-----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, GQM3cw8AzAvXviKZfXrIIEufoy2KxjT1bmU0GwyaoEPTk4QV5NKXAj1KXkDm6K5r zBq78PExaPCW5Ksg2BUgwA== 0000912057-97-013394.txt : 19970418 0000912057-97-013394.hdr.sgml : 19970418 ACCESSION NUMBER: 0000912057-97-013394 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970417 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10321 FILM NUMBER: 97582851 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/A 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A /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 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 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 17th day of April, 1997. THE ACKERLEY GROUP, INC. By: /s/ Keith W. Ritzmann ------------------------- Keith W. Ritzmann Vice President and Controller 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 $ 235,820 $ 211,728 Less Agency commissions and discounts 32,364 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 18,887 (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 --- --- --- 15,774 --- -------- ------- --------- ------------- ----------- 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 player 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 $ (24,445) 60,344 Depreciation and amortization (5,615) (10,273) (1,108) (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 ----------- ------------- ----------- ------------- ----------- ------------- ----------- -------------
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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
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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.
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