<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8 - K/A
------------
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): July 3, 1998
STC BROADCASTING, INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
- -------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
333-29555 75-2676358
- -------------------------------------- -------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
3839 4th Street North
Suite 420
St. Petersburg, Florida 33703
- ------------------------------------------- ---------------------------------
(Address of Principal Executive Offices) (Zip Code)
(727) 821-7900
- -------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
===============================================================================
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
In a series of transactions, the Company acquired certain assets from
Hearst-Argyle Stations, Inc. ("Hearst") structured as a Section 1031 tax
deferred exchange of assets (the "Hearst Transaction"). On February 3, 1998, the
Company agreed to acquire WPTZ-TV ("WPTZ"), WNNE-TV ("WNNE"), and a local
marketing agreement ("LMA") with WFFF-TV ("WFFF") from Sinclair Broadcast Group,
Inc. ("Sinclair") for $72.0 million, with the intention of using these assets in
the Hearst Transaction. WPTZ and WNNE are the NBC affiliates and WFFF is the Fox
affiliate serving the Burlington, Vermont, and Plattsburgh, New York, television
market. On February 18, 1998, the Company entered into an asset exchange
agreement with Hearst whereby the Company would transfer to Hearst KSBW-TV, the
NBC affiliate for Salinas, California, WPTZ, and WNNE in exchange for receiving
WDTN-TV, the ABC affiliate in Dayton, Ohio, WNAC-TV, the Fox affiliate in
Providence, Rhode Island, WNAC-TV's interest in a Joint Marketing Programming
Agreement with WPRI-TV, the CBS affiliate in Providence, Rhode Island, and
approximately $22.0 million in cash.
On April 24, 1998, the Company completed a purchase of the non-license
assets of WPTZ, WNNE and WFFF for $70.0 million. Funds to complete the
acquisition were provided by Hearst, and the assets acquired were pledged to
Hearst under a related loan agreement. The exchange was recorded by the Company
and Hearst effective June 1, 1998. On July 1, 1998, the FCC approved the
transactions and on July 3, 1998, the Company, Hearst and Sinclair closed the
transactions. The Company received a capital contribution of $10.4 million from
Sunrise Television Corp. and entered into a new senior credit agreement
providing for a $100.0 million term loan and a $40.0 million revolver. On July
2, 1998, the Company borrowed $70.0 million under the term loan portion and $2.5
million under the revolver portion of the new senior credit agreement. The $10.4
million capital contribution and the $72.5 million of borrowed funds were used
to pay off the approximate $50.2 million net payable to Hearst, $2.0 million
due Sinclair, $24.5 million under the old senior credit agreement, and the
remainder was used to pay transaction fees and working capital needs.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
1. WDTN-TV, a division of Hearst-Argyle Stations, Inc.
- Report of Independent Certified Public Accountants.
- Statements of Assets and Liabilities as of December
31,1997 and 1996.
- Statements of Operations for the years ended December 31,
1997 and 1996.
- Statements of Cash Flows for the years ended December 31,
1997 and 1996.
- Notes to financial statements.
2. WNAC-TV, a division of Hearst-Argyle Stations, Inc.
- Report of Independent Certified Public Accountants.
- Statements of Assets and Liabilities as of May 31, 1998.
- Balance Sheet as of August 31, 1997.
- Statement of Operations for the nine months ended May 31, 1998.
- Statement of Operations and Stockholder's Deficit for the
twelve months ended August 31, 1997.
- Statement of Cash Flows for the nine months ended May 31,
1998.
- Statement of Cash flows for the twelve months ended
August 31, 1997.
- Notes to financial statements.
(b) Pro Forma Financial Information.
- Balance Sheet at June 30, 1998.
- Notes to Balance Sheet.
- Statement of Operations for the year ended December 31, 1997.
- Notes to Statement of Operations.
- Statement of Operations for the six months ended June 30, 1998.
- Notes to Statement of Operations.
- Additional Unaudited Pro Forma Information.
(c) Exhibits.
2.1 Asset Purchase Agreement dated as of February 3, 1998, by and among
Tuscaloosa Broadcasting, Inc. as seller and STC Broadcasting of
Vermont, Inc. as buyer. (Incorporated by reference to the Company's
Form 10-K filed for year ended December 31, 1997.)
2.2 Asset Exchange Agreement dated as of February 18, 1998, by and among
STC Broadcasting, Inc., STC Broadcasting of Vermont, Inc., STC License
Company, STC Broadcasting of Vermont Subsidiary, Inc., and
Hearst-Argyle Stations, Inc. (Incorporated by reference to the
Company's Form 10-K filed for year ended December 31, 1997.)
2
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
STC BROADCASTING, INC.
Date: September 15, 1998 By: /S/ DAVID A. FITZ
--------------------------
David A. Fitz
Senior Vice President and
Chief Financial Officer
3
<PAGE> 5
STC BROADCASTING, INC. AND SUBSIDIARIES
FORM 8-K/A
Item 7
Financial Statement Index
<TABLE>
<S> <C> <C>
(A) Financial Statements of Business Acquired
WDTN-TV, a division of Hearst-Argyle Stations, Inc. F-2
Report of Independent Certified Public Accountants. F-3
Statements of Assets and Liabilities as of December 31,1997 and 1996. F-3 - F-4
Statements of Operations for the years ended December 31, 1997 and 1996. F-5
Statements of Cash Flows for the years ended December 31, 1997 and 1996. F-6
Notes to financial statements. F-7 - F-13
WNAC-TV, a division of Hearst-Argyle Stations, Inc. F-14
Report of Independent Certified Public Accountants. F-15
Statements of Assets and Liabilities as of May 31, 1998. F-16
Balance Sheet as of August 31, 1997. F-16
Statement of Operations for the nine months ended May 31, 1998. F-17
Statement of Operations and Stockholder's Deficit for the twelve months
ended August 31, 1997. F-17
Statement of Cash Flows for the nine months ended May 31, 1998. F-18
Statement of Cash Flows for the twelve months ended August 31, 1997. F-18
Notes to financial statements. F-19 - F-26
(B) Pro Forma Financial Information
Pro Forma Financial Information. F-27 - F-28
Balance Sheet at June 30, 1998. F-29
Notes to Balance Sheet. F-30
Statement of Operations for the year ended December 31, 1997. F-31
Notes to Statement of Operations. F-32
Statement of Operations for the six months ended June 30, 1998. F-33
Notes to Statement of Operations. F-34
Additional Unaudited Pro Forma Information F-35 - F-36
</TABLE>
F-1
<PAGE> 6
7(a) 1.
WDTN-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996,
TOGETHER WITH REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
F-2
<PAGE> 7
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Hearst-Argyle Stations, Inc.:
We have audited the accompanying statements of assets and liabilities of
WDTN-TV, a division of Hearst-Argyle Stations, Inc. (formerly a division of the
Hearst Broadcast Group of The Hearst Corporation), as of December 31, 1997 and
1996, and the related statements of operations and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of WDTN-TV as of December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
March 20, 1998 (except with respect to
the matters discussed in Note 11, as
to which the date is June 1, 1998)
F-3
<PAGE> 8
WDTN-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 433,108 $ 188,232
Accounts receivable, net of allowance of approximately $102,000 and
$85,000 for doubtful accounts in 1997 and 1996, respectively
3,810,946 3,836,556
Program rights 2,156,369 1,972,553
Other current assets 199,784 209,418
----------- -----------
Total current assets 6,600,207 6,206,759
PROPERTY AND EQUIPMENT, net 4,362,968 4,609,927
INTANGIBLE ASSETS, net 6,257,928 6,707,873
----------- -----------
Total assets $17,221,103 $17,524,559
============ ===========
LIABILITIES
-----------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,525,455 $ 2,212,361
Program rights payable 2,159,418 2,042,807
----------- -----------
Total current liabilities 3,684,873 4,255,168
COMMITMENTS AND CONTINGENCIES
PAYABLE TO PARENT 13,536,230 13,269,391
----------- -----------
Total liabilities $17,221,103 $17,524,559
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 9
WDTN-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
REVENUES:
Broadcasting revenues, net of agency and national representative
commissions of approximately $3,025,000 and $3,075,000 for 1997 and
1996, respectively $ 16,438,825 $ 16,791,583
Network compensation 2,000,000 2,000,000
Trade and barter 332,412 244,257
Other 144,762 236,544
------------ ------------
Total revenues 18,915,999 19,272,384
------------ ------------
OPERATING EXPENSES:
Station operating 7,161,143 7,884,057
General and administrative 2,274,168 2,684,649
Trade and barter 285,369 247,053
Depreciation of property and equipment 913,151 959,888
Amortization of intangible assets 449,945 409,265
Amortization of program rights 2,949,496 3,181,028
Corporate overhead 399,997 354,502
------------ ------------
Total operating expenses 14,433,269 15,720,442
------------ ------------
OPERATING INCOME 4,482,730 3,551,942
OTHER EXPENSE (1,342,633) (1,268,781)
------------ ------------
INCOME BEFORE INCOME TAX PROVISION 3,140,097 2,283,161
INCOME TAX PROVISION 1,352,000 998,000
------------ ------------
NET INCOME $ 1,788,097 $ 1,285,161
============ ============
TRANSFERS TO PARENT $ (1,788,097) $ (1,285,161)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 10
WDTN-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,788,097 $ 1,285,161
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation of property and equipment 913,151 959,888
Amortization of intangible assets 449,945 409,265
Amortization of program rights 2,949,496 3,181,028
Payments on program rights payable (3,016,701) (3,172,824)
Loss on sale of property and equipment 87,576 -
Changes in operating assets and liabilities-
Accounts receivable 25,610 1,184,270
Other assets 9,634 91,362
Accounts payable and accrued expenses (686,906) 426,495
----------- -----------
Net cash provided by operating activities 2,519,902 4,364,645
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (753,768) (1,080,001)
----------- -----------
Net cash used in investing activities (753,768) (1,080,001)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net transfers to parent (1,521,258) (3,343,711)
----------- -----------
Net cash used in financing activities (1,521,258) (3,343,711)
----------- -----------
NET INCREASE (DECREASE) IN CASH 244,876 (59,067)
CASH, beginning of year 188,232 247,299
----------- -----------
CASH, end of year $ 433,108 $ 188,232
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 11
WDTN-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION AND NATURE OF OPERATIONS:
WDTN-TV (the Station) has been a division of Hearst-Argyle Stations, Inc.
(Hearst-Argyle or the Parent) since September 1, 1997, when the Hearst Broadcast
Group of The Hearst Corporation (the Previous Parent) merged with Argyle
Television, Inc. The Station operates a commercial television station in the
Dayton, Ohio, designated market area. The Station has a network affiliation with
American Broadcasting Company through August 2004.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements have been prepared from the books and
records maintained by the Station and those of the Parent and the Previous
Parent. The statements of operations include allocations for corporate services.
Management of the Station considers the allocation methods used to be
reasonable.
Concentration of Risk and Accounts Receivable
The Station serves the Dayton and Springfield, Ohio, demographic areas.
Accordingly, the revenue potential of the Station is dependent on the economy in
these areas. The Station monitors its accounts receivable through continuing
credit evaluations. Historically, the Station has not had significant
uncollectable accounts.
Program Rights
Program rights and the corresponding contractual obligations are recorded when
the license period begins and the programs are available for use. Program rights
are carried at the lower of unamortized cost or estimated net realizable value
evaluated on a program-by-program basis. Any reduction in unamortized costs to
net realizable value is included in amortization of program rights in the
accompanying statements of operations. Such reductions in unamortized costs for
the years ended 1997 and 1996 were not material. Costs of programming are
amortized on the future number of showings on an accelerated basis contemplating
the estimated revenue to be earned per showing, but generally not exceeding five
years. Program rights and the corresponding contractual obligations are
classified as current or long-term based on estimated usage and payment terms,
respectively.
F-7
<PAGE> 12
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Buildings and improvements 10 - 40
Broadcast equipment 3 - 15
Furniture and computers 3 - 8
</TABLE>
Expenditures for maintenance and minor repairs are charged to operations as
incurred.
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount should be addressed. The Station
has determined that there has been no impairment in the carrying value of
long-lived assets as of December 31, 1997.
Trade and Barter Transactions
Trade transactions represent the exchange of commercial air time for merchandise
or services. Barter transactions represent the exchange of commercial air time
for programming. Trade transactions are generally recorded at the fair market
value of the merchandise or services received. Barter transactions are generally
recorded at the fair market value of the commercial air time relinquished.
Barter program rights and payables are recorded for barter transactions based
upon the availability of the programming for broadcast. Revenue is recognized on
barter and trade transactions when the commercials are broadcast, and expenses
are recorded when the program, merchandise or service received is utilized.
Income Taxes
Hearst-Argyle and the Previous Parent (collectively, the Company) file a
consolidated federal income tax return and state and local income tax returns
for each applicable state and local government.
F-8
<PAGE> 13
The accompanying financial statements have been prepared in accordance with the
separate return method of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," whereby the allocation of the consolidated
federal, state and local tax provision is based on what the Station's total
federal, state and local tax provision would have been had the Station filed
income tax returns outside its consolidated group. Given that the Company is
ultimately responsible for the Station's tax liability, the total income tax
liability is recorded as an increase in the payable to Parent in the
accompanying statements of assets and liabilities. Accordingly, the Station has
no deferred income taxes reported on the accompanying statements of assets and
liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land $ 265,605 $ 265,605
Buildings and improvements 3,020,741 2,566,579
Broadcast equipment 12,867,140 13,036,088
Furniture and computers 1,344,053 1,077,997
------------ ------------
17,497,539 16,946,269
Less- Accumulated depreciation (13,134,571) (12,336,342)
------------ ------------
$ 4,362,968 $ 4,609,927
============ ============
</TABLE>
F-9
<PAGE> 14
4. INTANGIBLE ASSETS:
Intangible assets are recorded at cost and are being amortized over a period of
35 to 40 years using the straight-line method. Intangible assets consisted of
the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Network affiliate agreement $ 2,729,671 $ 2,729,671
Premium population base 5,763,100 5,763,100
Goodwill 6,864,257 6,864,257
Other - 20,340
------------ ------------
15,357,028 15,377,368
Less- Accumulated amortization (9,099,100) (8,669,495)
------------ ------------
$ 6,257,928 $ 6,707,873
============ ============
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consisted of the following as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accounts payable $ 130,874 $ 230,673
Accrued payroll, commissions and bonuses 730,944 639,192
Accrued employee benefits 215,097 161,547
Accrued taxes 151,362 152,792
Accrued construction costs - 292,390
Other 297,178 735,767
---------- ----------
$1,525,455 $2,212,361
========== ==========
</TABLE>
6. OTHER EXPENSE:
Other expense for the years ended December 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Interest expense $1,255,057 $1,268,781
Loss on sale of property and equipment 87,576 -
---------- ----------
$1,342,633 $1,268,781
========== ==========
</TABLE>
F-10
<PAGE> 15
Subsequent to the Hearst-Argyle merger (the Merger), interest expense was
allocated to the divisions of Hearst-Argyle to represent a reasonable charge
for the allocation of debt incurred to facilitate the merger. Prior to the
Merger, the Previous Parent allocated interest expense to the Station based on
the average balance of the payable to parent account at an interest rate of 8
percent per annum. The payable to parent balances as of December 31, 1997 and
1996, represent the net position of intercompany charges between the Company
and the Station. The Company has not stipulated repayment terms of the payable
to parent balance as of December 31, 1997, for the next five years or
thereafter.
7. INCOME TAXES:
The following table reflects the income tax provision that the Station would
have recorded if it had filed tax returns as a separate legal entity for the
years ended December 31, 1997 and 1996, respectively:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Federal $ 983,000 $ 722,000
State and local 369,000 276,000
----------- ---------
Income tax provision $ 1,352,000 $ 998,000
=========== =========
</TABLE>
The tax effects of all temporary differences between the Station's financial
statement and income tax bases of assets and liabilities are paid to or are
received from the Company. There were no significant temporary differences
during the years ended December 31, 1997 and 1996.
The total income tax provision differs from the amounts computed by applying
the federal statutory rate of 34 percent to income before taxes as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Tax expense at the statutory rate $ 1,068,000 $ 776,000
State and local income tax expense,
net of federal benefit 228,000 166,000
Non-deductible goodwill amortization 73,000 73,000
Other (17,000) (17,000)
----------- ---------
Income tax provision $ 1,352,000 $ 998,000
=========== =========
</TABLE>
F-11
<PAGE> 16
8. COMMITMENTS AND CONTINGENCIES:
The Station is involved in claims and actions arising in the ordinary course of
business. In the opinion of management, after consultation with legal counsel,
the ultimate disposition of these matters is not expected to have a material
adverse effect on the operations of the Station.
9. RELATED-PARTY TRANSACTIONS:
The Station's financial information is included in the consolidated financial
statements of the Company. Certain management services are provided to the
Station by the Company. Such services include data processing, legal, tax,
treasury, internal audit, risk management, and other support services. Allocated
expenses are based on the Company's estimate of expenses related to the services
provided to the Station in relation to those provided to other divisions or
subsidiaries of the Company. Management believes that these allocations were
made on a reasonable basis. The Station was allocated expenses for the years
ended December 31, 1997 and 1996, of approximately $561,000 and $513,000,
respectively. Of these amounts, approximately $400,000 and $355,000 were
attributable to corporate overhead for the years ended December 31, 1997 and
1996, respectively, and are shown separately in the accompanying statements of
operations.
10. EMPLOYEE BENEFITS:
Substantially all employees of the Station are covered under a qualified
profit-sharing plan (the Plan) administered by the Company, which includes a
thrift provision qualifying under Internal Revenue Code Section 401(k). The
provision allows the participants to contribute up to 16 percent of their
pre-tax compensation in the plan year, subject to statutory limitations. The
Plan covers substantially all employees of the Station who meet certain minimum
age or service requirements. Contributions from the Station are made in an
amount equal to 50 percent of the participating employee contributions, to the
extent such contributions do not exceed 3 percent of the employees' compensation
for the plan year. Amounts contributed by the Station under the Plan were
approximately $73,000 and $70,000 for 1997 and 1996, respectively, and are
included in general and administrative expenses in the accompanying statements
of operations.
The Company has a non-contributory, defined benefit pension plan (the Pension
Plan) covering principally all full-time and part-time employees of the Station.
An allocation of net pension expense charged to the Station under the Pension
Plan was approximately $120,000 and $215,000 for 1997 and 1996, respectively,
and is included in general and administrative expenses in the accompanying
statements of operations.
F-12
<PAGE> 17
The Station's pension benefits are based on a formula which takes into
consideration an employee's compensation and years of service. The Station's
funding policy is to make annual contributions to the Pension Plan based upon
the funding standards developed by the Pension Plan's actuary. The Station's
contributions for 1997 and 1996 at least equaled the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. The Station
also participates in other benefit programs offered by the Company such as a
group life insurance plan and a salary continuation insurance plan (the
Insurance Plans). Expenses allocated to the Station for the Insurance Plans were
approximately $37,000 and $34,000 for 1997 and 1996, respectively, and are
included in general and administrative expenses in the accompanying statements
of operations.
11. SUBSEQUENT EVENT:
Hearst-Argyle has entered into an asset exchange agreement (the Agreement) to
transfer all of the assets of the Station to STC Broadcasting, Inc., (STC). The
Agreement, dated February 18, 1998, specifies that Hearst-Argyle will transfer
all of the assets of the Station and another station owned by Hearst-Argyle,
certain rights and obligations of a joint marketing and programming agreement
with another non-owned station and cash consideration in exchange for the
assets of three STC stations. The exchange was recorded effective June 1, 1998.
F-13
<PAGE> 18
EXHIBIT 7(a)2
WNAC-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
FINANCIAL STATEMENTS
AS OF MAY 31, 1998, AND AUGUST 31, 1997,
TOGETHER WITH REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
F-14
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Hearst-Argyle Stations, Inc.:
We have audited the accompanying statement of assets and liabilities of WNAC-TV,
a division of Hearst-Argyle Stations, Inc. (formerly WNAC Argyle Television,
Inc., a subsidiary of Argyle Television, Inc.), as of May 31, 1998, and the
related statements of operations and cash flows for the nine-month period then
ended. We have also audited the accompanying balance sheet of WNAC-TV as of
August 31, 1997, and the related statements of operations and stockholder's
deficit and cash flows for the twelve-month period then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets and liabilities of WNAC-TV as of May 31, 1998,
the financial position of WNAC-TV as of August 31, 1997, and the results of its
operations and its cash flows for the nine-month period ended May 31, 1998, and
for the twelve-month period ended August 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Tampa, Florida,
June 18, 1998
F-15
<PAGE> 20
WNAC-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
STATEMENT OF ASSETS AND LIABILITIES AS OF MAY 31, 1998,
AND BALANCE SHEET AS OF AUGUST 31, 1997
<TABLE>
<CAPTION>
Successor | Predecessor
------------ | -----------
May 31, | August 31,
1998 | 1997
------------ | -----------
<S> <C> | <C>
ASSETS |
------ |
CURRENT ASSETS: |
Cash $ 3,614 | $ 4,547
Receivable from Clear Channel Communications, Inc. 485,048 | 339,838
Current portion of program rights 436,970 | 458,796
Other current assets 2,347 | 86,981
------------ | -----------
Total current assets 927,979 | 890,162
|
PROPERTY AND EQUIPMENT, net 3,688,425 | 3,331,883
|
PROGRAM RIGHTS, net of current portion 113,582 | 206,246
|
INTANGIBLE ASSETS, net 42,765,229 | 28,787,704
------------ | -----------
Total assets $ 47,495,215 | $33,215,995
============ | ===========
|
LIABILITIES AND STOCKHOLDER'S DEFICIT |
------------------------------------- |
CURRENT LIABILITIES: |
Accounts payable and accrued expenses $ 81,009 | $ 18,647
Current portion of program rights payable 511,790 | 311,207
------------ | -----------
Total current liabilities 592,799 | 329,854
|
PROGRAM RIGHTS PAYABLE, net of current portion -- | 80,478
|
COMMITMENTS AND CONTINGENCIES -- | --
|
PAYABLE TO PARENT 46,902,416 | 39,523,796
------------ | -----------
Total liabilities $ 47,495,215 | 39,934,128
------------ | -----------
|
STOCKHOLDER'S DEFICIT: |
Common stock, $.01 par value; 100 shares authorized |
and outstanding | 1
Additional paid-in capital | 9,999
Accumulated deficit | (6,728,133)
| ------------
Total stockholder's deficit | (6,718,133)
| ------------
Total liabilities and stockholder's deficit | $ 33,215,995
| ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE> 21
WNAC-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED MAY 31, 1998,
AND STATEMENT OF OPERATIONS AND STOCKHOLDER'S DEFICIT
FOR THE TWELVE-MONTH PERIOD ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
Successor | Predecessor
------------ | ---------------
Nine-month | Twelve-month
Period Ended | Period Ended
May 31, 1998 | August 31, 1997
------------ | ---------------
<S> <C> | <C>
REVENUES: |
Net broadcasting ........................................... $ 3,306,610 | $ 3,538,365
Trade and barter ........................................... 69,550 | 1,134,409
------------ | ---------------
Total revenues ............................ 3,376,160 | 4,672,774
------------ | ---------------
EXPENSES: |
General and administrative ................................. 86,401 | 78,937
Trade and barter ........................................... 167,202 | 1,069,970
Depreciation of property and equipment ..................... 295,841 | 368,715
Amortization of intangible assets .......................... 865,057 | 3,005,492
Corporate overhead ......................................... 190,658 | 254,211
------------ | ---------------
Total expenses ............................ 1,605,159 | 4,777,325
------------ | ---------------
|
OPERATING INCOME (LOSS) ......................................... 1,771,001 | (104,551)
|
OTHER EXPENSE ................................................... (2,258,477) | (1,438,906)
------------ | ---------------
NET LOSS ........................................................ $ (487,476) | (1,543,457)
============ |
TRANSFERS FROM (TO) PARENT ...................................... $ 487,476 | (586,693)
============ |
ACCUMULATED DEFICIT, BEGINNING OF YEAR .......................... | (4,597,983)
| ---------------
ACCUMULATED DEFICIT, END OF YEAR ................................ | $ (6,728,133)
| ===============
LOSS PER SHARE: |
Basic and diluted loss per common share .................... | $ (15,435)
| ===============
Weighted average number of common shares outstanding ....... | 100
| ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 22
WNAC-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED MAY 31, 1998,
AND FOR THE TWELVE-MONTH PERIOD ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
Successor | Predecessor
------------ | ---------------
Nine-month | Twelve-month
Period Ended | Period Ended
May 31, 1998 | August 31, 1997
------------ | ---------------
<S> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net loss $ (487,476) | $ (1,543,457)
Adjustments to reconcile net loss to net cash provided by |
operating activities- |
Depreciation of property and equipment 295,841 | 368,715
Amortization of intangible assets 865,057 | 3,005,492
Payments of program rights payable less than |
(in excess of) amortization of program rights 234,595 | (247,794)
Changes in operating assets and liabilities- |
Receivable from Clear Channel Communications, Inc. (145,210) | 329,606
Other assets 84,634 | 146,829
Accounts payable and accrued expenses 62,362 | (277,020)
------------ | ---------------
Net cash provided by operating activities 909,803 | 1,782,371
------------ | ---------------
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Step-up of fair value of property and |
equipment and intangible assets (Note 1) (15,223,164) | --
Investment in capital additions (Note 4) (271,801) | (411,160)
------------ | ---------------
Net cash used in investing activities (15,494,965) | (411,160)
------------ | ---------------
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
Net transfers from (to) parent 14,584,229 | (1,769,444)
------------ | ---------------
Net cash provided by (used in) |
financing activities 14,584,229 | (1,769,444)
------------ | ---------------
NET DECREASE IN CASH (933) | (398,233)
|
CASH, beginning of year 4,547 | 402,780
------------ | ---------------
|
CASH, end of year $ 3,614 | $ 4,547
============ | ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 23
WNAC-TV, A DIVISION OF HEARST-ARGYLE STATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998, AND AUGUST 31, 1997
1. ORGANIZATION AND NATURE OF OPERATIONS:
WNAC-TV (the Station) has been a division of Hearst-Argyle Stations, Inc.
(Hearst-Argyle or the Parent) since September 1, 1997, when the Hearst Broadcast
Group of The Hearst Corporation merged with Argyle Television, Inc. (Argyle or
the Previous Parent). In the merger transaction, The Hearst Corporation, the
accounting acquiror, contributed the Hearst Broadcast Group to Argyle and merged
a wholly-owned subsidiary of The Hearst Corporation with Argyle, with Argyle as
the surviving corporation (renamed Hearst-Argyle Television, Inc.).
Hearst-Argyle Stations, Inc. is a wholly-owned subsidiary of Hearst-Argyle
Television, Inc. The Station is a commercial television station in the
Providence, Rhode Island, designated market area. The Station has a network
affiliation with FOX Broadcasting Company.
Effective July 1, 1996 (the Commencement Date), the Previous Parent entered into
a Joint Marketing and Programming Agreement (the Clear Channel Agreement) with
Clear Channel Communications, Inc. (Clear Channel) involving the Station and
WPRI-TV, the CBS affiliate in Providence, Rhode Island, owned by Clear Channel.
Under the Clear Channel Agreement, Clear Channel will program certain air time,
including news programming for the Station, and will manage the sale of
commercial air time on both stations for an initial period of 10 years. The
Station and Clear Channel each will receive 50 percent of the broadcast cash
flows generated by the two stations subject to certain adjustments. The
Station's share of the Clear Channel Agreement broadcast cash flows is included
in net broadcasting revenues.
For accounting purposes, The Hearst Corporation was deemed to be the acquiror of
Argyle. Accordingly, the assets and liabilities of Argyle, including the assets
and liabilities of the Station, have been adjusted to their estimated fair
values as determined by independent appraisal. As of the September 1, 1997,
merger date, the fair value of the Station's net assets was recorded as follows:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
Property and equipment $ 3,984,266
Intangible assets 43,358,485
Working capital, including long-term portion of
program rights and program rights payable 402,283
-----------
$47,745,034
===========
</TABLE>
F-19
<PAGE> 24
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying financial statements have been prepared from the books and
records maintained by the Station and those of the Parent and the Previous
Parent. The statements of operations include allocations for corporate services.
Management of the Station considers the allocation methods used to be
reasonable.
Concentration of Risk and Accounts Receivable
The Station serves the Providence, Rhode Island, demographic area. Accordingly,
the revenue potential of the Station is dependent upon the economy in this area
and the continuing Clear Channel operation of the Station and WPRI-TV.
Program Rights
Program rights and the corresponding contractual obligations are recorded when
the license period begins and the programs are available for use. Program rights
are carried at the lower of unamortized cost or estimated net realizable value
evaluated on a program-by-program basis. Any reduction in unamortized costs to
net realizable value is included in amortization of program rights; however,
such reductions in unamortized costs for the nine-month period ended May 31,
1998, and the twelve-month period ended August 31, 1997, were not material.
Under the Clear Channel Agreement, payments of the Station's program rights
payable are reimbursed to Hearst-Argyle by Clear Channel. Amortization of the
Station's program rights, net of the program payments reimbursed by Clear
Channel, are charged against broadcasting revenue to determine the Station's
broadcast cashflow and ultimately the Station's net broadcasting revenues.
Costs of programming are amortized on the future number of showings on an
accelerated basis contemplating the estimated revenue to be earned per showing,
but generally not exceeding five years. Program rights and the corresponding
contractual obligations are classified as current or long-term based on
estimated usage and payment terms, respectively.
F-20
<PAGE> 25
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 25-39
Broadcast equipment 5- 7
Furniture and computers 5
Automobiles 5
</TABLE>
Expenditures for maintenance and minor repairs are charged to operations as
incurred.
Impairment of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount should be addressed. The Station
has determined that there has been no impairment in the carrying value of
long-lived assets as of May 31, 1998.
Trade and Barter Transactions
Trade transactions represent the exchange of commercial airtime for merchandise
or services. Barter transactions represent the exchange of commercial airtime
for programming. Trade transactions are generally recorded at the fair market
value of the merchandise or services received. Barter transactions are generally
recorded at the fair market value of the commercial air time relinquished.
Barter program rights and payables are recorded for barter transactions based
upon the availability of the programming for broadcast. Revenue is recognized on
barter and trade transactions when the commercials are broadcast, and expenses
are recorded when the program, merchandise or service received is utilized.
Income Taxes
Hearst-Argyle and the Previous Parent (collectively, the Company) file a
consolidated federal income tax return and state and local income tax returns
for each applicable state and local government. These returns include the
results of the Station's operations.
F-21
<PAGE> 26
The accompanying financial statements have been prepared in accordance with the
separate return method of Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," whereby the allocation of the consolidated
company federal, state and local tax provision is based on what the Station's
total federal, state and local tax provision would have been had the Station
filed income tax returns outside its consolidated group. Given that the Company
is ultimately responsible for the Station's tax liability, if any, the total
income tax position is recorded as an increase/decrease in the payable to Parent
in the accompanying statements of assets and liabilities. Accordingly, the
Station has no deferred income taxes reported on the accompanying statements of
assets and liabilities.
Basic and Diluted Loss Per Share
Loss per share is computed as net loss divided by the weighted average number of
common shares outstanding.
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share" (SFAS 128), which establishes new standards for computing
and presenting earnings per share (EPS). Specifically, SFAS 128 replaces the
presentation of primary EPS with a presentation of basic EPS, requires dual
presentation of basic and diluted EPS on the face of the income statement, and
requires a reconciliation of the basic EPS computation to the diluted EPS
computation. For the periods presented, the Station had no outstanding dilutive
or anti-dilutive common shares.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-22
<PAGE> 27
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at May 31, 1998, and August
31, 1997:
<TABLE>
<CAPTION>
Successor | Predecessor
----------- | -----------
May 31, | August 31,
1998 | 1997
----------- | -----------
<S> <C> | <C>
Land $ 279,174 | $ 270,000
Buildings and improvements 547,322 | 552,657
Broadcast equipment 3,003,896 | 3,176,505
Furniture and computers 120,784 | 133,481
Automobiles 33,090 | 59,700
----------- | -----------
3,984,266 | 4,192,343
Less- Accumulated depreciation (295,841) | (860,460)
----------- | -----------
$ 3,688,425 | $ 3,331,883
=========== | ===========
</TABLE>
4. INTANGIBLE ASSETS:
Intangible assets are recorded at cost and are being amortized over a period of
five to 40 years (five to 15 years prior to August 31, 1997) using the
straight-line method. Intangible assets consisted of the following at May 31,
1998, and August 31, 1997:
<TABLE>
<CAPTION>
Successor | Predecessor
------------ | ------------
May 31, | August 31,
1998 | 1997
------------ | ------------
<S> <C> | <C>
FCC licenses $ 42,002,200 | $ 13,548,177
Network affiliate agreement 1,113,785 | 6,294,889
Deferred charges 271,801 | 13,680,824
Other 242,500 | 851,855
------------ | ------------
43,630,286 | 34,375,745
Less- Accumulated amortization (865,057) | (5,588,041)
------------ | ------------
$ 42,765,229 | $ 28,787,704
============ | ============
</TABLE>
In consideration of the Clear Channel Agreement, the Previous Parent agreed to
pay Clear Channel a sum of $13,000,000 on the Commencement Date. In addition,
supplemental investments after the Commencement Date are made in amounts equal
to 50 percent of the capital additions required to operate the Station and
WPRI-TV. The $13,000,000 payment and supplemental investments are recorded as
deferred charges which are included in intangibles, net of accumulated
amortization, in the accompanying balance sheet as of August 31, 1997. The
unamortized portion of deferred charges as of August 31, 1997, was reallocated
to FCC licenses in the fair value determination of the Station's net assets as
of September 1, 1997.
F-23
<PAGE> 28
5. OTHER EXPENSE:
Other expense consisted of the following for the nine-month period ended May 31,
1998, and the twelve-month period ended August 31, 1997:
<TABLE>
<CAPTION>
Successor | Predecessor
----------- | ------------
May 31, | August 31,
1998 | 1997
----------- | ------------
<S> <C> | <C>
Interest expense $(2,259,756) | $(1,515,757)
Miscellaneous income 1,279 | 76,851
----------- | -----------
$(2,258,477) | $(1,438,906)
=========== | ===========
</TABLE>
Subsequent to the Hearst-Argyle merger (the Merger), interest expense was
allocated to the divisions of Hearst-Argyle to represent a reasonable charge for
the allocation of debt incurred to facilitate the Merger, which approximates the
average payable to parent account at an interest rate of 7 percent per annum.
The payable to parent balances as of May 31, 1998, and August 31, 1997,
represent the net position of intercompany charges between the Company and the
Station. The Parent has not stipulated repayment terms of the payable to parent
balance as of May 31, 1998, for the next five years or thereafter. Prior to the
Merger, the Previous Parent allocated interest expense to the Station based on
the Station's total assets relative to the Previous Parent's total assets.
6. INCOME TAXES:
The tax effects of all temporary differences between the Station's financial
statement and income tax bases of assets and liabilities are payable to or are
received from the Company. There were no significant temporary differences
during the twelve-month period ended August 31, 1997. A taxable temporary
difference of approximately $533,000 was generated during the nine-month period
ended May 31, 1998, as a result of different intangible asset lives for
financial statement and income tax purposes.
In accordance with the separate return method, any deferred tax assets that
would be created by net operating losses (NOLs) would be recorded as an offset
to the payable to Parent account. The tax effect of NOLs of approximately
$732,000 and $579,000 were generated for the nine-month period ended May 31,
1998, and the twelve-month period ended August 31, 1997, respectively. On a
stand-alone basis, management of the Station does not believe that the Station
would generate taxable income in future years. Therefore, management established
a valuation allowance to fully offset the NOL generated during the twelve-month
period ended August 31, 1997. Additionally, a valuation allowance of
approximately $197,000 was established during the nine-month period ended May
31, 1998, to offset any amounts due from the Parent related to their use of
Station NOLs in excess of future Station taxable temporary differences.
F-24
<PAGE> 29
7. COMMITMENTS AND CONTINGENCIES:
The Station has various agreements relating to future program rights not
available for broadcast at May 31, 1998. Future minimum payments under the terms
of these agreements as of May 31, 1998, are as follows:
<TABLE>
<CAPTION>
Twelve-month Period Ended
May 31, Amount
------------------------- ----------
<S> <C>
1999 $1,114,020
2000 1,293,209
2001 919,661
2002 334,620
2003 276,066
----------
$3,937,576
==========
</TABLE>
The Station is periodically involved in claims and actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the financial position of the Station.
8. RELATED-PARTY TRANSACTIONS:
The Station's financial information is included in the consolidated financial
statements of the Company. Certain management services are provided to the
Station by the Company. Such services include data processing, legal, tax,
treasury, internal audit, risk management and other support services. Allocated
expenses are based on the Company's estimate of expenses related to the services
provided to the Station in relation to those provided to other divisions or
subsidiaries of the Company. Management believes that these allocations were
made on a reasonable basis. The Station was allocated expenses for the
nine-month period ended May 31, 1998, and the twelve-month period ended August
31, 1997, of approximately $214,000 and $254,000, respectively. Of these
amounts, approximately $191,000 and $254,000 were attributable to corporate
overhead for the nine-month period ended May 31, 1998, and the twelve-month
period ended August 31, 1997, respectively, and are shown separately in the
accompanying statements of operations and stockholder's equity.
F-25
<PAGE> 30
9. SUBSEQUENT EVENT:
Hearst-Argyle has entered into an asset exchange agreement (the Agreement) to
transfer the Station and its interest in the Clear Channel Agreement to STC
Broadcasting, Inc. (STC). The Agreement, dated February 18, 1998, specifies that
Hearst-Argyle will transfer the Station, its interest in the Clear Channel
Agreement, certain rights and obligations of two other stations and cash
consideration in exchange for the assets of three STC stations. The exchange was
recorded effective June 1, 1998.
F-26
<PAGE> 31
Item 7(b)
STC Broadcasting, Inc. and Subsidiaries
Unaudited Pro Forma Financial Information
The following unaudited pro forma Statements of Operations are based on the ten
months ended December 31, 1997 and the six months ended June 30, 1998 of the
Company and the two months ended February 28, 1997 of the predecessor company.
The Balance Sheet is based on the Company's June 30, 1998 statement. The
financial statements referred to for 1997 were included in the Company's Form
10-K filed for the year ended December 31, 1997, and financial statements for
1998 were included in the Company's Form 10-Q for the quarter ended June 30,
1998. These pro forma statements should be read in conjunction with these
documents. These pro forma statements have been prepared to illustrate the
effects of the transactions described below.
In a series of transactions, the Company acquired certain assets from
Hearst-Argyle Stations, Inc. ("Hearst") structured as a Section 1031 tax
deferred exchange of assets (the "Hearst Transaction"). On February 3, 1998, the
Company agreed to acquire WPTZ-TV ("WPTZ"), WNNE-TV ("WNNE"), and a local
marketing agreement ("LMA") with WFFF-TV ("WFFF") from Sinclair Broadcast Group,
Inc. ("Sinclair") for $72.0 million, with the intention of using these assets in
the Hearst Transaction. WPTZ and WNNE are the NBC affiliates and WFFF is the Fox
affiliate serving the Burlington, Vermont, and Plattsburgh, New York, television
market. On February 18, 1998, the Company entered into an asset exchange
agreement with Hearst whereby the Company would transfer to Hearst KSBW-TV, the
NBC affiliate for Salinas, California, WPTZ, and WNNE in exchange for receiving
WDTN-TV, the ABC affiliate in Dayton, Ohio, WNAC-TV, the Fox affiliate in
Providence, Rhode Island, WNAC-TV's interest in a Joint Marketing Programming
Agreement with WPRI-TV, the CBS affiliate in Providence, Rhode Island, and
approximately $22.0 million in cash.
On April 24, 1998, the Company completed a purchase of the non-license
assets of WPTZ, WNNE and WFFF for $70.0 million. Funds to complete the
acquisition were provided by Hearst, and the assets acquired were pledged to
Hearst under a related loan agreement. The exchange was recorded by the Company
and Hearst effective June 1, 1998. On July 1, 1998, the FCC approved the
transactions and on July 3, 1998, the Company, Hearst and Sinclair closed the
transactions. The Company received a capital contribution of $10.4 million from
Sunrise Television Corp. and entered into a new senior credit agreement
providing for a $100.0 million term loan and a $40.0 million revolver. On July
2, 1998, the Company borrowed $70.0 million under the term loan portion and $2.5
million under the revolver portion of the new senior credit agreement. The $10.4
million capital contribution and the $72.5 million of borrowed funds were used
to pay off the approximate $50.2 million net payable to Hearst, $2.0 million due
Sinclair, $24.5 million under the old senior credit agreement, and the
remainder was used to pay transaction fees and working capital needs.
The following unaudited pro forma Statements of Operations for the year ended
December 31, 1997 and the six months ended June 30, 1998 give effect to the
asset swaps and the new senior credit agreement, as if such transactions had
occurred on January 1, 1997. The pro forma unaudited balance sheet as of June
30,1998 has been prepared as if the new credit agreement had occurred on that
date.
The asset swaps will be accounted for using the purchase method of accounting
and will be allocated to tangible and intangible assets and liabilities
acquired based upon their respective fair values. The allocation of the
aggregate purchase price reflected in the pro forma financial information is
preliminary. The final allocation of the purchase price is contingent upon the
receipt of final appraisals on the asset swaps; however, that allocation is not
expected to differ materially from the preliminary allocation.
F-27
<PAGE> 32
The pro forma financial information is based on the historical financial
statements of the Company and the assumptions and adjustments described in the
accompanying notes. The unaudited pro forma statements of operations do not
purport to represent what the Company's results of operations actually would
have been if the asset swap and new senior credit agreement had occurred as of
the date indicated or what results will be for any future periods. The Company's
historical Statements of Operations have not been adjusted for the acquisition
of WJAC-TV on October 1, 1997, and the acquisition of KRBC-TV and KACB-TV on
April 1, 1998 to show these acquisitions as if they had occurred on January 1,
1997. See Additional Unaudited Pro Forma Information to see the effect of the
WJAC-TV, KRBC-TV and KACB-TV acquisitions. The pro forma financial information
is based upon assumptions that the Company believes are reasonable.
F-28
<PAGE> 33
STC BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Company Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ----------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,998 $(a) 392 $ 4,390
Receivables 13,669 -- 13,669
Current portion of program rights 7,572 -- 7,572
Other current assets 919 -- 919
---------- ----------- ----------
Total current assets 26,158 392 26,550
---------- ----------- ----------
PROPERTY AND EQUIPMENT, net 49,750 -- 49,750
INTANGIBLE ASSETS 226,393 -- 226,393
OTHER LONG-TERM ASSETS
Deferred acquisition and financing costs 12,338 (b) (2,425) 9,913
Program rights, net of current portion 13,033 -- 13,033
Other 102 -- 102
---------- ---------- ----------
Total other long-term assets 25,473 (2,425) 23,048
---------- ---------- ----------
Total assets $ 327,774 $ (2,033) $ 325,741
========== ========== ====-=====
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,062 -- $ 3,062
Accrued interest 3,269 -- 3,269
Accrued compensation 740 -- 740
Accrued other 957 -- 957
Current portion of program rights payable 7,775 -- 7,775
Asset swap payables 55,847 (c)(55,847) --
---------- ---------- ----------
Total current liabilities 71,650 (55,847) 15,803
LONG-TERM DEBT 124,500 (d) 48,000 172,500
DEFERRED INCOME TAXES 23,862 -- 23,862
PROGRAM RIGHTS PAYABLE, net of current portion 13,319 -- 13,319
OTHER LONG-TERM LIABILITIES 112 -- 112
REDEEMABLE PREFERRED STOCK 34,728 -- 34,728
STOCKHOLDER'S EQUITY 59,603 (e) 5,814 65,417
---------- ---------- ----------
Total liabilities and stockholder's equity $ 327,774 $ (2,033) $ 325,741
========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma balance sheet.
F-29
<PAGE> 34
STC BROADCASTING,INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(Dollars in thousands)
The following reflects the adjustments to balance sheet amounts due to the
issuance of the new senior credit agreement.
<TABLE>
<S> <C> <C>
(a) The adjustment to Cash consists of:
Capital Contribution - Sunrise Television Corp. $ 10,400
Borrowing under new senior credit agreement 72,500
Pay off of old senior credit agreement (24,500)
Payments due Sinclair (2,008)
Payments due Hearst (50,188)
Payment of loan fees (2,161)
Payment of swap transaction fees (3,651)
--------
$ 392
========
(b) The adjustment to Deferred Acquisition and Finance Costs consists of:
Write off of deferred costs on old senior credit
agreement $ (2,425)
========
(c) The Adjustment to Asset Swap Payable consists of:
Payment to Hearst $(50,188)
Payment to Sinclair (2,008)
Payment of swap transaction fees (3,651)
--------
$(55,847)
========
(d) The Long Term Debt Adjustment consists of:
Borrowings on new senior credit agreement $ 72,500
Pay off of balance on old senior credit agreement (24,500)
--------
$ 48,000
========
(e) The adjustment to Stockholder's Equity consists of:
Capital contribution - Sunrise Television Corp. $ 10,400
Loss on Retirement of Debt (4,586)
--------
$ 5,814
========
</TABLE>
F-30
<PAGE> 35
STC BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Historical Historical Pro Forma
Company Predecessor WDTN WNAC KSBW Adjustments Pro Forma
-------- ----------- ------- ------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES: $ 36,231 $ 5,228 $18,916 $ 3,600 $(11,634) -- $ 52,341
-------- --------- ------- ------- -------- ----------- ---------
OPERATING EXPENSES:
Station operating 11,539 2,079 10,111 -- (3,801) -- 19,928
Selling, general and
administrative 8,212 1,526 2,274 -- (2,711) (a) 137 9,438
Trade and barter 1,390 181 285 439 (488) -- 1,807
Depreciation of property
and equipment 3,475 757 913 377 (1,248) (b) 1,430 5,704
Amortization of intangibles
and other long term
assets 9,159 977 450 2,388 (2,208) (c) 5,266 16,032
Corporate overhead 1,402 146 400 254 (240) (d) 38 2,000
-------- -------- ------- ------- -------- ----------- ---------
Total operating expenses 35,177 5,666 14,433 3,458 (10,696) 6,871 54,909
OPERATING INCOME 1,054 (438) 4,483 142 (938) (6,871) (2,568)
OTHER INCOME (EXPENSE):
Interest income 289 20 -- -- -- -- 309
Interest expense (9,502) (963) (1,255) (2,014) 2,815 (e) (5,881) (16,800)
Other income (expense), net 40 19 (88) -- 9 -- (20)
-------- -------- ------- ------- -------- ----------- ---------
NET LOSS BEFORE INCOME
TAX BENEFIT (PROVISION) (8,119) (1,362) 3,140 (1,872) 1,886 (12,752) (19,079)
INCOME TAX BENEFIT
(PROVISION) 299 -- (1,352) -- -- (f) 1,352 299
-------- -------- ------- ------- -------- ----------- ---------
NET LOSS AFTER TAXES (7,820) (1,362) 1,788 (1,872) 1,886 (11,400) (18,780)
REDEEMABLE PREFERRED STOCK
DIVIDENDS AND ACCRETION (3,763) -- -- -- -- -- (3,763)
-------- -------- ------- ------- -------- ----------- ---------
NET LOSS APPLICABLE TO
COMMON STOCKHOLDER $(11,583) $ (1,362) $ 1,788 $(1,872) $ 1,886 $ (11,400) $ (22,543)
======== ======== ======= ======= ======== =========== =========
BASIC AND DILUTED NET LOSS
PER COMMON SHARE $(11,583) $ (22,543)
======== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 1,000 1,000
======== =========
</TABLE>
See accompanying notes to unaudited Pro Forma Statement of Operations.
F-31
<PAGE> 36
STC BROADCASTING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
The Company financial statement of operations has not been adjusted to show the
effect of the acquisition of WJAC-TV (October 1, 1997) and KRBC-TV and KACB-TV
(April 1, 1998) as if these transactions had been completed on January 1, 1997.
(a) Reflects an adjustment to show estimated cost of the LMA agreement with
Clear Channel Communication, Inc. related to the WNAC operations.
(b) Reflects the incremental change in depreciation on WDTN-TV and WNAC-TV
due to purchase accounting adjustments to property and equipment
consistent with depreciation policies utilized by the Company.
(c) Reflects the incremental change in amortization on WDTN-TV and WNAC-TV
due to purchase accounting adjustments to intangible assets consistent
with amortization policies utilized by the Company net of reduced
amortization on loan acquisition costs written off upon entering into
new credit agreement.
(d) Reflects adjustment to bring corporate overhead to an estimated amount
on a going forward basis.
(e) Reflects the adjustment due to incremental borrowing under new senior
credit agreement.
(f) Reflects reduction in income taxes due to loss position on consolidated
basis.
F-32
<PAGE> 37
STC BROADCASTING, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Company WDTN WNAC KSBW WPTZ/WNNE Pro Forma
6 Months 5 Months 5 Months 5 months 28 days Adjustments Pro Forma
--------- -------- -------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES $ 28,327 $ 8,061 $ 1,514 $ (5,068) $ (1,287) $ - $ 31,547
--------- -------- -------- -------- --------- ----------- ---------
OPERATING EXPENSES:
Station operating 9,026 3,403 -- (1,689) (309) - 10,431
Selling, general and administrative 6,867 1,657 86 (1,107) (348) (a) (54) 7,101
Trade and barter 922 182 -- (203) -- -- 901
Depreciation of property and equipment 3,255 363 164 (537) (194) (b) 839 3,890
Amortization of intangibles and other
long-term assets 7,584 160 481 (1,004) (415) (c) 2,308 9,114
Corporate overhead 961 229 106 -- -- (d) (296) 1,000
--------- -------- -------- -------- --------- ----------- ---------
Total operating expenses 28,615 5,994 837 (4,540) (1,266) 2,797 32,437
--------- -------- -------- -------- --------- ----------- ---------
OPERATING INCOME (LOSS) (288) 2,067 677 (528) (21) (2,797) (890)
OTHER INCOME (EXPENSE):
Interest income 61 -- -- -- (5) -- 56
Interest expense (7,331) (405) (1,255) -- 943 (e) (352) (8,400)
Gain on asset swap 17,559 -- -- (15,114) (2,445) -- --
Other income, net 9 6 -- (6) -- -- 9
--------- -------- -------- -------- --------- ----------- ---------
NET INCOME BEFORE INCOME TAX 10,010 1,668 (578) (15,648) (1,528) (3,149) (9,225)
INCOME TAX 372 -- -- -- -- -- 372
--------- -------- -------- -------- --------- ----------- ---------
NET INCOME 9,638 1,668 (578) (15,648) (1,528) (3,149) (9,597)
EXTRAORDINARY ITEM - LOSS
ON REFINANCING OF DEBT -- -- -- -- -- (f) (4,586) (4,586)
REDEEMABLE PREFERRED STOCK
DIVIDENDS AND ACCRETION (2,465) -- -- -- -- -- (2,465)
--------- -------- -------- -------- --------- ----------- ---------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDER $ 7,173 $ 1,668 $ (578) $(15,648) $ (1,528) $ (7,735) $ (16,648)
========= ======== ======== ======== ========= =========== =========
BASIC NET INCOME (LOSS) PER COMMON SHARE $ 7,173 $ (16,648)
========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,000 1,000
========= =========
</TABLE>
See accompanying notes to unaudited Pro Forma Statement of Operations.
F-33
<PAGE> 38
STC BROADCASTING, INC. AND SUBSIDIAIRIES
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
The Company financial statement of operations has not been adjusted to show the
effect of the acquisition of WJAC-TV (October 1, 1997) and KRBC-TV and KACB-TV
(April 1, 1998) as if these transactions had been completed on January 1, 1997.
The Company statement for the six months ended June 30, 1998 includes
operations of WDTN-TV and WNAC-TV from June 1, 1998, KSBW-TV from January 1 to
May 31, and WPTZ-TV and WNNE-TV from April 24 to May 31.
(a) Reflects an adjustment to show estimated cost of the LMA agreement
with Clear Channel Communication, Inc. related to the WNAC operations.
(b) Reflects the incremental change in depreciation on WDTN-TV and WNAC-TV
due to purchase accounting adjustments to property and equipment
consistent with depreciation policies utilized by the Company.
(c) Reflects the incremental change in amortization on WDTN-TV and WNAC-TV
due to purchase accounting adjustments to intangible assets consistent
with amortization policies utilized by the Company net of reduced
amortization on loan acquisition costs written off upon entering into
the new senior credit agreement.
(d) Reflects adjustment to bring corporate overhead to an estimated amount
on a going forward basis.
(e) Reflects adjustments due to the incremental borrowing under the new
senior credit agreement.
(f) Reflects extraordinary expense due to refinancing the old senior credit
agreement with the new senior credit agreement.
F-34
<PAGE> 39
STC BROADCASTING, INC. AND SUBSIDIARIES
ADDITIONAL UNAUDITED PRO FORMA INFORMATION
The following has been included since the Company believes investors and
creditors will find it useful. The pro forma information presented is not
necessarily indicative of the actual results that would have been achieved had
each of the present eight stations, after the completion of asset swaps, been
acquired at January 1, 1997, nor is it indicative of the future results of
operations.
Broadcast Cash Flow:
The following table sets forth certain operating data for the Company's eight
stations for the three months and six months ended June 30, 1998 and June 30,
1997 and the year ended December 31, 1997 as if the Company had owned all eight
stations since January 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, December 31,
1998 1997 1998 1997 1997
------- ------- ------- ------- -------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Income (Loss) $ 1,531 $ 249 $ 207 $(2,251) $ (2,899)
Add:
Amortization of program rights 1,962 1,976 3,933 3,943 7,886
Depreciation of property and equipment 1,936 1,843 3,830 3,686 7,371
Amortization of intangibles 4,210 4,112 8,421 8,224 16,449
Corporate overhead 500 500 1,000 1,000 2,000
Less:
Payments for program rights (1,993) (2,043) (3,981) (4,084) (8,169)
------- ------- ------- ------- --------
Broadcast cash flow $ 8,146 $ 6,637 $13,410 $10,518 $ 22,638
======= ======= ======= ======= ========
</TABLE>
Television Revenues:
Set forth below are the principal types of television revenues that the
Company's eight stations generated for the periods indicated as if they were
all owned since January 1, 1997 and the percentage contribution of each to
total revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, December 31,
1998 1997 1998 1997 1997
--------------- --------------- -------------- -------------- ---------------
$ % $ % $ % $ % $ %
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Local $10,600 51.8% $ 9,997 52.3% $19,652 52.2% $18,004 51.7% $37,710 53.0%
National 6,400 31.3% 6,075 31.8% 11,644 30.9% 11,070 31.8% 22,096 31.0%
Political 371 1.8% 35 .2% 380 1.0% 36 .1% 459 .6%
Network Compensation 1,300 6.4% 1,370 7.2% 2,625 7.0% 2,749 7.9% 5,397 7.6%
Trade and barter 578 2.8% 458 2.4% 1,014 2.7% 877 2.5% 1,615 2.3%
Joint Operating Agreement 1,095 5.3% 1,017 5.3% 1,998 5.3% 1,634 4.7% 3,101 4.4%
Other 127 .6% 154 .8% 335 .9% 438 1.3% 806 1.1%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total 20,471 100.0% 19,106 100.0% 37,648 100.0% 34,808 100.0% 71,184 100.0%
Agency and national
representative commissions (2,838) (13.9%) (2,652) (13.9%) (5,144) (13.7%) (4,774) (13.7%) (9,733) (13.7%)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net revenue $17,633 86.1% $16,454 86.1% $32,504 86.3% $30,034 86.3% $61,451 86.3%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
F-35
<PAGE> 40
Proforma Results of Operations:
Set forth below is a summary of the operations of the Company's eight stations
for the periods indicated and their percentages of net revenue as if the
Company had owned the eight Stations from January 1, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
June 30, June 30, December 31,
1998 1997 1998 1997 1997
--------------- --------------- -------------- -------------- ---------------
$ % $ % $ % $ % $ %
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Revenues: $17,633 100.0% $16,454 100.0% $32,504 100.0% $30,034 100.0% $61,451 100.0%
Operating Expenses:
Station Operating 5,285 30.0% 5,506 33.5% 10,724 33.0% 10,907 36.3% 22,001 35.8%
Selling, general & administrative 3,677 20.9% 3,827 23.3% 7,421 22.8% 7,688 25.6% 14,771 24.0%
Trade and barter expense 494 2.8% 417 2.5% 901 2.8% 780 2.6% 1,758 2.9%
Depreciation 1,936 11.0% 1,843 11.2% 3,830 11.8% 3,686 12.3% 7,371 12.0%
Amortization 4,210 23.9% 4,112 25.0% 8,421 25.9% 8,224 27.4% 16,449 26.8%
Corporate overhead 500 2.8% 500 3.0% 1,000 3.1% 1,000 3.3% 2,000 3.3%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income (loss) $ 1,531 8.6% $ 249 1.5% $ 207 .6% $(2,251) (7.5%) $(2,899) (4.8%)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Broadcast cash flow $ 8,146 46.2% $ 6,637 40.3% $13,410 41.3% $10,518 35.0% $22,638 36.8%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
F-36
