. The Company began making payment under this guarantee in January 1997. No revenue is being recognized as part of this guarantee agreement. 12. Litigation accrual The Company and two of its executive officers were defendants in a wrongful termination suit brought by former employees. On February 29, 1996, a jury issued a verdict awarding the plaintiffs compensatory and punitive damages of approximately $13.0 million. The Company recorded an accrual of $14.2 million related to the verdict which also included an estimate for F-17 additional legal costs. The verdict is currently under appeal. The appeal will likely defer settlement of the liability beyond 1997, and therefore, it is classified as non-current. 13. Supplement Cash Flow Information The following table summarizes the change in operating assets and liabilities (in thousands):
1996 1995 1994 ---- ---- ---- Accounts receivable $ (164) $ (1,037) $ (6,691) Other current assets (7,422) 965 315 Accounts payable and accruals 3,937 818 (2,821) Accrued interest 331 (1,171) 820 Deferred revenue 1,781 4,574 2,191 Other, net (4,866) 2,932 754 ----------- ---------- ------------ Changes in operating assets and liabilities, net $ (6,403) $ 7,081 $ (5,432) ----------- ---------- ------------ ----------- ---------- ------------
14. Industry segment information The Company is engaged in three business segments: Out-of-home media, Broadcasting, and Other. Selected financial information for these segments for the years ended December 31, 1996, 1995 and 1994 is presented as follows (in thousands):
Out-of-home Broad- media casting Other Consolidated ----------- ------------- ----------- ------------- 1996 - ---- Net revenue $ 99,833 $ 118,171 $ 29,294 $ 247,298 ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- Operating cash flow before expenses listed below: $ 35,909 $ 48,880 $ (24,446) 60,344 Depreciation and amortization (5,615) (10,273) (1,107) (16,996) ----------- ------------- ----------- ------------- Income (loss) before expenses listed below: $ 30,294 $ 38,607 $ (25,553) 43,348 ----------- ------------- ----------- ----------- ------------- ----------- Interest expenses 24,461 ------------- Income before taxes and extraordinary item $ 18,887 ------------- ------------- Identifiable assets $ 67,918 $ 124,656 $ 32,238 $ 224,912 ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- Capital expenditures, net of proceeds from retirements and disposals $ 4,590 $ 5,214 $ 1,846 $ 11,650 ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- 1995 - ---- Net revenue $ 93,177 $ 94,108 $ 20,112 $ 207,397 ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- Operating cash flow before expenses listed below: $ 31,978 $ 39,507 $ (20,431) $ 51,054 Depreciation and amortization (5,226) (7,223) (794) (13,243) ----------- ------------- ----------- ------------- Income (loss) before expenses listed below: $ 26,752 $ 32,284 $ (21,225) 37,811 ----------- ------------- ----------- ----------- ------------- ----------- Litigation expense 14,200 Interest expenses 25,010 ------------- Income before taxes and extraordinary item $ (1,399) ------------- ------------- Identifiable assets $ 53,281 $ 112,430 $ 24,171 $ 189,882 ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- Capital expenditures, net of proceeds from retirements and disposals $ 2,631 $ 19,098 $ 873 $ 22,602 ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
F-18
Out-of-home Broad- media casting Other Consolidated ----------- ------------- ----------- ------------- 1994 - ---- Net revenue $ 85,436 $ 83,463 $ 17,203 $ 186,102 ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- Operating cash flow before gain expenses listed below: $ 27,028 $ 33,561 $ (17,299) 43,290 Disposition of assets --- 2,506 --- 2,506 Depreciation and amortization (5,297) (4,954) (632) (10,883) ----------- ------------- ----------- ------------- Income (loss) before expenses listed below: $ 21,731 $ 31,113 $ (17,931) 34,913 ----------- ------------- ----------- ----------- ------------- ----------- Interest expenses 25,909 ------------- Income before taxes and extraordinary item $ 9,004 ------------- ------------- Identifiable assets $ 54,291 $ 86,952 $ 29,540 $ 170,783 ----------- ------------- ----------- ------------- ----------- ------------- ----------- ------------- Capital expenditures, net of proceeds from retirements and disposals $ 2,709 $ 2,036 $ 3,990 $ 8,735 ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
The Other segment consists of basketball operations (other than the basketball team's TV, radio, and related operations which are included in the "Broadcasting" segment), soccer operations, and the Corporate office in 1996, 1995, and 1994. Net revenue for the Other segment consists principally of revenues from the sports ticket sales. 15. Summary of quarterly financial data (unaudited) The Company's results of operations may vary from quarter to quarter due in part to the timing of acquisitions and to seasonal variations in the operations of the broadcasting segment. In particular, the Company's net revenue and operating cash flow historically have been affected positively during the NBA basketball season (the first, second, and fourth quarters) and by increased advertising activity in the second and fourth quarters. The following table sets forth a summary of the quarterly results of operations for the years ended December 31, 1996 and 1995 (in thousands, except per share information):
First Second Third Fourth 1996 Quarter Quarter Quarter Quarter - ---- ---------- ---------- ----------- ----------- Net revenue $62,927 $68,235 $45,842 $70,294 Operating cash flow before depreciation, amortization, and interest expense 12,674 19,986 11,255 16,428 Income before extraordinary item 3,123 9,147 379 3,480 Extraordinary loss --- --- --- 355 Net income Net income per share before extraordinary item 3,123 9,147 379 3,125 Net income per share .10 .29 .01 .11 .10 .29 .01 .10
F-19
1995 - ---- Net revenue $56,791 $49,404 $40,548 $60,654 Operating cash flow before depreciation, amortization, litigation, and interest expense 9,480 13,947 10,199 17,428 Net income (loss) 434 3,689 1,079 *(8,116) Net income (loss) per share .01 .12 .03 (.25) ___________ * Reflects litigation accrual discussed in Note 12.
F-20 EX-23 2 EX-23 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Forms S-8, Nos. 33-22545 and 33-88020) pertaining to the Employee Stock Option Plan of The Ackerley Group, Inc. and in the Registration Statement (Form S-8, No. 33-61163) pertaining to the William N. Barkell Stock Purchase Agreement, Doneld E. Carter Stock Purchase Agreements, and Eric M. Rubin Stock Purchase Agreement of our report dated February 28, 1997, with respect to the consolidated financial statements of The Ackerley Group, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. ERNST & YOUNG, L.L.P. /s/ Ernst & Young, L.L.P. Seattle, Washington March 26, 1997 EX-24 3 EX-24 EXHIBIT 24 POWER OF ATTORNEY The undersigned Director of The Ackerley Group, Inc. ("Company") hereby appoints each of Barry A. Ackerley and Denis M. Curley her true and lawful attorney and agent, in name and on behalf of the undersigned, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to cause the 1996 Annual Report on Form 10-K to be filed with the Securities and Exchange Commission, and likewise to sign any and all amendments (the signing of any such instrument to be conclusive evidence that the attorney considers such instrument necessary or desirable), without the other and with full power of substitution and revocation, and hereby ratifying all that any such attorney or his substitute may do by virtue hereby. Pursuant to the requirements of the Securities and Exchange Act of 1934, this Power of Attorney has been signed by the following person in the capacity indicated on this 12th day of March, 1997. /s/ Gail A. Ackerley --------------------------------- Gail A. Ackerley Director POWER OF ATTORNEY The undersigned Director of The Ackerley Group, Inc. ("Company") hereby appoints each of Barry A. Ackerley and Denis M. Curley his true and lawful attorney and agent, in name and on behalf of the undersigned, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to cause the 1996 Annual Report on Form 10-K to be filed with the Securities and Exchange Commission, and likewise to sign any and all amendments (the signing of any such instrument to be conclusive evidence that the attorney considers such instrument necessary or desirable), without the other and with full power of substitution and revocation, and hereby ratifying all that any such attorney or his substitute may do by virtue hereby. Pursuant to the requirements of the Securities and Exchange Act of 1934, this Power of Attorney has been signed by the following person in the capacity indicated on this 12th day of March, 1997. /s/ Richard P. Cooley -------------------------------- Richard P. Cooley Director POWER OF ATTORNEY The undersigned Director of The Ackerley Group, Inc. ("Company") hereby appoints each of Barry A. Ackerley and Denis M. Curley his true and lawful attorney and agent, in name and on behalf of the undersigned, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to cause the 1996 Annual Report on Form 10-K to be filed with the Securities and Exchange Commission, and likewise to sign any and all amendments (the signing of any such instrument to be conclusive evidence that the attorney considers such instrument necessary or desirable), without the other and with full power of substitution and revocation, and hereby ratifying all that any such attorney or his substitute may do by virtue hereby. Pursuant to the requirements of the Securities and Exchange Act of 1934, this Power of Attorney has been signed by the following person in the capacity indicated on this 12th day of March, 1997. /s/ M. Ian G. Gilchrist --------------------------------- M. Ian G. Gilchrist Director POWER OF ATTORNEY The undersigned Director of The Ackerley Group, Inc. ("Company") hereby appoints each of Barry A. Ackerley and Denis M. Curley his true and lawful attorney and agent, in name and on behalf of the undersigned, to do any and all acts and things and execute any and all instruments which the attorney and agent may deem necessary or advisable to cause the 1996 Annual Report on Form 10-K to be filed with the Securities and Exchange Commission, and likewise to sign any and all amendments (the signing of any such instrument to be conclusive evidence that the attorney considers such instrument necessary or desirable), without the other and with full power of substitution and revocation, and hereby ratifying all that any such attorney or his substitute may do by virtue hereby. Pursuant to the requirements of the Securities and Exchange Act of 1934, this Power of Attorney has been signed by the following person in the capacity indicated on this 12th day of March, 1997. /s/ Michel C. Thielen ------------------------------- Michel C. Thielen Director EX-27 4 EXHIBIT 27
5 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 2,910 0 45,180 1,426 0 69,165 215,235 127,099 224,912 58,011 0 326 0 0 (84,165) 224,912 0 247,298 0 186,954 41,457 1,386 24,461 18,887 2,758 0 0 (355) 0 15,774 .50 .50
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