SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
(Mark One)
[X]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 1-2999
CHRIS-CRAFT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1461226
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
767 Fifth Avenue, New York, New York 10153
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-0200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange
on which registered
Prior Preferred Stock New York Stock Exchange, Inc.
$1.00 cumulative dividend Pacific Stock Exchange, Inc.
Convertible Preferred Stock New York Stock Exchange, Inc.
$1.40 cumulative dividend Pacific Stock Exchange, Inc.
Common Stock, $.50 par value New York Stock Exchange, Inc.
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
Class B Common Stock, $.50 par value
(Title of class)
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 [ ]
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of February 28, 1997, was approximately $1,075,000,000.
As of February 28, 1997, there were 22,497,068 shares of the registrant's
Common Stock and 7,965,150 shares of the registrant's Class B Common Stock
outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
Those portions of the registrant's annual
report to stockholders for the fiscal year
ended December 31, 1996 (the "Annual
Report") that are specifically identified
herein as incorporated by reference into this
Form 10-K. I, II
Those portions of the registrant's proxy
statement for the registrant's 1997 Annual
Meeting (the "Proxy Statement") that are
specifically identified herein as incorporated
by reference into this Form 10-K.
III
2
<PAGE>
PART I
ITEM 1. BUSINESS.
General
Chris-Craft Industries, Inc. ("Chris-Craft"), the registrant, was
organized in Delaware in 1928 and adopted its present name in 1962. Chris-
Craft's principal business is television broadcasting, conducted through its
majority owned (76.1% at February 28, 1997) subsidiary, BHC Communications,
Inc. ("BHC"), which owns 100% of Chris-Craft Television, Inc. ("CCTV"), 100%
of Pinelands, Inc. ("Pinelands") and, as of February 28, 1997, 58.8% of
United Television, Inc. ("UTV").
At February 28, 1997, Chris-Craft (including UTV) had 1,179 full-time
employees and 135 part-time employees.
In July 1994, BHC, along with Viacom Inc.'s Paramount Television Group
("Paramount"), formed the United Paramount Network ("UPN"), a fifth broadcast
television network which premiered in January 1995. In January 1997,
Paramount completed the exercise of its option to acquire an interest in
UPN equal to that of BHC, which had the effect of reimbursing BHC
for one-half of its aggregate investment in UPN, plus interest, and
funding UPN with additional cash for ongoing expenditures.
The information appearing in the Annual Report under the caption INDUSTRY
SEGMENT INFORMATION is incorporated herein by reference.
Television Division
BHC operates six very high frequency ("VHF") television stations and two
ultra high frequency ("UHF") television stations, together constituting Chris-
Craft's Television Division. Commercial television broadcasting in the United
States is conducted on 68 channels numbered 2 through 69. Channels 2 through
13 are in the VHF band, and channels 14 through 69 are in the UHF band. In
general, UHF stations are at a disadvantage relative to VHF stations, because
UHF frequencies are more difficult for households to receive. This
disadvantage is eliminated when a viewer receives the UHF station through a
cable system.
Commercial broadcast television stations may be either affiliated with
one of the three major national networks (ABC, NBC and CBS); three more
recently established national networks (Fox Broadcasting Company ("Fox"), UPN,
and The WB Network ("WB")), which provide substantially fewer hours of
programming; or may be independent.
The following table sets forth certain information with respect to BHC
stations and their respective markets:
3
<PAGE>
<TABLE>
<CAPTION>
Total DMA
Network Commercial Cable
Affili- DMA TV Stations TV
Station and ation/ House- DMA Operating in Penetra-
Location(a) Channel Holds(b) Rank(b) Market(c) tion(d)
- ------------ ------- --------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
KCOP
Los Angeles UPN 13 4,942,440 2nd 7VHF 62%
10UHF
WWOR (e)
Secaucus UPN 9 6,711,450 1st 6VHF 69%
14UHF
KPTV
Portland UPN 12 952,690 24th 4VHF 63%
2UHF
KMSP
Minneapolis/
St. Paul UPN 9 1,428,100 14th 4VHF 51%
3UHF
KTVX
Salt Lake City ABC 4 670,650 36th 4VHF 56%
2UHF
KMOL
San Antonio NBC 4 641,740 38th 3VHF 65%
3UHF
KBHK
San Francisco UPN 44 2,278,480 5th 4VHF 71%
10UHF
KUTP
Phoenix UPN 45 1,212,850 17th 4VHF 57%
4UHF
_______________
(a) KCOP and KPTV are owned by CCTV; WWOR is owned by Pinelands; the
remaining stations are owned by UTV.
(b) Designated Market Area ("DMA") is an exclusive geographic area consisting
of all counties in which the home-market commercial stations received a
preponderance of total viewing hours. The ranking shown is the nationwide
rank, in terms of television households in DMA, of the market served by the
station. Source: Nielsen Media Research television households universe
estimates.
(c) Additional channels have been allocated by the Federal Communications
Commission ("FCC") for activation as commercial television stations in
certain of these markets. Also, additional stations may be located
within the respective DMAs of BHC stations but outside the greater
metropolitan television markets in which BHC stations operate.
(d) Cable penetration refers to the percentage of DMA television viewing
households receiving cable television service, as estimated by Nielsen
Media Research.
(e) WWOR UPN 9 broadcasts across a tri-state area including the entire New
York City metropolitan area.
</TABLE>
4
<PAGE>
Television stations derive their revenues primarily from selling
advertising time. The television advertising sales market consists primarily
of national network advertising, national spot advertising and local spot
advertising. An advertiser wishing to reach a nationwide audience usually
purchases advertising time directly from the national networks, "superstations"
(i.e., broadcast stations carried by cable operators in areas outside their
broadcast coverage area), barter program syndicators, national basic cable
networks, or "unwired" networks (groups of otherwise unrelated stations whose
advertising time is combined for national sale). A national advertiser
wishing to reach a particular regional or local audience usually buys
advertising time from local stations through national advertising sales
representative firms having contractual arrangements with local stations to
solicit such advertising. Local businesses generally purchase advertising from
the stations' local sales staffs.
Television stations compete for television advertising revenue primarily
with other television stations and cable television channels serving the same
DMA. There are 211 DMAs in the United States. DMAs are ranked annually by
the estimated number of households owning a television set within the DMA.
Advertising rates that a television station can command vary in part with the
size, in terms of television households, of the DMA served by the station.
Within a DMA, the advertising rates charged by competing stations depend
primarily on four factors: the stations' program ratings, the time of day the
advertising will run, the demographic qualities of a program's viewers
(primarily age and sex), and the amount of each station's inventory. Ratings
data for television markets are measured by A.C. Nielsen Company ("Nielsen").
This rating service uses two terms to quantify a station's audience: rating
points and share points. A rating point represents one percent of all tele-
vision households in the entire DMA tuned to a particular station, and a share
point represents one percent of all television households within the DMA
actually using at least one television set at the time of measurement and
tuned to the station in question.
Because the major networks regularly provide first-run programming during
prime time viewing hours (in general, 8:00 P.M. to 11:00 P.M. Eastern/Pacific
time), their affiliates generally (but do not always) achieve higher audience
shares, but have substantially less advertising time ("inventory") to sell,
during those hours than affiliates of the newer networks or independent sta-
tions, since the major networks use almost all of their affiliates' prime time
inventory for network programming. Although the newer networks generally use
the same amount of their affiliates' inventory during network broadcasts, the
newer networks provide less programming; accordingly, their affiliates, as well
as non-affiliated stations, generally have substantially more inventory for
sale than the major-network affiliates. The newer network affiliates' and
independent stations' smaller audiences and greater inventory during prime time
hours generally result in lower advertising rates charged and more advertising
time sold during those hours, as compared with major affiliates' larger
audiences and limited inventory, which generally allow the major-network
affiliates to charge higher advertising rates for prime time programming. By
selling more advertising time, the new-network or independent station typically
achieves a share of advertising revenues in its market greater than its
audience ratings. On the other hand, total programming costs for such a sta-
tion, because it broadcasts more syndicated programming than a major-network
affiliate, are generally higher than those of a major-network affiliate in the
same market. These differences have been reduced by the growth of the Fox
network, which currently provides 15 weekly hours of programming during prime
time and additional programming in other periods, and are being reduced further
as the other newer networks provide expanded schedules of programming.
In July 1995, the FCC repealed, effective August 30, 1996, its prime time
access rule, which limited broadcasts, by major-network affiliates in the 50
largest markets, of "off network" entertainment programming. Among other
effects, elimination of this rule is expected to increase the competition
faced by new-network affiliates and independent stations in bidding for the
rights to popular "off network" shows.
5
<PAGE>
Programming
BHC's UPN stations depend heavily on independent third parties for
programming, as do KTVX and KMOL for their non-network broadcasts. Recognizing
the need to have a more direct influence on the quality of programming avail-
able to its stations, and desiring to participate in potential profits through
national syndication of programming, BHC has joined in the formation of UPN,
and, additionally, has begun to invest directly in the development of original
programming. The aggregate amount invested in original programming through
December 31, 1996 was not significant to Chris-Craft's financial position. BHC
television stations also produce programming directed to meet the needs and
interests of the area served, such as local news and events, public affairs
programming, children's programming and sports.
Programs obtained from independent sources consist principally of syndi-
cated television shows, many of which have been shown previously on a major
network, and syndicated feature films, which were either made for network tele-
vision or have been exhibited previously in motion picture theaters (most of
which films have been shown previously on network or cable television). Syndi-
cated programs are sold to individual stations to be broadcast one or more
times. Television stations not affiliated with a major network generally have
large numbers of syndication contracts; each contract is a license for a
particular series or program that usually prohibits licensing the same
programming to other television stations in the same market. A single syndica-
tion source may provide a number of different series or programs.
Licenses for syndicated programs are often offered for cash sale (i.e.,
without any barter element) to stations; however, some are offered on a barter
or cash plus barter basis. In the case of a cash sale, the station purchases
the right to broadcast the program, or a series of programs, and sells adver-
tising time during the broadcast. The cash price of such programming varies,
depending on the perceived desirability of the program and whether it comes
with commercials that must be broadcast (i.e., on a cash plus barter basis).
Barter programming is offered to stations for no cash consideration, but
comes with a greater number of commercials that must be broadcast, and there-
fore, with less inventory.
In recent years, the amount of barter and cash plus barter programming
broadcast both industry-wide and by BHC stations has increased substantially.
Barter and cash plus barter programming reduce both the amount of cash required
for program purchases and the amount of time available for sale. Although the
direct impact on broadcasters' operating income generally is believed to be
neutral, program distributors that acquire barter air time compete with tele-
vision stations and broadcasting networks for sales of air time. Chris-Craft
believes that the effect of barter on BHC television stations is not signifi-
cantly different from its impact on the industry as a whole.
BHC television stations are frequently required to make substantial finan-
cial commitments to obtain syndicated programming while such programming is
still being broadcast by another network and before it is available for broad-
cast by BHC stations or even before it has been produced. Generally, syndi-
cation contracts require the station to acquire an entire program series,
before the number of episodes of original showings that will be produced has
been determined. While analyses of network audiences are used in estimating
the value and potential profitability of such programming, there is no
assurance that a successful network program will continue to be successful
or profitable when broadcast after initial network airing.
Pursuant to generally accepted accounting principles, commitments for pro-
gramming not available for broadcast are not recorded as liabilities until the
programming becomes available for broadcast, at which time the related contract
right is also recorded as an asset. BHC television stations had prepaid broad-
cast rights, unamortized film contract rights for programming available for
telecasting, and deposits on film contracts for programming not available for
telecasting aggregating $144,034,000 as of December 31, 1996. The stations
were committed for film and sports rights contracts aggregating $177,800,000
for programming not available for broadcasting as of that date. License
periods for particular programs or films generally run from one to five
years. Long-term contracts for the broadcast of syndicated television series
generally provide for an initial telecast and subsequent reruns for a period
6
<PAGE>
of years, with full payment to be made by the station over a period of time
shorter than the rerun period. See Notes 1(C) and 9 of Notes to Consolidated
Financial Statements.
KTVX and KMOL are primary affiliates of their respective networks. Net-
work programs are produced either by the networks themselves or by independent
production companies and are transmitted by the networks to their affiliated
stations for broadcast.
Generally, in the past, major network primary affiliation agreements were
automatically renewed for two-year periods (unless advance written notice of
termination was given by either the affiliate or the network). More recently,
however, most networks have begun to enter into affiliation agreements for
terms as long as ten years. UTV has entered into a 10-year affiliation
agreement for KTVX. Current FCC rules do not limit the duration of such
agreements.
An affiliation agreement gives the affiliate the right to broadcast all
programs transmitted by the network. The affiliate must run in its entirety,
together with all network commercials, any network programming the affiliate
elects or is required to broadcast, and is allowed to broadcast a limited
number of commercials it has sold. For each hour of programming broadcast by
the affiliate, the major networks generally have paid their affiliates a fee,
specified in the agreement (although subject to change by the network), which
varies in amount depending on the time of day during which the program is
broadcast and other factors. Prime time programming generally earns the highest
fee. A network may, and sometimes does, designate certain programs to be
broadcast with no compensation to the station.
Subject to certain limitations contained in the affiliation agreement,
an affiliate may accept or reject a program offered by the network and instead
broadcast programming from another source. Rejection of a program gives the
network the right to offer that program to another station in the area.
United Paramount Network
In January 1995, UPN began broadcasting four hours of original prime time
programming per week, which UPN increased to six hours, on three nights, in
March 1996. The network also broadcasts two hours of previously exhibited
movies on Saturday afternoons and two hours of original children's programming
on Sunday mornings. UPN has announced plans to program a one-hour Monday
through Friday block of teen programming, beginning in the fall of 1997, and to
expand to a fourth night in 1998. UPN intends, over the next several years, to
expand its prime time programming to five nights per week, as well as to begin
broadcasting in other day parts.
UPN licenses most of its current programming on the same bases as are
customary in the industry. UPN seeks license or ownership rights for all other
programming from all available sources on arms-length terms.
UPN currently has 165 affiliates in markets containing 92% of all U.S.
households, including all of BHC's and Paramount's previously independent sta-
tions, and UPN continues to seek additional affiliates to expand its household
reach. UPN's primary affiliate station agreements have three year terms and
provide commercial time for sale by the stations as consideration for broad-
casting the network's programming.
In January 1997, Paramount completed the exercise of its option to acquire
an interest in UPN equal to that of BHC, which, until then, owned 100% of the
network and bore all UPN costs. UPN funding requirements, to be shared equally
by BHC and Paramount, since Paramount exercised its option, are expected to
continue to be significant for the next several years. See Management's Dis-
cussion and Analysis of Financial Condition and Results of Operations and Note
2 of Notes to Consolidated Financial Statements.
7
<PAGE>
Sources of Revenue
The principal source of revenues for BHC stations is the sale of adver-
tising time to national and local advertisers. Such time sales are repre-
sented by spot announcements purchased to run between programs and program
segments and by program sponsorship. The relative contributions of national
and local advertising to BHC's gross cash advertising revenues vary from time
to time. During the year ended December 31, 1996, national advertising contrib-
uted 37%, and local advertising contributed 63%, of total gross cash adver-
tising revenues. Most advertising contracts are short-term. Like that of the
television broadcasting business generally, BHC's television business is sea-
sonal. In terms of revenues, generally the fourth quarter is strongest, fol-
lowed by the second, third and first.
Advertising is generally placed with BHC stations through advertising
agencies, which are allowed a commission generally equal to 15% of the price
of advertising placed. National advertising time is usually sold through a
national sales representative, which also receives a commission, while local
advertising time is sold by each station's sales staff. In July 1995, UTV
established a national sales representative organization, United Television
Sales, Inc. ("UTS"), to represent, initially, all BHC stations. Practices with
respect to sale of advertising time do not differ markedly between BHC's major
network and UPN stations, although the major-network affiliated stations have
less inventory to sell.
Government Regulation
Television broadcasting operations are subject to the jurisdiction of the
FCC under the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act empowers the FCC, among other things, to
issue, revoke or modify broadcast licenses, to assign frequencies, to deter-
mine the locations of stations, to regulate the broadcasting equipment used
by stations, to establish areas to be served, to adopt such regulations as
may be necessary to carry out the provisions of the Communications Act and to
impose certain penalties for violation of its regulations. BHC television
stations are subject to a wide range of technical, reporting and operational
requirements imposed by the Communications Act or by FCC rules and policies.
The Communications Act was recently and substantially amended by the Tele-
communications Act of 1996 (the "Telecom Act"), some provisions of which have
been incorporated into the FCC's rules and regulations during the past year,
and other provisions of which will be incorporated over the next several
months.
The Communications Act provides that a license may be granted to any
applicant if the public interest, convenience and necessity will be served
thereby, subject to certain limitations, including the requirement that the
FCC allocate licenses, frequencies, hours of operation and power in a manner
that will provide a fair, efficient and equitable distribution of service
throughout the United States. Television licenses generally have been issued
for five-year terms, but the Telecom Act permits the FCC to issue such licenses
and their renewals for up to eight years. Upon application, and in the
absence of adverse questions as to the licensee's qualifications or operations,
television licenses have usually been renewed for additional terms without a
hearing by the FCC. An existing license automatically continues in effect once
a timely renewal application has been filed until a final FCC decision is
issued.
KMSP UPN 9's license renewal was granted on April 15, 1993, and is due to
expire on April 1, 1998. KTVX's license renewal was granted on September 29,
1993, and is due to expire on October 1, 1998. KUTP UPN 45's license renewal
was granted on March 28, 1994, and is due to expire on October 1, 1998. KCOP
UPN 13's license renewal was granted on April 18, 1994, and is due to expire on
December 1, 1998. KBHK UPN 44's license renewal was granted on October 2,
1995, and is due to expire on December 1, 1998. KPTV UPN 12's license
renewal was granted on August 9, 1995, and is due to expire on February 1,
1999. KMOL's license renewal was granted on August 18, 1995, and is due to
expire on August 1, 1998. WWOR UPN 9's license renewal was granted July 16,
1996 and is due to expire June 1, 1999.
8
<PAGE>
Under existing FCC regulations governing multiple ownership of broadcast
stations, a license to operate a television station generally will not be
granted to any party (or parties under common control), if such party directly
or indirectly owns, operates, controls or has an attributable interest in
another television or radio station serving the same market or area. The FCC,
however, is favorably disposed to grant waivers of this rule for radio station-
television station ownership combinations in the top 25 television markets, in
which there will be at least 30 separately owned, operated and controlled
broadcast stations, and in certain other circumstances. The Telecom Act
directs the FCC to extend this waiver policy to the top 50 markets, con-
sistent with the public interest, and to conduct a rule-making proceeding to
determine whether to retain or modify the current restriction on same-market
multiple television station ownership.
FCC regulations further provide that a broadcast license will not be
granted if that grant would result in a concentration of control of radio and
television broadcasting in a manner inconsistent with the public interest,
convenience or necessity. FCC rules deem such concentration of control to
exist if any party, or any of its officers, directors or stockholders,
directly or indirectly, owned, operated, controlled or had an attributable
interest in television stations capable of reaching, in the aggregate, a
maximum of 35% of the national audience. This percentage is determined by
the DMA market rankings of the percentage of the nation's television house-
holds considered within each market. Because of certain limitations of the
UHF signal, however, the FCC will attribute only 50% of a market's DMA reach
to owners of UHF stations for the purpose of calculating the audience reach
limits. Applying the 50% reach attribution rule to UHF stations KBHK UPN
44 and KUTP UPN 45, the eight BHC stations are deemed to reach approximately
18% of the nation's television households. The FCC is considering whether to
eliminate the 50% attribution reduction under this rule for UHF stations.
The FCC's multiple ownership rules require the attribution of the licenses
held by a broadcasting company to its officers, directors and certain of its
stockholders, so there would ordinarily be a violation of FCC regulations where
an officer, director or such a stockholder and a television broadcasting
company together hold interests in stations exceeding the maximum audience
reach or more than one station that serves the same area. In the case of
a corporation controlling or operating television stations, such as Chris-
Craft, there is attribution only to stockholders who own 5% or more of the
voting stock, except for institutional investors, including mutual funds,
insurance companies and banks acting in a fiduciary capacity, which may own
up to 10% of the voting stock without being subject to such attribution,
provided that such entities exercise no control over the management or
policies of the broadcasting company.
The FCC has begun a proceeding to consider modification of the various TV
ownership restrictions described above, as well as changes in the rules for
attributing the licenses held by an enterprise to various parties. Chris-Craft
cannot predict the outcome of the FCC proceedings.
FCC regulations currently prevent a national sales representative organi-
zation, such as UTS, which is commonly owned with a national network such as
UPN, from representing affiliates of that network other than affiliates that
are also under common ownership with the network. FCC regulations also place
restrictions on provisions of agreements between networks and their affiliates
relating to network exclusivity, territorial exclusivity, time optioning, and
pre-emption rights. The FCC is conducting rule-making proceedings to consider
whether to retain, modify, or eliminate these regulations. Chris-Craft is
unable to predict the outcome of these proceedings.
As required by the Telecom Act, the FCC recently amended another of its
regulations, the dual network rule, which generally had prohibited common
ownership or control of two television broadcast networks. Ownership and
control of two or more such networks will now be permitted, except for common
ownership or control between two of ABC, NBC, CBS, and Fox, or any one of those
four networks and either UPN or WB.
The Telecom Act directs the FCC to conduct a rule-making proceeding to
require the inclusion, in all television sets 13 inches or larger, of a feature
(commonly referred to as the V-chip) designed to enable viewers to block
display of programs carrying a common rating and authorizes the FCC to
establish an advisory committee to recommend a system for rating video
programming that contains sexual, violent, or other indecent material about
9
<PAGE>
which parents should be informed, before it is displayed to children, if the
television industry does not establish a satisfactory voluntary rating system
of its own. Industry leaders announced establishment of a voluntary rating
system in January 1997. The Telecom Act also directs the FCC to adopt regu-
lations requiring increased closed-captioning of video programming and to
conduct an inquiry into the use of audio-narrated descriptions of video
programming that could increase the accessibility of such programming to
persons with visual impairments.
FCC regulations prohibit the holder of an attributable interest in a tele-
vision station from having an attributable interest in a cable television
system located within the predicted coverage area of that station. FCC regu-
lations also prohibit the holder of an attributable interest in a television
station from having an attributable interest in a daily newspaper located
within the predicted coverage area of that station. The FCC intends to conduct
a rule-making proceeding to consider possible modification of this latter
regulation.
FCC regulations implementing the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") require each television broad-
caster to elect, at three-year intervals beginning June 17, 1993, either to (i)
require carriage of its signal by cable systems in the station's market ("must-
carry") or (ii) negotiate the terms on which such broadcast station would
permit transmission of its signal by the cable systems within its market
("retransmission consent"). In a 2-1 decision issued on December 13, 1995, a
special three-judge panel of the U.S. District Court for the District of
Columbia upheld the constitutionality of the must-carry provisions. The
District Court's decision has been appealed to the U.S. Supreme Court, which
has heard the appeal and is expected to issue a decision prior to June 30,
1997. In the meantime, the FCC's must-carry regulations implementing the 1992
Cable Act remain in effect. Chris-Craft cannot predict the outcome of the
Supreme Court review of the case.
On August 8, 1996, under the Children's Television Act of 1990 (the
"CTA"), the FCC amended its rules to establish a "processing guideline" for
broadcast television stations, of at least three hours per week, averaged over
a six-month period, of "programming that furthers the educational and inform-
ational needs of children 16 and under in any respect, including the child's
intellectual/cognitive or social/emotional needs." Children's "Core
Programming" has been defined as educational and informational programming
that, among other things (i) has serving the educational and informational
needs of children "as a significant purpose," (ii) has a specified educa-
tional and informational objective and a specified target child audience,
(iii) is regularly scheduled, weekly programming, (iv) is at least 30 minutes
in length, and (v) airs between 7:00 a.m. and 10:00 p.m. Any station that
satisfied the processing guideline by broadcasting at least three weekly
hours of Core Programming will receive FCC staff-level approval of the
portion of its license renewal application pertaining to the CTA. Alterna-
tively, a station may qualify for staff-level approval even if it broadcasts
"somewhat less" than three hours per week of Core Programming by demon-
strating that it has aired a weekly package of different types of educational
and informational programming that is "at least equivalent" to three hours of
Core Programming. Non-Core Programming that can qualify under this alterna-
tive includes specials, public service announcements, short-form programs
and regularly scheduled non-weekly programs, with "a significant purpose of
educating and informing children." A licensee that does not meet the pro-
cessing guidelines under either of these alternatives will be referred by
the FCC's staff to the Commissioners of the FCC, who will evaluate the
licensee's compliance with the CTA on the basis of both its programming and
its other efforts related to children's educational and informational pro-
gramming, e.g., its sponsorship of Core Programming on other stations in the
market, or nonbroadcast activities "which enhance the value" of such pro-
gramming. A television station ultimately found not to have complied with
the CTA could face sanctions including monetary fines and the possible non-
renewal of its broadcast license.
The FCC is conducting a rulemaking proceeding to devise a table of channel
allotments in connection with the introduction of digital television service
("DTV"). The FCC has preliminarily decided to assign a second broadcast
channel to each full-power commercial television station for DTV operation.
According to this preliminary decision, stations would be permitted to phase in
their DTV operations over a period of several years following adoption of a
final table of allotments, after which they would be required to surrender
their non-DTV channels. Meanwhile, Congress is considering proposals that
would require incumbent broadcasters to bid at auctions for the additional
spectrum required to effect a transition to DTV, or, alternatively, would
assign additional DTV spectrum to incumbent broadcasters and require the
early surrender of this non-DTV channel for sale by public
10
<PAGE>
auction. Chris-Craft cannot predict if, or when, any of these proposals will
be adopted or the effect, if any, adoption of such proposals would have on
Chris-Craft.
The FCC currently is reviewing certain of its rules governing the rela-
tionship between broadcast television networks, including UPN, and their
affiliated stations. In a rulemaking proceeding, the FCC is examining its rules
prohibiting broadcast television networks from representing their affiliated
stations for the sale of non-network advertising time and from influencing or
controlling the rates set by their affiliates for the sale of such time.
Separately, the FCC is conducting a rulemaking proceeding to consider the
relaxing or elimination of its rules prohibiting broadcast networks from (i)
restricting their affiliates' rights to reject network programming, (ii)
reserving an option to use specified amounts of their affiliates' broadcast
time, and (iii) forbidding their affiliates from broadcasting the programming
of another network; and to consider the relaxation of its rule prohibiting
network affiliated stations from preventing other stations from broadcasting
the programming of their network.
The Communications Act limits the amount of capital stock that aliens
(including their representatives, foreign governments, their representatives,
and entities organized under the laws of a foreign country) may own in a tele-
vision station licensee or any corporation directly or indirectly controlling
such licensee. No more than 20% of a licensee's capital stock and, if the FCC
so determines, no more than 25% of the capital stock of a company controlling
a licensee, may be owned, directly or indirectly, or voted by aliens or their
representatives. Should alien ownership exceed this limit, the FCC may revoke
or refuse to grant or renew a television station license or approve the
assignment or transfer of such license. Chris-Craft believes the ownership by
aliens of its stock and that of BHC and UTV to be below the applicable limit.
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a licensee without the prior approval of the FCC.
Legislation was introduced in the past that would impose a transfer fee on
sales of broadcast properties. Although that legislation was not adopted,
similar proposals, or a general spectrum licensing fee, may be advanced and
adopted in the future. Recent legislation has imposed annual regulatory fees
applicable to BHC stations, currently ranging as high as $22,400 per station.
The foregoing does not purport to be a complete summary of all the pro-
visions of the Communications Act or regulations and policies of the FCC there-
under. Reference is made to the Communications Act, such regulations and the
public notices promulgated by the FCC for further information.
Other Federal agencies, including principally the Federal Trade Commis-
sion, also impose a variety of requirements that affect the business and
operations of broadcast stations. Proposals for additional or revised
requirements are considered by the FCC, other Federal agencies or Congress
from time to time. Chris-Craft cannot predict what new or revised Federal
requirements may result from such consideration or what impact, if any, such
requirements might have upon the operation of BHC television stations.
Competition
BHC television stations compete for advertising revenue in their
respective markets, primarily with other broadcast television stations and
cable television channels, and compete with other advertising media as well.
Such competition is intense.
In addition to programming, management ability and experience, technical
factors and television network affiliations are important in determining
competitive position. Competitive success of a television station depends
primarily on public response to the programs broadcast by the station in rela-
tion to competing entertainment, and the results of this competition affect the
advertising revenues earned by the station from the sale of advertising time.
Audience ratings provided by Nielsen have a direct bearing on the
competitive position of television stations. In general, major network pro-
grams achieve higher ratings than other programs.
11
<PAGE>
There are at least five other commercial television stations in each
market served by a BHC station. Chris-Craft believes that the three VHF
major-network affiliates and the two other VHF stations in New York City
generally attract a larger viewing audience than does WWOR UPN 9, and that
WWOR UPN 9 generally attracts a viewing audience larger than the audiences
attracted by the UHF stations in the New York City market. In Los Angeles,
the three VHF major-network affiliates and three other VHF stations generally
attract a larger viewing audience than does KCOP UPN 13, and KCOP UPN 13
generally attracts a viewing audience larger than the ten UHF stations in Los
Angeles. In Portland, the three VHF major-network affiliated stations
generally attract a larger audience than does KPTV UPN 12, which generally
attracts a larger audience than the other independent stations, both of which
are UHF stations. Chris-Craft believes that, in Minneapolis/St. Paul, KMSP
UPN 9 generally attracts a smaller viewing audience than the three major
network-affiliated VHF stations, but a larger viewing audience than the other
three stations, all of which are UHF stations. In Salt Lake City, KTVX
generally ranks first of the six television stations in terms of audience
share. In San Antonio, KMOL generally ranks first of the six stations in
terms of audience share. Of the 14 commercial television stations in San
Francisco, KBHK UPN 44 generally ranks fifth in terms of audience share,
behind the three major network-affiliated VHF television stations, and the VHF
Fox affiliate. KUTP UPN 45 generally ranks sixth in terms of audience share,
of the eight commercial stations in the Phoenix market.
BHC stations may face increased competition in the future from additional
television stations that may enter their respective markets. See note (c) to
the table under Television Division.
Cable television has become a major competitor of television broadcasting
stations. Because cable television systems operate in each market served by a
BHC station, the stations are affected by rules governing cable operations.
If a station is not widely accessible by cable in those markets having strong
cable penetration, it may lose effective access to a significant portion of
the local audience. Even if a television station is carried on a local cable
system, an unfavorable channel or service tier position on the cable system
may adversely affect the station's audience ratings and, in some circumstances,
a television set's ability to receive the station being carried on an
unfavorable channel position. Some cable system operators may be inclined to
place broadcast stations in unfavorable channel locations. Similar competi-
tive effects may be expected from video delivery systems offered by local
telephone companies, as permitted by the provisions of the Telecom Act.
While Federal law has until recently generally prohibited local telephone
companies from providing video programming to subscribers in their service
areas, this prohibition has been substantially eliminated by the Telecom Act.
The FCC has also recently adopted rules for "Open Video Systems" -- a new
structure of video delivery system authorized by the Telecom Act for provision
by local telephone companies and, if permitted by the FCC, others. Chris-
Craft is unable to predict the outcome or effect of these developments.
"Syndicated exclusivity" rules allow television stations to prevent local
cable operators from importing distant television programming that duplicates
syndicated programming in which local stations have acquired exclusive rights.
In conjunction with these rules, network nonduplication rules protect the
exclusivity of major-network broadcast programming within the local video
marketplace. The FCC is also reviewing its "territorial exclusivity" rule,
which limits the area in which a broadcaster can obtain exclusive rights to
video programming. Chris-Craft believes that the competitive position of BHC
stations would likely be enhanced by an expansion of broadcasters' permitted
zones of exclusivity.
Alternative technologies could increase competition in the areas served
by BHC stations and, consequently, could adversely affect their profitability.
Five direct broadcast satellite ("DBS") systems currently provide service, and
others are expected to begin service during the next two years. The number of
subscribers to DBS services increased substantially during the past two years,
from approximately 600,000 at the end of 1994, to approximately 4.3 million at
the end of 1996. The emergence of home satellite dish antennas has also made
it possible for individuals to receive a host of video programming options via
satellite transmission. An additional challenge is now posed by wireless
cable systems, including multichannel distribution services ("MDS"). At the
end of 1994, wireless cable systems served about 800,000 subscribers. Two
four-channel MDS licenses have been granted in
12
<PAGE>
most television markets. MDS operation can provide commercial programming on
a paid basis. A similar service can also be offered using the instructional
television fixed service ("ITFS"). The FCC now allows the educational
entities that hold ITFS licenses to lease their "excess" capacity for
commercial purposes. The multichannel capacity of ITFS could be combined with
either an existing single channel MDS or a newer multichannel multi-point
distribution service to increase the number of available channels offered by
an individual operator.
Technological developments in television transmission have created the
possibility that one or more of the broadcast and nonbroadcast television
media will provide enhanced or "high definition" pictures and sound to the
public of a quality that is technically superior to that of the pictures and
sound currently available. It is not yet clear when and to what extent
technology of this kind will be available to the various television media;
whether and how television broadcast stations will be able to avail themselves
of these improvements; whether all television broadcast stations will be
afforded sufficient spectrum to do so; what channels will be assigned to each
of them to permit them to do so; whether viewing audiences will make choices
among services upon the basis of such differences; or, if they would, whether
significant additional expense would be required for television stations to
provide such services. Many segments of the television industry are
intensively studying digital television technology. A proceeding is under way
at the FCC regarding digital television service policies, including "high
definition" television service. The Telecom Act, as well as proposed federal
legislation, addresses several of these issues. Chris-Craft is unable to
predict the outcome of these developments.
The broadcasting industry is continuously faced with technological
changes, competing entertainment and communications media and governmental
restrictions or actions of Federal regulatory bodies, including the FCC.
These technological changes may include the introduction of digital compres-
sion by cable systems that would significantly increase the number and
availability of cable program services with which BHC stations compete for
audience and revenue, the establishment of interactive video services, and the
offering of multimedia services that include data networks and other computer
technologies. Such factors have affected, and will continue to affect, the
revenue growth and profitability of Chris-Craft.
Industrial Division
Chris-Craft Industrial Products, Inc., the wholly owned subsidiary of
Chris-Craft that constitutes its Industrial Division, is primarily engaged in
manufacturing plastic flexible films. These products are marketed as roll and
cut stock as well as proprietary and private-label end products. The end
products include plastic flexible films and water-soluble hospital laundry
bags.
Significant portions of the sales of the Industrial Division are to the
flexible film packaging industry and health care facilities. Sales of
particular items may vary widely from year to year as specifications, designs
and other conditions change. The products of the Industrial Division are sold
by it directly and by sales agents and distributors.
Sales of plastic film to two large chemical manufacturers equaled 14.6%
and 5.2%, and to two health care customers equaled 8.1% and 8.0%, of 1996
Division revenues, respectively. Sales to these accounts are generally made
on the basis of competitive bidding on each item sold. Similar arrangements
with these customers have prevailed for a number of years. The loss of these
customers, unless their business was replaced by others, would have an adverse
effect on the Industrial Division.
Plastic Flexible Films
Chris-Craft's plastic flexible films are based primarily on polyvinyl
alcohol polymers; some of the film products are water-soluble in their end
use applications, while others are made water-insoluble. Chris-Craft's major
use for such film is in water-soluble packaging for pre-measured amounts of
chemical compounds. The film is also
13
<PAGE>
used in the manufacture of water-soluble hospital laundry bags. Management
is aware of competition from two other domestic and several foreign producers
of similar film.
Another series of polyvinyl alcohol film is used as a release agent in
connection with the fabrication of fiberglass-reinforced and other plastic
products. For certain of these applications, Chris-Craft's film competes with
those of a number of producers of other types of films.
M.D. Industries, Inc., a subsidiary of the Industrial Division, markets
health care products manufactured by the Division and by others, including
proprietary products made for M.D. Industries.
The Industrial Division is faced with keen competition in each of its
product lines from other companies that manufacture and sell these products.
Raw Materials
Principal raw materials used by the Industrial Division include polymers
and chemical additives. These have generally been readily available from many
sources.
ITEM 2. PROPERTIES.
Television Division
KCOP owns its studios and offices in two buildings in Los Angeles
containing a total of approximately 54,000 square feet located on adjacent
sites having a total area of approximately 1.93 acres. KCOP's transmitter
is located atop Mt. Wilson on property utilized pursuant to a permit issued by
the United States Forest Service.
KPTV owns its studios and offices in a building in Portland, Oregon,
containing approximately 45,300 square feet located on a site of approximately
2.0 acres. Its transmitter is located on its own property at a separate site
containing approximately 16.18 acres.
WWOR owns office and studio facilities in Secaucus, New Jersey,
containing approximately 110,000 square feet on approximately 3.5 acres and
leases additional office space in New York City. Along with almost all of the
television stations licensed to the New York market, WWOR's transmitter is
located on top of the World Trade Center in New York City pursuant to a lease
agreement which expires in 2004, unless terminated by WWOR in 1999.
Physical facilities consisting of offices and studio facilities are owned
by UTV in Minneapolis, San Antonio and Phoenix and are leased in Salt Lake
City and San Francisco. The Salt Lake City lease agreement expires in 1999
and is renewable, at an increased rental, for two five-year periods. The San
Francisco lease expires in 2007.
The Minneapolis facility includes approximately 49,700 square feet of
space on a 5.63-acre site. The Salt Lake City facility is approximately
30,400 square feet on a 2.53-acre site. The San Antonio facility is approxi-
mately 41,000 square feet on a .92-acre site. The San Francisco facility is
approximately 27,700 square feet in downtown San Francisco. The Phoenix
facility is approximately 26,400 square feet on a 3.03-acre site. Smaller
buildings containing transmission equipment are owned by UTV at sites separate
from the studio facilities.
UTV owns a 55-acre tract in Shoreview, Minnesota, of which 40 acres are
used by KMSP for transmitter facilities and tower.
14
<PAGE>
KTVX's transmitter facilities and tower are located at a site on Mt.
Nelson, close to Salt Lake City, under a lease that expires in 2004. KTVX
also maintains back-up transmitter facilities and tower at a site on nearby
Mt. Vision under a lease that expires in 2002 and is renewable, at no increase
in rental, for a 50-year period.
KMOL's transmitter facilities are located at a site near San Antonio on
land and on a tower owned by Texas Tall Tower Corporation, a corporation owned
in equal shares by UTV and another television station that also transmits from
the same tower.
KBHK's transmitter is located on Mt. Sutro, as part of the Sutro Tower
complex, which also houses equipment for other San Francisco television
stations and many of its FM radio stations. The lease for the Mt. Sutro
facilities expires in February 2005 and is renewable for two five-year
periods.
KUTP's transmitter facilities and tower are located on a site within
South Mountain Park, a communications park owned by the City of Phoenix, which
also contains transmitter facilities and towers for the other television
stations in Phoenix as well as facilities for several FM radio stations. The
license for this space expires in 2012.
Industrial Division
As described below, the Industrial Division owns a plant in Gary, Indiana
and leases facilities in Northbrook, Illinois and in South Holland, Illinois,
which leases expire on October 31, 1999 and June 30, 1998, respectively.
Factory and
Office Space Site
Plant Location Principal Product (Square Feet) (Acres)
- -------------- ---------------------- ------------- -------
Gary, Indiana Plastic flexible films 48,000 5
and water-disposable
hospital bags
Northbrook, Health care products 5,166 --
Illinois
South Holland, Warehouse for healthcare 33,000 --
Illinois products distribution
__________________
Chris-Craft believes its properties are adequate for their present uses.
ITEM 3. LEGAL PROCEEDINGS.
Montrose Chemical Corporation of California ("Montrose"), whose stock is
50% owned by Chris-Craft and 50% by a subsidiary of Zeneca Inc. ("Zeneca"),
discontinued its manufacturing operations in 1983 and has since been defending
claims for costs and damages relating to environmental matters. Chris-Craft
has been named as a defendant in certain of these actions by plaintiffs
seeking to hold Chris-Craft liable for Montrose activities.
15
<PAGE>
In April 1983, the United States of America and the State of California
instituted an action in the Federal District Court for the Central District of
California, entitled United States of America et al. v. J.B. Stringfellow,
et al., Case No. 83-2501 JMI (MCX), against Montrose and approximately 20
other defendants relating to alleged environmental impairment at the String-
fellow Hazardous Waste Disposal Site in California. The complaint alleges
that Montrose generated toxic wastes containing DDT which were deposited at
the Stringfellow Site between 1969 and 1972, allegedly constituting approx-
imately 19% by volume of all toxic wastes deposited at the site. During this
period, the Stringfellow Site was licensed as a hazardous waste disposal
facility by the State of California. The action seeks an injunction against
numerous generators of waste materials which were deposited at the String-
fellow Site, including Montrose, the owners of the Stringfellow Site and
others, to abate the release of substances from the site and to remedy
allegedly hazardous conditions. The action seeks to impose joint and several
liability against all defendants for all costs of removal and remedial action
incurred by the Federal and state governments at the site. On September 30,
1990, the United States Environmental Protection Agency ("EPA") issued a
Record of Decision for the site which selected some of the interim remedial
measures preferred by the EPA and the State, the estimated present value of
the capital costs of which was estimated by them to be $169 million although
the estimate purports to be subject to potential variations of up to 50%.
Plaintiffs also seek recovery for remedial expenditures. The action also
seeks unspecified damages for alleged harm to natural resources. On June 22,
1992, Montrose and other defendants signed a consent decree with the United
States regarding certain remedial work at and near the Stringfellow Site,
which decree was entered by the District Court in October 1992. On January
26, 1995, the District Court entered a ruling allocating liability at the site
under both the Comprehensive Environmental Response, Compensation and Liabil-
ity Act of 1980, as amended ("CERCLA" or the "Superfund" statute) and state
law. The CERCLA allocation was 65% to the State of California, 10% to the
owners of the site and 25% to the generator defendants (including Montrose).
The state law allocation was 100% to the State. The State is expected to
appeal, when an appealable order embodying this ruling is entered by the
District Court. In addition, in 1986-7 the United States Department of
Justice sought and received information regarding the relationship between
Montrose and its two 50% shareholders. The Department's inquiry was directed
to the issue whether Chris-Craft, as a shareholder of Montrose, should be
added as a party to the action. Chris-Craft is not aware of any further
action taken by the Department in this matter.
In June 1990, the United States of America and the State of California
commenced an action in the United States District Court for the Central
District of California, entitled United States of America et al. v. Montrose
Chemical Corporation of California et al., Civil Action No. 90-3122 AAH (JRX),
against, among others, Montrose and Chris-Craft. Certain United States
affiliates of Zeneca (the "Zeneca Affiliates"), as well as Westinghouse
Electric Corporation, which has no connection with Chris-Craft, were also
named as defendants. Brought under CERCLA, plaintiffs alleged with respect to
Montrose, Chris-Craft, and the Zeneca Affiliates, in the first cause of action,
that Montrose released hazardous substances, including DDT, into the environ-
ment in and around Los Angeles, California, including the waters surrounding
the Palos Verdes Peninsula, the Los Angeles-Long Beach Harbor, and the Channel
Islands. The first cause of action also alleged that Westinghouse released
PCBs into the same waters. The complaint sought a declaration that defendants
are jointly and severally liable for damages (in amounts not specified)
resulting from injury to natural resources caused by the alleged releases,
including loss of use and costs of restoration, plus plaintiffs' costs in
assessing such damages. In the second cause of action, plaintiffs also sought
to hold Montrose, Chris-Craft, and the Zeneca Affiliates jointly and severally
liable for all costs incurred and to be incurred in connection with alleged
hazardous substance contamination to soil and ground water at the site of
Montrose's former plant in Torrance, California. In January 1995, after
producing expert reports to support the first cause of action describing both
the alleged natural resources damages and also possible restoration plans for
dredging or capping the allegedly contaminated ocean sediments, the plaintiffs
stated that, although they have not completed their restoration analysis, they
would seek to recover between approximately $300 million and $1.1 billion from
the defendants.
On March 22, 1995, the District Court granted the defendants' motion for
summary judgment on the first cause of action, ruling that the government's
claim for natural resource damages was barred by the applicable statute of
limitations and also ruling that CERCLA would limit the collective maximum
liability of Montrose, Chris-Craft,
16
<PAGE>
and the Zeneca Affiliates for natural resource damages to $50 million. On
January 17, 1997, the U.S. Court of Appeals for the Ninth Circuit reversed the
District Court's rulings. The Ninth Circuit denied the government's request
that the case be reassigned to a different District Judge on remand. Also,
the Ninth Circuit did not address a separate March 22, 1995 ruling by the
District Court that the plaintiffs bear the burden of proving that any damages
that occurred before CERCLA's enactment in December 1980 are indivisible from
post-enactment damages.
On July 10, 1996, EPA issued two internal memoranda in which it concluded
that the ocean sediments threaten human health and the environment, and stated
its intention to undertake an Engineering Evaluation/Cost Analysis ("EE/CA")
under CERCLA to identify appropriate interim response actions. The EE/CA,
which is in its preliminary stages, is being managed as part of EPA's activi-
ties relative to the former Montrose plant in Torrance, California. In Sep-
tember 1996, Chris-Craft, Montrose, the Zeneca Affiliates and Westinghouse
filed petitions in the Court of Appeals for the District of Columbia Circuit
challenging EPA's July 1996 actions on the grounds that they effectively added
the area of the sediments to EPA's National Priorities List of Contaminated
Sites without following the necessary administrative rulemaking procedures.
In 1993, the District Court approved a $45.7 million
settlement of all natural resource damage claims between the plaintiffs and
the Los Angeles County Sanitation District and a series of other local govern-
mental entities that had been sued by Montrose, Chris-Craft and other defend-
ants as third-party defendants (the "LACSD Defendants"). In March 1995 the
Ninth Circuit reversed the District Court's approval of the settlement,
primarily on the grounds that the plaintiffs had not provided an overall
estimate of the damages at issue and had not specified what portion of
overall liability was attributable to the settling parties.
On March 25, 1997, the plaintiffs lodged with the District Court an
amended $45.7 million settlement with the LACSD Defendants. In light of EPA's
recent activities on the Palos Verdes Shelf, this settlement purports to cover
claims both for natural resource damages and also for response costs (which
are asserted by EPA). The settlement states that for its purposes the
plaintiffs value their total natural resource damage and response cost claims
with respect to the Palos Verdes Shelf at $225 million to $250 million. This
settlement does not provide any detailed explanation of how this range was
determined, although it apparently is based on a rough estimate of the cost of
undertaking some remediation of the contaminated sediments. EPA also states
in the settlement that it "may determine that no action is appropriate" to
remediate the sediments.
Since 1984 Montrose has been complying with a Consent Order entered into
with the Nevada Department of Conservation and Natural Resources Division of
Environmental Protection ("DEP") requiring operation of a ground water inter-
cept treatment system near a production facility used by Montrose until 1985
in Henderson, Nevada. The EPA and DEP are currently reconsidering whether
the complex that includes the Henderson facility should be included on the
National Priority List. In April 1991, and again in February and June 1996,
Montrose entered into additional consent orders with DEP and other parties
requiring investigation of environmental conditions at the Henderson facility.
In September 1994, the EPA notified Chris-Craft that it had been desig-
nated as a "potentially responsible party" under CERCLA (a "PRP") in con-
nection with the Diamond Alkali Superfund Site on the Passaic River in Newark,
New Jersey. The EPA alleges that hazardous substances were released into the
river from a facility operated by a predecessor company. The facility was
located near the Diamond Alkali property, but not on the riverfront, and was
sold by Chris-Craft in 1972. Chris-Craft disputes that it is a responsible
party. At the request of the EPA, Maxus Energy Corp., the former owner of the
Diamond Alkali property and a designated PRP at the site, is currently per-
forming a feasibility study estimated to cost approximately $10 million to
determine the extent of contamination in the area and to evaluate possible
corrective actions.
In each case involving Montrose where Chris-Craft has been named as a
defendant, Chris-Craft contends that it is not liable and that it neither
owned nor operated the facilities involved, nor did it arrange for the
disposal of hazardous substances. Chris-Craft and its predecessors were
shareholders of Montrose and provided certain
17
<PAGE>
management services to Montrose as it conducted its operations. Based on the
available information, the status of the proceedings, and the applicable legal
and accounting standards, Chris-Craft, in reliance, among other things, on the
advice of counsel, believes that it should have no liability (under CERCLA or
otherwise) for the operations of Montrose and does not presently consider
liability to be "probable" in any of the Montrose-related cases. Accordingly,
under Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies," no amount has been reserved in Chris-Craft's financial state-
ments. The Diamond Alkali Superfund Site matter does not include Montrose,
and based on the review to date by Chris-Craft and its counsel, they believe
Chris-Craft has been erroneously identified as a PRP at the site; Chris-Craft
is unable to determine at this stage if it could have any liability at the
site.
If a court ultimately rejected Chris-Craft's defenses, under CERCLA
Chris-Craft could be held jointly and severally liable, without regard to
fault, for response costs and natural resource damages. A party's ultimate
liability at a site generally depends on its involvement at the site, the
nature and extent of contamination, the remedy selected, the role of other
parties in creating the alleged contamination and the availability of contri-
bution from those parties, as well as any insurance or indemnification agree-
ments which may apply. In most cases, both the resolution of the complex
issues involved and any necessary remediation expenditures occur over a number
of years. Future legal and technical developments in each of the foregoing
matters will be periodically reviewed to determine if the accrual of reserves
would be appropriate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of Chris-Craft, as of February 28, 1997, are as
follows:
Has served
Positions with Chris-Craft and as officer
Name age as of February 28, 1997 since
- ----------------- ------------------------------ ----------
Herbert J. Siegel Chairman of the Board and President; 68 1968
Evan C Thompson Executive Vice President and President, 1982
Television Division; 54
John C. Siegel Senior Vice President; 44 1985
William D. Siegel Senior Vice President; 42 1985
Joelen K. Merkel Vice President and Treasurer; 45 1980
Brian C. Kelly General Counsel and Secretary; 45 1992
The principal occupation of each of the individuals for the past five
years is stated in the foregoing table, except that prior to being elected
General Counsel and Secretary of Chris-Craft on December 14, 1992, Brian C.
Kelly served as President of Finevest Foods, Inc. ("Finevest") from July
1992 through December 13, 1992, served as Executive Vice President, General
Counsel and Secretary of Finevest from March 1992 until July 1992 and served
as Vice President, General Counsel and Secretary of Finevest prior to
February 1992.
All officers hold office until the meeting of the Board following the next
annual meeting of stockholders or until removed by the Board.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information appearing in the Annual Report under the caption STOCK
PRICE, DIVIDEND AND RELATED INFORMATION is incorporated herein by this
reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information appearing in the Annual Report under the caption SELECTED
FINANCIAL DATA is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information appearing in the Annual Report under the caption
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS is incorporated herein by this reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, Notes thereto, Report of Inde-
pendent Accountants thereon and Quarterly Financial Information (unaudited)
appearing in the Annual Report are incorporated herein by this reference.
Except as specifically set forth herein and elsewhere in this Form 10-K, no
information appearing in the Annual Report is incorporated by reference into
this report nor is the Annual Report deemed to be filed, as part of this
report or otherwise, pursuant to the Securities Exchange Act of 1934.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing in the Proxy Statement under the captions
ELECTION OF DIRECTORS--Nominees of the Board of Directors and ELECTION OF
DIRECTORS-- Section 16(a) Beneficial Ownership Compliance is incorporated
herein by this reference. Information relating to Chris-Craft's executive
officers is set forth in Part I under the caption EXECUTIVE OFFICERS OF THE
REGISTRANT.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS--Executive Compensation is incorporated herein by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS--Voting Securities of Certain Beneficial Owners and
Management is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS--Certain Relationships and Related Transactions is
incorporated herein by this reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements and quarterly financial information
incorporated by reference from the Annual Report pursuant to
Item 8.
2. The financial statements of UPN and report thereon listed under
the caption Schedules in the Index to Consolidated Financial
Statements and Schedules.
3. Exhibits listed in the Exhibit Index, including compensatory
plans or arrangements listed below:
* Benefit Equalization Plan
* 1988 Management Incentive Plan
* 1989 Director Stock Option Plan
* 1994 Management Incentive Plan
* 1994 Director Stock Option Plan
* Employment Agreement dated as of January 1, 1994 between
Herbert J. Siegel and Chris-Craft.
* Employment Agreement dated as of January 1, 1994 between
Evan C Thompson and Chris-Craft.
(b) No reports on Form 8-K were filed by the registrant during the last
quarter of the period covered by this report.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: March 28, 1997
CHRIS-CRAFT INDUSTRIES, INC.
(Registrant)
By:WILLIAM D. SIEGEL
William D. Siegel
Senior Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature and Title Date
HERBERT J. SIEGEL March 28, 1997
Herbert J. Siegel
Chairman, President and
Director (principal executive
officer)
WILLIAM D. SIEGEL March 28, 1997
William D. Siegel
Senior Vice President and
Director (principal
financial officer)
JOELEN K. MERKEL March 28, 1997
Joelen K. Merkel
Vice President and Treasurer
(principal accounting officer)
EVAN C THOMPSON March 28, 1997
Evan C Thompson
Executive Vice President and
Director
22
<PAGE>
HOWARD ARVEY March 28, 1997
Howard Arvey
Director
LAWRENCE R. BARNETT March 28, 1997
Lawrence R. Barnett
Director
JOHN C. BOGLE March 28, 1997
John C. Bogle
Director
T. CHANDLER HARDWICK, III March 28, 1997
T. Chandler Hardwick, III
Director
JEANE J. KIRKPATRICK March 28, 1997
Jeane J. Kirkpatrick
Director
DAVID F. LINOWES March 28, 1997
David F. Linowes
Director
NORMAN PERLMUTTER March 28, 1997
Norman Perlmutter
Director
JAMES J. ROCHLIS March 28, 1997
James J. Rochlis
Director
JOHN C. SIEGEL March 28, 1997
John C. Siegel
Director
23
<PAGE>
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - For the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Investment - For
the Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
SCHEDULES:
UPN Financial Statements --
Report of Independent Accountants
Balance Sheets - December 31, 1996 and 1995
Statements of Operations -
For the Years Ended December 31, 1996 and 1995
Statements of Changes in Partners' Capital (Deficit) -
For the Years Ended December 31, 1996 and 1995
Statements of Cash Flows - For the Years
Ended December 31, 1996 and 1995
Notes to Financial Statements
34
United Paramount Network
(a partnership between BHC Network
Partner, Inc., BHC Network Partner II, Inc.
and BHC Network Partner III, Inc.)
Report and Financial Statements
December 31, 1996 and 1995
Report of Independent Accountants
January 31, 1997
To the Partners
of United Paramount Network
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in partners' capital (deficit) and of cash flows
present fairly, in all material respects, the financial position of United
Paramount Network (a partnership between BHC Network Partner, Inc., BHC
Network Partner II, Inc. and BHC Network Partner III, Inc.) at December 31,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of United Paramount Net-
work's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
<PAGE>
United Paramount Network
Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 557 $ 74
Accounts receivable (net of allowance for
doubtful accounts of $430 and $178,
respectively) 25,057 9,040
Program rights and development costs (net
of reserve for abandonment of $5,613
and $4,631, respectively) 17,815 12,893
Other current assets 402 609
------- --------
Total current assets 43,831 22,616
------- --------
Restricted cash 1,157 974
Property and equipment, at cost: ------- --------
Furniture, fixtures and computer equipment 1,065 1,065
Leasehold improvements and other 358 358
------- --------
1,423 1,423
Less accumulated depreciation 508 198
------- --------
915 1,225
------- --------
Intangible asset (net of accumulated
amortization of $108 and $54, respectively) 163 217
Investment in joint venture (net of reserve of
$2,158 and $0, respectively) 2,827 2,750
------- --------
$48,893 $ 27,782
======= =========
Liabilities and Partners' Capital (Deficit)
Current liabilities:
Accounts payable $ 4,027 $ 3,224
Accrued program costs 18,168 10,587
Accrued expenses and other liabilities 25,304 11,844
------- --------
Total current liabilities 47,499 25,655
------- --------
Due to related party -- 109,941
------- --------_
Total liabilities 47,499 135,596
Commitments and contingencies (Note 6)
Partners' capital (deficit):
Network Partner (4,172) (8,942)
Network Partner II (3,703) (98,872)
Network Partner III 9,269 --
------- --------
Total partners' capital (deficit) 1,394 (107,814)
------- --------
$ 48,893 $ 27,782
======== =========
<?TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
United Paramount Network
Statement of Operations
(in thousands)
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1996 1995
<S> <C> <C>
Net revenues $ 56,948 $ 30,376
Operating costs and expenses:
Operating expenses 132,593 99,940
Selling, general and administrative
expenses 67,359 58,924
Depreciation and amortization 364 252
--------- ---------
200,316 159,116
--------- ---------
Operating loss (143,368) (128,740)
--------- ---------
Other income (expense):
Interest expense to related parties (14,147) (4,535)
--------- ---------
Interest and other income 193 62
Net loss on investment in joint venture (3,138) (625)
--------- ---------
(17,092) (5,098)
--------- ---------
Net loss $(160,460) $(133,838)
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
United Paramount Network
Statements of Changes in Partners' Capital (Deficit)
(in thousands)
<TABLE>
<CAPTION>
Network Network
Network Partner Partner
Partner II III Total
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 1,500 $ 1,338 $ -- $ 2,838
Capital contributions -- 23,186 -- 23,186
Capital transfers between partners (3,977) 3,977 -- --
Allocation of 1995 net loss (6,465) (127,373) -- (133,838)
-------- --------- -------- ---------
Balance at December 31, 1995 (8,942) (98,872) -- (107,814)
Capital contributions -- -- 20,000 20,000
Conversion of debt to equity 8,398 164,101 63,016 235,515
Conversion of accrued interest
to equity 12 9,500 4,641 14,153
Allocation of 1996 net loss (3,640) (78,432) (78,388) (160,460)
-------- --------- -------- ---------
Balance at December 31, 1996 $(4,172) $ (3,703) $ 9,269 $ 1,394
======== ========== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
United Paramount Network
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net loss $(160,460) $(133,838)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of program costs 126,793 91,744
Payments for programming (121,822) (98,420)
Depreciation and amortization 364 252
Abandonment reserve 982 4,631
Changes in assets and liabilities:
Increase in accounts receivable, net (16,017) (9,025)
Increase in accounts payable, accrued
expenses and other current liabilities 25,116 12,546
Decrease in other assets 207 3,052
--------- ---------
Net cash used in operating activities (144,837) (129,058)
--------- ---------
Cash flows from investing activities:
Additions to property and equipment -- (1,113)
Cash placed in restricted account (183) (974)
Increase in intangible asset -- (271)
Net investment in joint venture (77) (2,750)
--------- ---------
Net cash used in investing activities (260) (5,108)
--------- ---------
Cash flows from financing activities:
Advances from related party 125,580 109,935
Capital contributions 20,000 23,186
--------- ---------
Net cash provided by financing activities 145,580 133,121
--------- ---------
Net increase (decrease) in cash
and cash equivalents 483 (1,045)
Cash and cash equivalents:
Beginning of year 74 1,119
--------- ---------
End of year $ 557 $ 74
========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ -- $ 4,530
========= =========
Supplemental schedule of non-cash
financing activities:
Advances from related party
converted to equity $ 235,521 $ --
========= =========
Accrued interest converted
to equity $ 14,147 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
United Paramount Network
Notes to Financial Statements
For the Years Ended December 31, 1996 and 1995
Note 1 - Organization
In July 1994, BHC Network Partner, Inc. ("Network Partner"), a wholly owned
subsidiary of Chris-Craft Industries, Inc.'s majority owned subsidiary, BHC
Communications, Inc. ("BHC"), along with PCI Network Partner, Inc. ("PCI/NP"),
a wholly owned indirect subsidiary of Viacom Inc.'s Paramount Television
Group, formed the United Paramount Network ("UPN" or the "Network"), a broad-
cast television network.
UPN was organized as a partnership in December 1994 between Network Partner
and BHC Network Partner II, Inc. ("Network Partner II"), a wholly owned
indirect subsidiary of BHC. BHC Network Partner III, Inc. ("Network Partner
III"), a wholly owned indirect subsidiary of BHC, became a partner in 1996.
PCI/NP had an option to acquire an interest in UPN equal to that of Network
Partner, Network Partner II, and Network Partner III (collectively referred
to as the "Partners"). The option price included approximately one-half of
the Partners' aggregate cash contributions to UPN through the exercise date,
plus interest, and additional cash available for ongoing UPN expenditures
(see Note 7).
UPN began providing programming for broadcast in January 1995. At December
31, 1996 and 1995, the Network had 164 affiliates reaching over 92% and 150
affiliates reaching over 90% of U.S. television households, respectively.
The Network's revenues are derived entirely from providing television program-
ming and are, therefore, subject to fluctuations in the advertising industry.
Operating costs of the Network have been funded through capital contributions
and loans made by the Partners and the sale of advertising. Profits or losses
are allocated between the Partners in accordance with the partnership agree-
ment. During the years ended December 31, 1996 and 1995, UPN incurred
operating losses of $143,368,000 and $128,740,000 and negative cash flows
from operations of $144,837,000 and $129,058,000, respectively. UPN is still
in its early development and the cost of developing and expanding its program-
ming is expected to remain significant for several years. The Partners
intend to continue funding UPN as UPN incurs obligations arising through the
normal course of its business.
Note 2 - Accounting Policies
Financial Instruments
Restricted cash consists of cash and marketable securities having maturities
at time of purchase not exceeding one year, all of which are U.S. government
securities. In accordance with Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
marketable securities have been classified as held-to-maturity. The fair
value of restricted cash approximates its amortized cost, reflecting the
short maturities. Restricted cash has been placed in an account as a security
deposit, is not available for current operations of the Network and, there-
fore, has been classified as non-current in the accompanying balance sheets.
<PAGE>
NOTE 2 (continued)
Property and Equipment
Property and equipment is recorded at cost. Depreciation of furniture,
fixtures and computer equipment is computed on the straight-line method over
the estimated useful lives of the assets which range from three to five years.
Amortization of leasehold improvements is computed on a straight-line basis
over the life of the lease.
Program Rights and Development Costs
Costs for program production are capitalized as incurred. Other Network
programming rights and related liabilities are recorded at the contractual
amounts when the programming becomes available for telecasting. Capitalized
program costs are amortized over the estimated number of showings, using
accelerated methods based on management's estimate of the flow of revenues.
The estimated costs of recorded program rights to be charged to income within
one year are included in current assets; payments on such program rights due
within one year are included in current liabilities.
Costs incurred for the development of programs are capitalized and included
in the accompanying balance sheets, net of reserves established for projects
which may be terminated prior to being placed into production.
Revenue Recognition
The Network sells advertising time for broadcast on UPN programs through
Premier Advertising Sales ("Premier") a wholly owned subsidiary of Paramount
Communications, Inc., which is a subsidiary of Viacom Inc. (Note 1). Revenues
are recognized substantially as advertisements are aired, at contractual rates
as reported to UPN by Premier. With respect to certain of its programming,
UPN derives no revenue and incurs no programming expense.
Use of Estimates in Preparation of Financial Statements
Preparation of financial statements in accordance with generally accepted
accounting principles requires the use of management estimates.
Income Taxes
As a general partnership, the Network's losses are allocated to, and reported
by, the individual Partners. Therefore, no income tax benefit is included in
the accompanying financial statements.
Reclassifications
Certain amounts for 1995 have been reclassified to conform to the 1996
presentation.
<PAGE>
NOTE 3 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
(in thousands)
December 31,
1996 1995
Accrued advertising costs $16,930 $ 6,215
Accrued compensation 3,453 2,388
Accrued sales commissions 1,807 1,395
Other accrued expenses 3,114 1,846
------- -------
$25,304 $11,844
======= =======
NOTE 4 - Investment in Joint Venture
In January 1995, UPN entered into a joint venture (the "Venture") with Saban
Entertainment for the purpose of developing, producing and distributing
children's television programming. Under terms of the Venture agreement, UPN
funds certain programming costs in return for certain distribution rights to
such programming and a share of aggregate revenue. UPN accounts for its
interest in the Venture using the equity method.
NOTE 5 - Due to Related Party
During 1996 and 1995, the Partners made loans to UPN totalling $125,580,000
and $109,935,000, respectively. The related party balance as of December 31,
1995 of $109,941,000 includes accrued interest. The loans bore interest at
the prime rate (8.25% and 8.50% at December 30, 1996 and December 31, 1995,
respectively), payable annually. On December 30, 1996, all loans and accrued
interest of $14,153,000 were converted to partnership equity.
NOTE 6 - Commitments and Contingencies
The aggregate amount payable by UPN under contracts for programming not
currently available for telecasting and, accordingly, not included in accrued
program costs in the accompanying balance sheets totalled approximately
$71,000,000 and $62,000,000 at December 31, 1996 and 1995, respectively.
During 1995, UPN entered into a five year lease obligation for its office
space. The lease is noncancellable for three years and calls for certain
penalty payments upon cancellation thereafter. Rental expense was $562,000
and $427,000 for the years ended December 31, 1996 and 1995, respectively.
Aggregate future minimum lease payments at December 31, 1996 are $2,768,000,
with amounts of $755,000 due in each of the years 1997 through 1999 and
$503,000 due in 2000. Additionally, as required by the lease agreement, UPN
obtained an irrevocable letter of credit in the amount of $1,220,000 on behalf
of the lessor. The obligation under the letter of credit is required to be
reduced annually over the lease term.
<PAGE>
NOTE 7 - Subsequent Events
On January 15, 1997, PCI/NP completed its exercise of its option in accordance
with the terms of the option agreement (Note 1) and became an equal partner
with BHC in UPN. The net result of the exercise was an increase of approxi-
mately $77 million of additional capital contributed to UPN by both the
Partners and PCI/NP. Certain of the amounts contributed by PCI/NP were
distributed to the Partners in accordance with the option agreement.
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Incorporated by
Reference to: Exhibit No. Exhibit
- --------------- ----------- -------
<S> <C> <C>
Exhibit 3(A) [1] 3.1 Restated Certificate
of Incorporation
Exhibit 3(B) [2] 3.2 By-Laws
Exhibit 11(H) [2] 10.1 Benefit Equalization Plan of
registrant
Exhibit 10(B)(1) [5] 10.2 Amendment No. 1 thereto
Exhibit 10.3[10] 10.3 Amendment No. 2 thereto
Exhibit 10(B) [8] 10.4 Employment Agreement dated
January 1, 1994 between
registrant and Herbert J. Siegel
Exhibit 10(C) [8] 10.5 Split-Dollar Agreement dated
January 6, 1994 between
registrant and William D. Siegel
Exhibit 10(D) [8] 10.6 Split-Dollar Agreement dated
January 6, 1994 between
registrant and John C. Siegel
Exhibit 10(E) [3] 10.7 Form of Agreement under Executive
Deferred Income Plan of
registrant
Exhibit 10(F) [8] 10.8 Employment Agreement dated
January 1, 1994 between
registrant and Evan C Thompson
Exhibit A to Proxy 10.9 1988 Management Incentive Plan
Statement of registrant
dated March 23, 1988 (File
No. 1-2999)
Exhibit 10(G)(1) [7] 10.10 Amendment No. 1 thereto
Exhibit 10(c) [4] 10.11 Management Agreement between
the registrant and BHC dated
July 21, 1989
Exhibit 19 [6] 10.12 Amendment No. 1 thereto dated
October 31, 1991
25
<PAGE>
Exhibit 10(H)(2) [8] 10.13 Amendment No.2 thereto dated
March 24, 1994
Exhibit A to Proxy 10.14 1989 Director Stock Option Plan
Statement of registrant
dated April 26, 1990
(File No. 1-2999)
Exhibit 10(I)(1) [7] 10.15 Amendment No. 1 thereto
Exhibit A to registrant's 10.16 1994 Management Incentive Plan
proxy statement dated
March 25, 1994 (File
No. 1-2999)
Exhibit B to registrant's 10.17 1994 Director Stock Option Plan
proxy statement dated
March 25, 1994 (File
No. 1-2999)
Exhibit 10.10 [9] 10.18 Option Agreement dated July 19,
1994 between BHC Network Partner,
Inc. and PCI Network Partner,
Inc.
* 11 Computation of Primary and
Fully Diluted Income per Share
* 13 Portions of the Annual Report
incorporated by reference
* 21 Subsidiaries of the registrant
* 23 Consent of Price Waterhouse LLP
* 27 Financial Data Schedule
_________________________
</TABLE>
* Filed herewith.
[1] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1986.
[2] Registrant's Registration Statement on Form S-1 (Regis. No. 2-
65906).
[3] Registrant's Annual Report on Form 10-K for the fiscal year ended
August 31, 1983.
[4] BHC's Registration Statement on Form S-1 (Regis. No. 33-31091).
[5] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989.
26
<PAGE>
[6] Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1991.
[7] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.
[8] Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.
[9] BHC's Annual Report on Form 10-K for the year ended December 31,
1994.
[10] Registrant's Annual Report on Form 10-K for the year ended December
31, 1994.
27
Exhibit 11
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY AND FULLY DILUTED INCOME PER SHARE*
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Number of shares of common stock:
Average outstanding during the period 31,057,841 30,881,392 31,238,740
Assumed exercise of stock options 464,557 320,965 246,990
---------- ---------- ----------
Total shares used in computation of
primary income per share 31,522,398 31,202,357 31,485,730
========== ========== ==========
Average outstanding during the period
(as per above) 31,057,841 30,881,392 31,238,740
Assumed conversion, if dilutive, of
$1.40 convertible preferred stock
into common stock -- 9,218,378 9,417,076
Assumed exercise of stock options 464,557 514,828 246,990
---------- ---------- ----------
Total shares used in computation of fully
diluted income per share 31,522,398 40,614,598 40,902,806
========== ========== ==========
Net income - computation of primary income per share:
Net income $ 812 $ 21,965 $ 64,741
Less - Dividend requirements on preferred stock (436) (464) (471)
--------- --------- ---------
$ 376 $ 21,501 $ 64,270
========= ========= =========
Net income - computation of fully diluted income per share:
Net income $ 812 $ 21,965 $ 64,741
Less - Dividend requirements on preferred stock (436) (73) (73)
--------- --------- ---------
$ 376 $ 21,892 $ 64,668
========= ========= =========
Net income per share:
Primary $ .01 $ .69 $ 2.04
========= ========= =========
Fully diluted $ .01 $ .54 $ 1.58
========= ========= =========
- ----------------
* Computations give effect to all common stock dividends, including 3% stock dividends declared in
January 1997.
</TABLE>
Exhibit 21
The following were the registrant's subsidiaries as of December 31, 1996,
other than subsidiaries that, if considered in the aggregate as a single
subsidiary, would not constitute a significant subsidiary at such date:
Jurisdiction
of
Name of Subsidiary Incorporation
- ------------------ -------------
BHC Communications, Inc. Delaware
BHC Network Partner, Inc. Delaware
Chris-Craft Television, Inc. Delaware
BHC Network Partner II, Inc. Delaware
BHC Network Partner III, Inc. Delaware
KCOP Television, Inc. California
Oregon Television, Inc. Oregon
Pinelands, Inc. Delaware
United Television, Inc. Delaware
UTV of San Francisco, Inc. California
UTV of San Antonio, Inc. Texas
United Television Sales, Inc. Delaware
Chris-Craft Industrial Products, Inc. Delaware
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-21900, 33-34205, 33-59275, and 33-54817) of
Chris-Craft Industries, Inc. of our report dated February 13, 1997 appearing
on page 13 of the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K, for the year ended December 31, 1996, and our
report dated January 31, 1997 on the financial statements of United Paramount
Network appearing in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
New York, New York
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM 10K DATED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 147683
<SECURITIES> 1247496
<RECEIVABLES> 96928
<ALLOWANCES> 5993
<INVENTORY> 2787
<CURRENT-ASSETS> 1668411
<PP&E> 144737
<DEPRECIATION> 94805
<TOTAL-ASSETS> 2137259
<CURRENT-LIABILITIES> 250326
<BONDS> 0
0
6009
<COMMON> 15962
<OTHER-SE> 1266947
<TOTAL-LIABILITY-AND-EQUITY> 2137259
<SALES> 19403
<TOTAL-REVENUES> 465695
<CGS> 13472
<TOTAL-COSTS> 362427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38834
<INCOME-TAX> 19500
<INCOME-CONTINUING> 812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 812
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
STOCK PRICE, DIVIDEND AND RELATED INFORMATION
- ----------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
Chris-Craft common stock is traded on the New York Stock Exchange
and the Pacific Stock Exchange. The high and low sales prices
reported in the consolidated transaction reporting system are shown
below for the periods indicated. Since Chris-Craft Class B common
stock is ordinarily nontransferable, there is no trading market for
such class.
1996 1995
High Low High Low
- ----------------------------------------------------------------------
First Quarter 44 39 7/8 37 3/8 33
Second Quarter 44 40 1/4 36 3/4 32 1/2
Third Quarter 44 38 3/8 46 1/4 34 3/4
Fourth Quarter 42 1/4 39 1/8 44 1/4 39 1/4
Chris-Craft paid 3% stock dividends on its common stock in April
1996 and April 1995. Chris-Craft has declared a 3% stock dividend
payable in April 1997. The Board of Directors plans to continue to
consider, on an annual basis, the payment of dividends in common
stock. As of February 21, 1997, there were 2,753 holders of record of
common stock and 1,753 holders of record of Class B common stock.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ----------------------------------------------------------------------
February 13, 1997
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF CHRIS-CRAFT INDUSTRIES, INC.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, shareholders'
investment and cash flows present fairly, in all material respects,
the financial position of Chris-Craft Industries, Inc. and its
subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31,
(In thousands of dollars except per share data) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Television revenues $ 446,292 $ 454,702 $ 457,533
Sales of manufactured products 19,403 17,379 23,831
- --------------------------------------------------------------------------------------
465,695 472,081 481,364
- --------------------------------------------------------------------------------------
OPERATING EXPENSES:
Television expenses 217,928 214,223 232,635
Cost of manufactured products sold 13,472 11,754 19,108
Selling, general and administrative 131,027 135,471 121,789
- --------------------------------------------------------------------------------------
362,427 361,448 373,532
- --------------------------------------------------------------------------------------
Operating income 103,268 110,633 107,832
- --------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest and other income, net 81,879 83,949 59,928
Equity in United Paramount Network loss (146,313) (129,303) (3,977)
- --------------------------------------------------------------------------------------
(64,434) (45,354) 55,951
- --------------------------------------------------------------------------------------
Income before provision for income taxes
and minority interest 38,834 65,279 163,783
PROVISION FOR INCOME TAXES 19,500 17,600 57,300
- --------------------------------------------------------------------------------------
Income before minority interest 19,334 47,679 106,483
MINORITY INTEREST 18,522 25,714 41,742
- --------------------------------------------------------------------------------------
Net income $ 812 $ 21,965 $ 64,741
======================================================================================
Net Income per Share:
Primary $ .01 $ .69 $ 2.04
======================================================================================
Fully diluted $ .01 $ .54 $ 1.58
======================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
(In thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 812 $ 21,965 $ 64,741
Adjustments to reconcile net income to net cash
provided from operating activities:
Film contract amortization 95,291 89,321 101,869
Film contract payments (90,802) (90,994) (117,928)
Prepaid broadcast rights 5,252 4,249 8,166
Depreciation and other amortization 19,787 20,093 20,888
Equity in United Paramount Network loss 146,313 129,303 3,977
Minority interest 18,522 25,714 41,742
Other (1,488) 1,980 5,055
Changes in assets and liabilities:
Accounts receivable 2,158 6,682 (9,906)
Other assets (259) 1,268 640
Accounts payable and other liabilities 3,891 10,495 10,527
Income taxes (6,355) (23,402) 3,952
- --------------------------------------------------------------------------------------
Net cash provided from
operating activities 193,122 196,674 133,723
- --------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition of marketable securities 1,089,124 697,232 1,097,750
Purchase of marketable securities (899,924) (813,070) (937,730)
Investment in United Paramount Network (145,580) (128,585) (6,815)
Other investments (40,423) (8,748) (377)
Capital expenditures, net (10,472) (9,079) (10,676)
Other (1,585) (946) (72)
- --------------------------------------------------------------------------------------
Net cash provided from (used in)
investing activities (8,860) (263,196) 142,080
- --------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital transactions of subsidiaries (93,437) (67,605) (82,353)
Purchase of treasury stock (17,897) (19,967) (20,386)
Proceeds from exercise of employee stock options 1,359 2,218 13,095
Dividends on preferred stock (444) (467) (473)
- --------------------------------------------------------------------------------------
Net cash used in financing activities (110,419) (85,821) (90,117)
- --------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 73,843 (152,343) 185,686
Cash and Cash Equivalents at Beginning of Year 73,840 226,183 40,497
- --------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 147,683 $ 73,840 $ 226,183
======================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
(In thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 147,683 $ 73,840
Marketable securities (substantially all
U.S. Government securities) 1,247,496 1,449,598
Accounts receivable, less allowance for
doubtful accounts of $5,993 and $5,867 90,935 93,093
Film contract and prepaid broadcast rights 115,498 95,541
Prepaid expenses and other current assets 66,799 45,871
- ------------------------------------------------------------------------------
Total current assets 1,668,411 1,757,943
- ------------------------------------------------------------------------------
INVESTMENTS 46,800 7,938
- ------------------------------------------------------------------------------
FILM CONTRACT RIGHTS, including deposits, less
estimated portion to be used within one year 28,536 50,361
- ------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, at cost:
Land, buildings and improvements 43,047 38,231
Machinery and equipment 101,690 99,272
- ------------------------------------------------------------------------------
144,737 137,503
Less-Accumulated depreciation 94,805 87,576
- ------------------------------------------------------------------------------
49,932 49,927
- ------------------------------------------------------------------------------
INTANGIBLE ASSETS 322,824 321,945
- ------------------------------------------------------------------------------
OTHER ASSETS 20,756 15,739
- ------------------------------------------------------------------------------
$ 2,137,259 $ 2,203,853
==============================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
December 31,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Film contracts payable within one year $ 97,222 $ 87,634
Accounts payable and accrued expenses 112,577 105,682
Income taxes payable 40,527 33,211
- ------------------------------------------------------------------------------
Total current liabilities 250,326 226,527
- ------------------------------------------------------------------------------
FILM CONTRACTS PAYABLE AFTER ONE YEAR 80,837 86,392
- ------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES 10,918 11,588
- ------------------------------------------------------------------------------
MINORITY INTEREST 506,260 560,326
- ------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' INVESTMENT:
Cumulative preferred stock -
Prior preferred stock - $1.00 dividend; stated
at liquidating value of $21.50 per share;
currently authorized 73,399 shares;
outstanding 73,399 shares 1,578 1,578
Convertible preferred stock - $1.40 dividend;
stated at $17.50 per share; currently
authorized 253,195 shares; outstanding 253,195
and 275,758 shares (liquidating value $23.00
per share, aggregating $5,823) 4,431 4,826
Class B common stock - par value $.50 per share;
currently authorized 50,000,000 shares;
outstanding 7,870,807 and 7,652,273 shares 3,935 3,826
Common stock - par value $.50 per share;
currently authorized 100,000,000 shares;
outstanding 22,472,409 and 21,478,079 shares 12,027 11,530
Capital surplus 311,623 301,351
Retained earnings 954,048 989,181
Increase to reflect marketable securities at
market value 1,276 6,728
- ------------------------------------------------------------------------------
1,288,918 1,319,020
- ------------------------------------------------------------------------------
$ 2,137,259 $ 2,203,853
==============================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Outstanding Shares
- --------------------------------------------------------------------------------------
Class B $1.00 $1.40
Common Common Preferred Preferred
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 19,911,536 7,379,866 73,399 297,946
Net income - - - -
Marketable securities valuation adjustment - - - -
Capital transactions of subsidiaries - - - -
Dividends on preferred stock - - - -
Common stock dividend - 3% 608,418 226,571 - -
Conversion of preferred stock 250,339 195,244 - (15,120)
Conversion of Class B common stock 233,860 (233,860) - -
Stock options, including related tax benefits 537,221 - - -
Acquisition of treasury stock - - - -
Retirement of treasury stock (562,200) - - -
- --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 20,979,174 7,567,821 73,399 282,826
Net income - - - -
Marketable securities valuation adjustment - - - -
Capital transactions of subsidiaries - - - -
Dividends on preferred stock - - - -
Common stock dividend - 3% 620,551 225,514 - -
Conversion of preferred stock 109,376 109,150 - (7,068)
Conversion of Class B common stock 250,212 (250,212) - -
Stock options, including related tax benefits 77,166 - - -
Acquisition of treasury stock - - - -
Retirement of treasury stock (558,400) - - -
- --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 21,478,079 7,652,273 73,399 275,758
Net income - - - -
Marketable securities valuation adjustment - - - -
Capital transactions of subsidiaries - - - -
Dividends on preferred stock - - - -
Common stock dividend - 3% 645,915 227,205 - -
Conversion of preferred stock 306,970 412,734 - (22,563)
Conversion of Class B common stock 421,405 (421,405) - -
Stock options, including related tax benefits 53,940 - - -
Acquisition of treasury stock - - - -
Retirement of treasury stock (433,900) - - -
- --------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 22,472,409 7,870,807 73,399 253,195
======================================================================================
<PAGE>
<CAPTION>
Treasury
Shares Dollar Amount (In thousands)
- ---------- --------------------------------------------------------------------------
Market
Common Preferred Capital Retained Treasury Valuation
Common Stocks Stocks Surplus Earnings Stock Account
- ---------- --------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
- $14,437 $6,792 $275,443 $961,555 $ - $ -
- - - - 64,741 - -
- - - - - - (9,794)
- - - (1,991) - - -
- - - - (473) - -
- 417 - 29,075 (29,492) - -
- 223 (265) 42 - - -
- - - - - - -
- 268 - 15,340 - - -
(562,200) - - - - (20,100) -
562,200 (281) - (19,819) - 20,100 -
- --------------------------------------------------------------------------------------
- 15,064 6,527 298,090 996,331 - (9,794)
- - - - 21,965 - -
- - - - - - 16,522
- - - (7,809) - - -
- - - - (467) - -
- 423 - 28,225 (28,648) - -
- 109 (123) 13 - - -
- - - - - - -
- 39 - 2,401 - - -
(558,400) - - - - (19,848) -
558,400 (279) - (19,569) - 19,848 -
- --------------------------------------------------------------------------------------
- 15,356 6,404 301,351 989,181 - 6,728
- - - - 812 - -
- - - - - - (5,452)
- - - (8,840) - - -
- - - - (444) - -
- 436 - 35,065 (35,501) - -
- 360 (395) 34 - - -
- - - - - - -
- 27 - 1,602 - - -
(433,900) - - - - (17,806) -
433,900 (217) - (17,589) - 17,806 -
- --------------------------------------------------------------------------------------
- $15,962 $6,009 $311,623 $954,048 $ - $ 1,276
======================================================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
Note 1
- ----------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) BUSINESS AND BASIS OF PRESENTATION
Chris-Craft's primary business is television broadcasting,
conducted through its majority owned (75.9% at December 31, 1996 and
73.9% at December 31, 1995) television broadcasting subsidiary, BHC
Communications, Inc. BHC wholly owned subsidiaries operate three
television stations, and BHC's majority owned (59.0% at December 31,
1996 and 57.3% at December 31, 1995) subsidiary, United Television,
Inc. (UTV), operates five television stations.
BHC accounts for its interest in the partnership that operates the
United Paramount Network (UPN), a fifth broadcast network which
premiered in January 1995, under the equity method. BHC recorded
100% of UPN's start-up losses from the network's 1994 inception
through December 31, 1996, consistent with BHC's sole ownership of the
partnership during that period. In January 1997, Viacom Inc.
completed its acquisition of a 50% interest in the partnership, and
future BHC operating results will accordingly reflect BHC's then pro
rata interest in UPN.
The accompanying consolidated financial statements include the
accounts of Chris-Craft and its subsidiaries, after elimination of all
significant intercompany accounts and transactions. The pro rata
interests of BHC and UTV minority shareholders in the net income and
net assets of BHC and UTV are set forth as minority interest in the
Consolidated Statements of Income and Consolidated Balance Sheets,
respectively. Preparation of financial statements in accordance with
generally accepted accounting principles requires the use of
management estimates. Certain prior year amounts have been restated
to conform with the 1996 presentation.
(B) FINANCIAL INSTRUMENTS
Cash and cash equivalents totalled $147,683,000 at December 31,
1996 and $73,840,000 at December 31, 1995. Cash equivalents are money
market securities having maturities at time of purchase not exceeding
three months. The fair value of cash equivalents approximates
carrying value, reflecting their short maturities.
All of Chris-Craft's marketable securities have been categorized as
available for sale and are carried at fair market value. Since
marketable securities are available for current operations, all are
included in current assets as follows:
Gross Unrealized
----------------
(In thousands) Cost Gains Losses Fair Value
- ----------------------------------------------------------------------
December 31, 1996:
U.S. Government
securities $1,151,818 $ 884 $ 868 $1,151,834
Other 93,605 7,450 5,393 95,662
- ----------------------------------------------------------------------
$1,245,423 $ 8,334 $ 6,261 $1,247,496
======================================================================
December 31, 1995:
U.S. Government
securities $1,328,855 $ 4,986 $ 925 $1,332,916
Other 106,427 10,474 219 116,682
- ----------------------------------------------------------------------
$1,435,282 $ 15,460 $ 1,144 $1,449,598
======================================================================
Of the U.S. Government securities held at December 31, 1996, 87%
mature within one year and all within two years.
Certain additional information related to Chris-Craft's marketable
securities as of and for the years ended December 31, 1996, 1995 and
1994 is as follows:
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------
Sales proceeds $1,089,124 $ 697,232 $1,097,750
Realized gains 4,749 2,374 1,286
Realized losses 466 4,697 7,734
Net unrealized gain (loss) 2,073 14,316 (25,485)
Adjustment for unrealized
gain (loss), net of deferred
income taxes and minority
interests $ 1,276 $ 6,728 $ (9,794)
======================================================================
For purposes of computing gains and losses, cost was determined
using the specific identification method.
(C) FILM CONTRACTS
Chris-Craft's television stations own film contract rights which
allow generally for limited showings of films and syndicated programs.
Film contract rights and related liabilities are recorded when the
programming becomes available for telecasting.
Contracts are amortized over the estimated number of showings,
using primarily accelerated methods as films are used, based on
management's estimates of the flow of revenue and ultimate total cost
for each contract. In the opinion of management, future revenue
derived from airing programming will be sufficient to cover related
unamortized rights balances at December 31, 1996. The estimated costs
of recorded film contract rights to be charged to income within one
year are included in current assets; payments on such contracts due
within one year are included in current liabilities. The approximate
future maturities of film contracts payable after one year at December
31, 1996 are $48,755,000, $23,967,000, $5,869,000 and $2,246,000 in
1998, 1999, 2000 and thereafter, respectively. The net present value
at December 31, 1996 of such payments, based on an 8.5% discount rate,
was approximately $68,000,000. See Note 9.
(D) DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is generally provided on the
straight-line method over the estimated useful lives of the assets,
except that leasehold improvements are amortized over the lives of the
respective leases, if shorter.
(E) INTANGIBLE ASSETS
Intangible assets reflect the excess of the purchase prices of
businesses acquired over net tangible assets at dates of acquisition.
The carrying values of such intangibles as of December 31, 1996 and
1995 are as follows:
(In thousands) 1996 1995
- ----------------------------------------------------------------------
Television Division $ 322,050 $ 321,171
Industrial Division 774 774
- ----------------------------------------------------------------------
$ 322,824 $ 321,945
======================================================================
Television Division amounts primarily relate to television station
WWOR, which was acquired in 1992, and are being amortized on a
straight-line basis over 40 year periods. Accumulated amortization of
intangible assets totalled $56,653,000 at December 31, 1996 and
$47,333,000 at December 31, 1995. Intangible assets at December 31,
1996 include goodwill totalling $8,971,000 resulting from purchases by
BHC of its own shares at prices greater than net book value.
(F) REVENUE RECOGNITION AND BARTER TRANSACTIONS
Revenue is recognized upon broadcast of television advertising and
upon shipment of manufactured products. The estimated fair value of
goods or services received by Chris-Craft's television stations in
barter (nonmonetary) transactions, most of which relate to the
acquisition of programming, is recognized as revenue when the air time
is used by the advertiser. Barter revenue totalled $40,853,000 in
1996, $46,039,000 in 1995 and $47,201,000 in 1994. Barter expense in
each year approximated barter revenue.
(G) INCOME PER SHARE
Income per share amounts for all periods presented give
retroactive effect to all common stock dividends declared through
February 13, 1997. Primary per share amounts were computed by dividing
income, after preferred stock dividend requirements of $436,000 in
1996, $464,000 in 1995, and $471,000 in 1994, by the weighted average
number of common and, when dilutive, common equivalent, shares
outstanding (31,522,000 in 1996, 31,202,000 in 1995 and 31,486,000 in
1994). Stock options are the only common share equivalents.
Fully diluted per share amounts further assume, when dilutive,
conversion of the average number of $1.40 convertible preferred shares
outstanding.
(H) STOCK OPTIONS
Chris-Craft has adopted Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation (SFAS 123). This
statement encourages but does not require the recording of
compensation cost for stock-based employee compensation plans at fair
value. Chris-Craft has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees . See Note 6.
(I) SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes totalled $28,803,000 in 1996,
$46,522,000 in 1995 and $53,343,000 in 1994.
Note 2
- ----------------------------------------------------------------------
UNITED PARAMOUNT NETWORK:
In July 1994, BHC, along with Viacom Inc.'s Paramount Television
Group, formed the United Paramount Network, a fifth broadcast
television network which premiered in January 1995. BHC owned 100% of
UPN from its inception through January 15, 1997, when Viacom completed
the exercise of its option to acquire a 50% interest in UPN. The
option price included approximately one-half of BHC's aggregate cash
contributions to UPN through the exercise date, plus interest, and
additional cash available for ongoing UPN expenditures. UPN
distributed approximately $116,000,000 to BHC pursuant to the option
exercise, and BHC realized a pretax gain on the exercise of
approximately $150,000,000, which will be recorded in the first
quarter of 1997. BHC and Viacom now share equally in UPN funding
requirements and in UPN losses.
UPN has been organized as a partnership, and BHC's partnership
interest is accounted for under the equity method. The carrying value
of such interest, which reflects BHC funding of $145,580,000 in 1996
and $128,585,000 in 1995, less BHC's then 100% interest in UPN losses
in those years, totalled $1,394,000 at December 31, 1996 and
$2,127,000 at December 31, 1995, and is included in other assets on
the accompanying Consolidated Balance Sheets. UPN is still in its
early development and is expected to continue to incur significant
start-up losses and to require significant funding for the next
several years. However, Chris-Craft believes that the substantial
portion of BHC's share of such funding requirements in 1997 and 1998
will be offset by the proceeds of the Viacom option exercise.
Condensed consolidated financial statements of UPN as of and for the
years ended December 31, 1996 and 1995 are as follows:
(In thousands) 1996 1995
- ----------------------------------------------------------------------
BALANCE SHEETS
Current assets $ 43,831 $ 22,616
Property and equipment, net 915 1,225
Other assets 4,147 3,941
- ----------------------------------------------------------------------
$ 48,893 $ 27,782
======================================================================
Current liabilities $ 47,499 $ 25,655
Advances and interest due BHC - 109,941
Partners capital (deficit) 1,394 (107,814)
- ----------------------------------------------------------------------
$ 48,893 $ 27,782
======================================================================
STATEMENTS OF OPERATIONS
Operating revenues* $ 56,948 $ 30,376
Operating expenses* 200,316 159,116
- ----------------------------------------------------------------------
Operating loss (143,368) (128,740)
Other expenses, net (2,945) (563)
- ----------------------------------------------------------------------
Loss before interest
on BHC advances (146,313) (129,303)
Interest on BHC advances
(eliminated in consolidation) (14,147) (4,535)
- ----------------------------------------------------------------------
Net loss $ (160,460) $ (133,838)
======================================================================
* With respect to certain of its programming, UPN derives no revenue
and incurs no programming expense.
Note 3
- ----------------------------------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the
following:
December 31,
(In thousands) 1996 1995
- ----------------------------------------------------------------------
Accounts payable $ 10,556 $ 9,826
Payable for securities purchased 304 1,318
Accrued expenses-
Payroll and compensation 51,125 47,937
Deferred barter revenue 33,896 29,660
Other 16,696 16,941
- ----------------------------------------------------------------------
$ 112,577 $ 105,682
======================================================================
Note 4
- ----------------------------------------------------------------------
SHAREHOLDERS INVESTMENT:
Each share of $1.00 prior preferred stock is redeemable by Chris-
Craft at $25.00. Each share of $1.40 convertible preferred stock is
redeemable by Chris-Craft at $40.00 and is convertible into common
stock as set forth below. Chris-Craft has authorized 10,000,000 shares
of preferred stock, $1.00 par value, that may be issued without
further shareholder approval, in one or more series, the terms and
provisions of which shall be set by the Board of Directors.
Each share of Class B common stock entitles the holder to ten votes
(common stock entitles the holder to one vote per share), is
convertible at all times into common stock on a share-for-share
basis, is not transferable except to specified persons ( Permitted
Transferees ) and, in general, carries the same per share dividend and
liquidation rights as a share of common stock, except that the Board
of Directors may in its discretion declare greater cash dividends per
share on the common stock than on the Class B common stock. No
additional Class B shares may be issued without further shareholder
approval, except upon the conversion of $1.40 convertible preferred
shares by holders of record on November 10, 1986 (the record date for
the initial distribution of Class B common stock) or Permitted
Transferees, or in payment of stock dividends or stock splits on
outstanding shares of Class B common stock.
So long as any Class B common stock is outstanding, each share of
$1.40 convertible preferred stock will entitle the holder on November
10, 1986, or Permitted Transferees, to convert such share of $1.40
convertible preferred stock into 10.64091 shares of common stock and
21.28180 shares of Class B common stock, and to 222.6 votes (10.96014,
21.92025 and 231.0, respectively, as adjusted for the 1997 stock
dividend described below). The foregoing special conversion and voting
rights will be available to holders of $1.40 convertible preferred
stock transferred after November 10, 1986 only under the same
circumstances as those in which the Class B common stock is
transferable. Each share of $1.40 convertible preferred stock
transferred after November 10, 1986 entitles its holder (other than a
Permitted Transferee) to convert such share into 31.92271 shares of
common stock and 31.9 votes (32.88039 and 32.9, respectively, as
adjusted for the 1997 stock dividend described below).
Chris-Craft, from time to time, has purchased shares of its capital
stock, including 1996 purchases of 433,900 shares of common stock. At
December 31, 1996, 714,002 shares of common stock and 12,899 shares of
$1.00 prior preferred stock remained authorized for purchase.
As of December 31, 1996, shares of Chris-Craft's authorized but
unissued common stock were reserved for issuance as follows:
Shares
- ----------------------------------------------------------------------
Conversion of Class B common stock 7,870,807
Conversion of $1.40 convertible preferred stock* 8,082,670
Stock options (including options outstanding
for 1,789,967 shares) 3,533,412
- ----------------------------------------------------------------------
19,486,889
======================================================================
*Including Class B common shares.
On January 28, 1997, the Board of Directors declared a 3% common
stock dividend, payable in April 1997, which will increase by 3%
Chris-Craft's common and Class B common shares outstanding and will
also increase by 3% the number of common shares issuable upon
conversion of Chris-Craft's $1.40 convertible preferred stock and upon
exercise of stock options. Applicable conversion rates and exercise
prices will be adjusted accordingly.
Note 5
- ----------------------------------------------------------------------
CAPITAL TRANSACTIONS OF SUBSIDIARIES:
BHC had outstanding, at December 31, 1996, 5,705,872 shares of
Class A common stock and 18,000,000 shares of Class B common stock.
Chris-Craft owns all outstanding Class B common shares, which
represented 75.9% of BHC's then outstanding equity and 97.0% of BHC s
voting power. From January 1990, when BHC became a public company and
was 60% owned by Chris-Craft, through December 31, 1996, BHC purchased
5,567,687 shares of its Class A common stock at an aggregate cost of
$358,213,000. BHC treasury stock expenditures totalled $62,639,000 in
1996, $30,504,000 in 1995 and $73,449,000 in 1994. At December 31,
1996, 1,232,313 Class A common shares were authorized for purchase.
UTV has also acquired its own shares, expending $28,802,000 in
1996, $28,440,000 in 1995 and $8,904,000 in 1994, net of proceeds from
the exercise of stock options. BHC's ownership in UTV has accordingly
increased to 59.0% at December 31, 1996 from 54.3% at December 31,
1993.
Such transactions, together with BHC's special dividend of $1.00
per share in 1995 and UTV's dividends of $.50 per share in 1996 and
1995, are reflected in the accompanying Consolidated Statements of
Cash Flow and Consolidated Statements of Shareholders Investment
under the caption Capital transactions of subsidiaries, net of
intercompany eliminations and minority interests.
Note 6
- ----------------------------------------------------------------------
STOCK OPTIONS:
Under the 1994 Management Incentive Plan, options (including
Incentive Stock Options) to purchase shares of common stock may be
granted from time to time to employees of Chris-Craft and its
subsidiaries, at prices not less than the fair market value at date of
grant. Options are exercisable in cumulative annual installments of 33
1/3% commencing one year from date of grant and expire over a period
determined by the Plan Committee, which may not exceed ten years from
date of grant. Options currently outstanding expire either five or ten
years from date of grant. The Plan replaced a similar plan which was
terminated with respect to the grant of additional options when the
1994 Plan became effective.
The Plan permits the Plan Committee to award stock appreciation
rights to holders of options granted under the Plan. Such rights
entitle the holders, in lieu of exercising their options, to receive
payment from Chris-Craft in cash, stock or a combination thereof,
equal to the greater of the appreciation in market value or book value
of the shares covered by exercisable options. No stock appreciation
rights have been awarded under the Plan.
Transactions under the two plans during the two years ended
December 31, 1996 were as follows:
(In thousands of dollars Shares under Option Price
except per share data) Option per Share Total
- ----------------------------------------------------------------------
Outstanding, December 31, 1994 1,673,529 $28.16 $38.36 $54,446
Increase to reflect
3% stock dividend 50,088
Exercised (54,773) $27.34 $35.11 (1,543)
Cancelled (12,330) $27.34 $36.17 (375)
- ----------------------------------------------------------------------
Outstanding, December 31, 1995 1,656,514 $27.34 $37.25 52,528
Increase to reflect
3% stock dividend 48,248
Exercised (57,243) $26.54 $35.11 (1,730)
Cancelled (3,182) $32.87 (105)
- ----------------------------------------------------------------------
Outstanding, December 31, 1996 1,644,337 $26.54 $36.16 $50,693
======================================================================
Chris-Craft received 18,039 common shares in 1996, 2,217 common
shares in 1995 and 278,958 common shares in 1994 as partial payment of
exercised options.
Under the 1994 Director Stock Option Plan, a fixed number of
immediately exercisable options to purchase shares of common stock are
granted annually to each nonemployee director of Chris-Craft, at
prices equal to fair market value at date of grant. The 1994 Director
Stock Option Plan replaced a similar plan which has been terminated
with respect to the grant of additional options. Transactions under
the two plans during the two years ended December 31, 1996, were as
follows:
(In thousands of dollars Shares under Option Price
except per share data) Option per Share Total
- ----------------------------------------------------------------------
Outstanding, December 31, 1994 95,084 $24.98 $34.38 $2,947
Increase to reflect
3% stock dividend 2,841 - -
Granted 41,200 $33.75 1,390
Exercised (24,610) $29.91-$33.75 (774)
- ----------------------------------------------------------------------
Outstanding, December 31, 1995 114,515 $24.25-$33.75 3,563
Increase to reflect
3% stock dividend 3,419 - -
Granted 42,432 $43.00 1,825
Exercised (14,736) $26.02 (384)
- ----------------------------------------------------------------------
Outstanding, December 31, 1996 145,630 $23.55 $43.00 $5,004
======================================================================
At December 31, 1996, options outstanding under all plans were
exercisable for 1,423,375 shares, at prices ranging from $23.55 to
$43.00 per share, and options for 1,743,445 shares were available for
grant. Options outstanding expire at various dates from April 1997
through April 2004.
Proceeds from the exercise of options are credited to common stock
to the extent of par value, and the remainder is credited to capital
surplus except that, when treasury stock is issued, the treasury stock
account is reduced by the average cost of the treasury stock, and any
difference between such cost and the exercise price is charged or
credited to capital surplus. Related income tax benefits which accrue
to Chris-Craft are credited to capital surplus.
UTV also maintains stock option plans, and has chosen, like Chris-
Craft, to continue to account for stock-based compensation using the
intrinsic value method. If Chris-Craft and UTV had elected to
recognize compensation expense based upon the fair value at the grant
date for awards under their plans using the methodology prescribed by
SFAS 123, Chris-Craft net income and earnings per share would be
reduced to the pro forma amounts as follows:
Year ended December 31,
(In thousands except per share amounts) 1996 1995
- ----------------------------------------------------------------------
Net income:
As reported $ 812 $ 21,965
Pro forma $ 239 $ 21,506
Earnings (loss) per share:
Primary -
As reported $ .01 $ .69
Pro forma $ (.01) $ .67
Fully diluted -
As reported $ .01 $ .54
Pro forma $ (.01) $ .53
These pro forma amounts may not be representative of the pro forma
effect on net income in future years, since the estimated fair value
of stock options is amortized over the vesting period, pro forma
compensation expense related to grants made prior to 1995 is not
considered and additional options may be granted in future years.
The weighted average fair values of Chris-Craft options granted
during 1996 and 1995 were $13.97 and $11.58 per share, respectively,
at dates of grant. The fair values of options were estimated using
the Black-Scholes option pricing model with the following weighted
average assumptions for the years ended December 31, 1996 and 1995,
respectively: dividend yields of zero for both periods; expected
volatility of 20.11% and 21.35%; risk free interest rates of 6.32% and
6.77%; and expected option life of five years for both periods.
Note 7
- ----------------------------------------------------------------------
RETIREMENT PLANS:
Chris-Craft and UTV maintain noncontributory defined benefit
pension plans covering substantially all their employees. Benefits
accrue annually based on compensation paid to participants each year.
The funding policy is to contribute annually to the plans amounts
sufficient to fund current service costs and to amortize any unfunded
accrued liability over periods not to exceed 30 years.
Pension expense, including amounts accrued in Chris-craft and UTV
nonqualified plans for retirement benefits in excess of statutory
limitations, was as follows:
Year ended December 31,
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------
Service cost $ 3,595 $ 3,259 $ 2,380
Interest cost on projected
benefits obligation 2,775 2,480 2,052
Actual return on plan assets (3,415) (4,185) (537)
Amortization of deferred items 1,509 2,762 (951)
- ----------------------------------------------------------------------
$ 4,464 $ 4,316 $ 2,944
======================================================================
The estimated funded status of the Chris-Craft and UTV plans,
including amounts accrued in the nonqualified plans, was as follows:
December 31,
(In thousands) 1996 1995
- ----------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $(30,376) $(26,210)
Nonvested benefit obligation (1,789) (1,932)
- ----------------------------------------------------------------------
Accumulated benefit obligation (32,165) (28,142)
Effect of projected compensation increases (12,173) (11,513)
- ----------------------------------------------------------------------
Projected benefit obligation (44,338) (39,655)
Fair value of plan assets (primarily listed
securities and temporary investments) 29,144 24,366
- ----------------------------------------------------------------------
Excess (15,194) (15,289)
Unrecognized net asset at date of initial application
of SFAS No. 87, being amortized over 15 years (184) (234)
Unrecognized net (gain) loss from past experience,
being amortized over 15 years (580) 2,090
- ----------------------------------------------------------------------
Pension liability $(15,958) $(13,433)
======================================================================
Assumptions used in accounting for pension plans for each year
presented are as follows:
- ----------------------------------------------------------------------
Discount rate at end of year 7.25%
Rate of increase in future compensation levels 4.50%
Expected long-term rate of return on assets 7.75%
Chris-Craft and certain of its subsidiaries maintain other
retirement plans, primarily stock purchase and profit sharing plans.
The aggregate costs of such plans, including related amounts accrued
in the nonqualified plans referred to above, were $5,677,000 in 1996,
$11,670,000 in 1995 and $5,707,000 in 1994.
Note 8
- ----------------------------------------------------------------------
INCOME TAXES:
Income taxes are provided in the accompanying Consolidated
Statements of Income as follows:
Year ended December 31,
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------
Current:
Federal $ 22,400 $ 23,300 $ 49,300
State 5,800 (14,000) (8,400)
- ----------------------------------------------------------------------
28,200 9,300 40,900
- ----------------------------------------------------------------------
Deferred:
Federal (8,900) 7,300 14,800
State 200 1,000 1,600
- ----------------------------------------------------------------------
(8,700) 8,300 16,400
- ----------------------------------------------------------------------
$ 19,500 $ 17,600 $ 57,300
======================================================================
Following the favorable resolution of routine audits in 1995 and
1994, state income taxes in those years reflect $20,000,000 reversals
of amounts accrued in 1989 and 1990.
Differences between income taxes at the federal statutory income
tax rate and total income taxes provided are as follows:
Year ended December 31,
(In thousands) 1996 1995 1994
- ----------------------------------------------------------------------
Taxes at federal statutory rate $ 13,592 $ 22,847 $ 57,324
State income taxes, net 3,933 (8,418) (4,429)
Amortization of intangible assets 3,151 3,151 3,151
Dividend from BHC 1,260
Dividend exclusion (768) (764) (447)
Other (408) (476) 1,701
- ----------------------------------------------------------------------
$ 19,500 $ 17,600 $ 57,300
======================================================================
Deferred tax assets and deferred tax liabilities reflect the tax
effect of the following differences between financial statement
carrying amounts and tax bases of assets and liabilities:
December 31,
(In thousands) 1996 1995
- ----------------------------------------------------------------------
Accrued liabilities not deductible until paid $22,619 $21,232
Investments 11,735 9,415
Film contract rights 6,407 3,974
Tax credit and loss carryforwards 7,177 5,601
Other 628 388
- ----------------------------------------------------------------------
48,566 40,610
Valuation allowance (8,943) (9,114)
- ----------------------------------------------------------------------
Deferred tax assets, net 39,623 31,496
- ----------------------------------------------------------------------
Property and equipment (2,740) (3,147)
SFAS 115 adjustment (681) (5,079)
Other (689) (823)
- ----------------------------------------------------------------------
Deferred tax liabilities (4,110) (9,049)
- ----------------------------------------------------------------------
Net deferred tax assets $35,513 $22,447
======================================================================
The valuation allowance reflects the inability to predict the
realization of future tax benefits relating to certain tax
carryforwards and future dispositions of certain investments having
tax bases greater than related financial statement carrying amounts.
At December 31, 1996, net operating loss carryforwards of
approximately $11,000,000 are available for tax purposes and expire in
various years through 2011.
Tax benefits of $270,000, $222,000 and $2,514,000 arising from the
exercise of employee stock options were credited to capital surplus in
1996, 1995 and 1994, respectively.
Note 9
- ----------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES:
The aggregate amount payable by Chris-Craft's television stations
under contracts for programming not currently available for
telecasting and, accordingly, not included in film contracts payable
and the related contract rights in the accompanying
Consolidated Balance Sheets, totalled $177,800,000 at December 31,
1996 (including $59,000,000 applicable to UTV).
BHC expects to make significant expenditures developing UPN. See
Note 2.
Montrose Chemical Corporation of California, whose stock is 50%
owned by Chris-Craft and 50% by a subsidiary of Zeneca Inc. (formerly
ICI Americas, Inc.), discontinued its manufacturing operations in 1983
and has since been defending claims for costs and damages relating to
environmental matters. Chris-Craft has been named as a defendant in
certain of these actions by plaintiffs seeking to hold Chris-Craft
liable for Montrose activities. After insurance reimbursements
totalling $327,000 in 1996, $1,001,000 in 1995 and $1,022,000 in 1994,
Montrose-related net expenses (recoveries) of $1,666,000 in 1996,
$437,000 in 1995 and $(280,000) in 1994, are included in the
accompanying Consolidated Statements of Income under the caption
Interest and other income, net.
Montrose is one of numerous defendants in a suit relating to
alleged environmental impairment at the Stringfellow Hazardous Waste
Disposal Site in California, brought in 1983 by the Federal Government
and the State of California, which claim Montrose generated
approximately 19% of the waste placed at the site. In 1990, the U.S.
Environmental Protection Agency issued a Record of Decision for the
site, which selected some of the interim remedial measures preferred
by the EPA and the State, the present value of which was estimated by
them to be $169 million, although the estimate is subject to potential
variations of up to 50%. A ruling issued in 1995 allocated at least
65% of the liability (under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ( CERCLA )) at the
site to the State of California, and approximately 25% of the
liability to the generator defendants (including Montrose). A
separate ruling under California law allocated 100% of the liability
to the State. The State is expected to appeal the decision. The U.S.
Department of Justice has sought and received information regarding
the relationship between Montrose and its two shareholders in an
inquiry directed to the issue of whether Chris-Craft, as a shareholder
of Montrose, should be added as a party to the Government's
Stringfellow suit.
In June 1990, the Federal Government and the State of California
commenced an action against Montrose, Chris-Craft, and other
defendants, alleging that Montrose and others released hazardous
substances into Los Angeles Harbor and adjacent waters, and seeking to
recover damages resulting from alleged injury to natural resources.
In 1994, the Federal and State Governments produced reports stating
the alleged damages may range between $300 million and approximately
$1.1 billion. In March 1995, the District Court granted the
defendants motion for summary judgment, ruling that (i) the
Government's claim for natural resource damages was barred by the
statute of limitations and (ii) that CERCLA would in any event limit
the collective maximum liability of Montrose, Chris-Craft, and the
Zeneca-related defendants for natural resource damages to $50 million.
In January 1997, a U.S. Court of Appeals reversed the District Court's
orders and remanded the natural resource damages claim to the District
Court for further proceedings. The action also seeks recovery for
costs related to alleged hazardous substance contamination of the
Montrose plant site in Torrance, California.
In September 1994, the EPA designated Chris-Craft as a potentially
responsible party under CERCLA (a PRP ) in connection with the
Diamond Alkali Superfund Site on the Passaic River in Newark, New
Jersey. The EPA alleges that hazardous substances were released into
the river from a facility operated by a Chris-Craft predecessor
company. The facility was located near the Diamond Alkali property,
but not on the river front, and was sold by Chris-Craft in 1972.
Chris-Craft disputes that it is a responsible party. The former owner
of the Diamond Alkali property is currently performing a study
estimated to cost approximately $10 million to determine the extent of
contamination in the area and to evaluate possible corrective actions.
Chris-Craft intends vigorously to defend itself in Montrose-
related actions in which it is a defendant. In each case involving
Montrose where Chris-Craft has been named as a defendant, Chris-Craft
contends that it is not liable and that it neither owned nor operated
the facilities involved, nor did it arrange for the disposal of
hazardous substances. Chris-Craft and its predecessors were
shareholders of Montrose and provided certain management services to
Montrose, as it conducted its operations. Based on the available
information, the status of the proceedings, and the applicable legal
and accounting standards, Chris-Craft, in reliance among other things
on the advice of counsel, believes that it should have no liability
(under CERCLA or otherwise) for the operations of Montrose and does
not presently consider liability to be probable in any of the
Montrose-related cases. Accordingly, under Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies , no amount
has been reserved in the Company's financial statements. The Diamond
Alkali Superfund Site matter does not involve Montrose, and based on
the review to date by Chris-Craft and its counsel, they believe Chris-
Craft has been erroneously identified as a PRP at the site; Chris-
Craft is unable to determine at this stage if it could have any
liability at the site.
If a court ultimately rejected Chris-Craft's defenses, under
CERCLA Chris-Craft could be held jointly and severally liable, without
regard to fault, for response costs and natural resource damages. A
party's ultimate liability at a site generally depends on its
involvement at the site, the nature and extent of contamination, the
remedy selected, the role of other parties in creating the alleged
contamination and the availability of contribution from those parties,
as well as any insurance or indemnification agreements which may
apply. In most cases, both the resolution of the complex issues
involved and any necessary remediation expenditures occur over a
number of years. Future legal and technical developments in each of
the foregoing matters will be periodically reviewed to determine if
the accrual of reserves for possible liability would be appropriate.
Chris-Craft is a party to various other pending legal proceedings
arising in the ordinary course of business. In the opinion of
management, after taking into account the opinion of counsel with
respect thereto, the ultimate resolution of these other matters will
not have a material effect on Chris-Craft's consolidated financial
position or results of operations.
Note 10
- ----------------------------------------------------------------------
SEGMENT REPORTING:
Industry segment data is set forth in the table on page 29.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------------
As of and for the year ended December 31,
(In thousands of dollars
except per share data) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 465,695 $ 472,081 $ 481,364 $ 439,733 $ 331,535
Operating income $ 103,268 $ 110,633 $ 107,832 $ 75,332 $ 16,805
Interest and other
income, net 81,879 83,949 59,928 52,661 36,790
Equity in United
Paramount Network loss (146,313) (129,303) (3,977) - -
Income associated with
Time Warner Inc.
securities - - - 256,622 94,059
Interest expense - - - (2,283)
Income taxes (19,500) (17,600) (57,300) (147,200) (37,800)
Minority interest (18,522) (25,714) (41,742) (88,347) (42,421)
- --------------------------------------------------------------------------------------
Net income $ 812 $ 21,965 $ 64,741 $ 149,068 $ 65,150
======================================================================================
Net income per share -
Primary $ .01 $ .69 $ 2.04 $ 4.81 $ 2.12
Fully diluted .01 .54 1.58 3.65 1.60
Cash and current
marketable securities 1,395,179 1,523,438 1,520,461 1,536,107 983,537
Working capital 1,418,085 1,531,416 1,532,579 1,502,671 899,640
Film contract rights 144,034 145,902 148,473 186,079 187,518
Investments and noncurrent
marketable securities 46,800 7,938 - - 450,022
Total assets 2,137,259 2,203,853 2,232,217 2,283,178 2,160,694
Long-term debt - - - - -
Minority interest 506,260 560,326 584,202 615,615 565,206
Shareholders investment $1,288,918 $1,319,020 $1,306,218 $1,258,227 $1,111,747
</TABLE>
<PAGE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- ---------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands of dollars First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter Year
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Operating revenues $105,650 $125,500 $111,777 $122,768 $465,695
Operating income 17,873 34,621 26,311 24,463 103,268
Equity in United
Paramount Network loss (32,754) (34,990) (38,909) (39,660) (146,313)
Income before income taxes
and minority interest 8,279 19,379 5,957 5,219 38,834
Net income (loss) 375 2,693 (1,539) (717) 812
Primary net income (loss)
per share .01 .08 (.05) (.03) .01
Fully diluted net income
(loss) per share $ .01 $ .07 $ (.05) $ (.03) $ .01
YEAR ENDED DECEMBER 31, 1995
Operating revenues $108,709 $125,234 $115,584 $122,554 $472,081
Operating income 23,780 37,204 17,435 32,214 110,633
Equity in United
Paramount Network loss (38,403) (28,709) (28,722) (33,469) (129,303)
Income before income taxes
and minority interest 6,197 27,428 9,937 21,717 65,279
Net income 314 6,356 10,664 4,631 21,965
Primary net income
per share .01 .20 .34 .14 .69
Fully diluted net income
per share $ .01 $ .16 $ .26 $ .11 $ .54
</TABLE>
<PAGE>
INDUSTRY SEGMENT INFORMATION
- ----------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
The following table sets forth information for the years indicated
in accordance with Statement No. 14 of the Financial Accounting
Standards Board. The business of each industry segment is described
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
(In thousands Operating Operating Depreciation Capital Identifiable
of dollars) Revenues Income and Expenditures Assets
(Loss) (F2) Amortization
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996
Television Division $446,292 $115,718 $19,451 $10,144 $2,106,234(F3)
Industrial Division 19,403 2,058 305 534 9,269
Other (F1) - (14,508) 31 105 21,756
- --------------------------------------------------------------------------------------
$465,695 $103,268 $19,787 $10,783 $2,137,259
======================================================================================
Year Ended
December 31, 1995
Television Division $454,702 $127,149 $19,833 $11,564 $2,156,429(F3)
Industrial Division 17,379 1,960 236 537 8,096
Other (F1) - (18,476) 24 8 39,328
- --------------------------------------------------------------------------------------
$472,081 $110,633 $20,093 $12,109 $2,203,853
======================================================================================
Year Ended
December 31, 1994
Television Division $457,533 $124,552 $20,355 $ 8,049 $2,184,132(F3)
Industrial Division 23,831 (3,557) 512 2,416 9,805
Other (F1) - (13,163) 21 35 38,280
- --------------------------------------------------------------------------------------
$481,364 $107,832 $20,888 $10,500 $2,232,217
======================================================================================
<FN>
<F1> Consists of Corporate Office and subsidiaries not included in Television Division
or Industrial Division. Related operating loss consists solely of general and
administrative expenses and, accordingly, excludes nonoperating income. Related
assets consist primarily of cash and marketable securities.
<F2> See Consolidated Statements of Income for the reconciliation of operating income
to net income.
<F3> Includes marketable securities having an aggregate carrying value of $1,245,241
at December 31, 1996, $1,427,186 at December 31, 1995 and $1,274,244 at December 31,
1994.
</FN>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------------
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Chris-Craft's financial position is strong and highly liquid. Cash
and marketable securities totalled $1.40 billion at December 31, 1996,
and Chris-Craft has no debt outstanding. Chris-Craft's 75.9% owned
television broadcasting subsidiary, BHC Communications, Inc., expended
significant funds in 1996 and 1995 to develop the United Paramount
Network, but cash flow provided from BHC's operating activities has
substantially exceeded BHC's UPN funding since the network's January
1995 launch. Chris-Craft believes that the substantial portion of
BHC's share of such funding requirements for 1997 and 1998 will be
offset by the proceeds of the Viacom option exercise, described
below.
Chris-Craft's operating cash flow is generated primarily by the
Television Division's core television station group. Broadcast cash
flow reflects station operating income plus depreciation and film
contract amortization less film contract payments. The relationship
between film contract payments and related amortization may vary
greatly between periods (amortization exceeded payments by $4.5
million in 1996, and payments exceeded amortization by $1.7 million in
1995), and is dependent upon the mix of programs aired and payment
terms of the stations contracts. Reflecting such $6.2 million
variance between 1996 and 1995, broadcast cash flow in 1996 declined
only 10% from 1995's record amount, while station earnings declined
14%, as explained below. Although broadcast cash flow is often used
in the broadcast television industry as an ancillary measure, it is
not synonymous with operating cash flow computed in accordance with
generally accepted accounting principles, and should not be considered
alone or as a substitute for measures of performance computed in
accordance with generally accepted accounting principles.
Chris-Craft's cash flow additionally reflects earnings associated
with its cash and marketable securities, most of which are held by
BHC. Consolidated cash and marketable securities totalled $1.40
billion at December 31, 1996, compared to $1.52 billion at December
31, 1995. While consolidated operating cash flow totalled $193.1
million in 1996, only slightly below 1995's $196.7 million, cash and
marketable securities declined $128.3 million, primarily reflecting
UPN funding of $145.6 million, payment for treasury stock purchases of
$17.9 million by Chris-Craft, $62.6 million by BHC and $32.8 million
by UTV, and other investment funding of $40.4 million.
BHC generates most of Chris-Craft's consolidated cash flow. Parent
company obligations consist solely of corporate office expenditures,
current and accrued. Parent company cash balances have been
substantially in excess of normal operating requirements, and have
been augmented by BHC special dividends of $36 million, or $2.00 per
BHC share, in January 1993 and $18 million, or $1.00 per BHC share,
in April 1995. In January 1997, BHC declared another special cash
dividend of $1.00 per share, and Chris-Craft received its $18 million
payment in February 1997. BHC intends to consider annually the
payment of a special dividend.
Since April 1990, BHC's Board of Directors has authorized the
purchase of up to 6,800,000 Class A common shares. Through December
31, 1996, 5,567,687 shares were purchased for a total cost of $358.2
million, including $61.7 million in 1996. From 1993 through December
31, 1996, UTV purchased 1,355,276 of its common shares at an aggregate
cost of $84.3 million, and at December 31, 1996, 828,749 UTV shares
remained authorized for purchase.
Chris-Craft intends to expand its operations in the media,
entertainment and communications industries and to explore business
opportunities in other industries. Chris-Craft believes it is
capable of raising significant additional capital to augment its
already substantial financial resources, if desired, to fund such
additional expansion.
In July 1994, BHC, along with Viacom Inc.'s Paramount Television
Group, formed UPN, a fifth broadcast television network which
premiered in January 1995. BHC owned 100% of UPN from its inception
through January 15, 1997, when Viacom completed the exercise of its
option to acquire a 50% interest in UPN. The option price included
approximately one-half of BHC's aggregate cash contributions to UPN
through the exercise date, plus interest, and additional cash
available for ongoing UPN expenditures. UPN distributed approximately
$116 million to BHC following the closing, and BHC realized a pretax
gain of approximately $150 million on the transaction, which will be
recorded in the first quarter of 1997. BHC and Viacom will now share
equally in UPN losses and funding requirements. BHC funding of UPN
totalled $145.6 million in 1996 and $128.6 million in 1995. UPN is
still in its early development, and is expected for the next several
years to continue to incur substantial start-up losses and to require
significant funding. However, Chris-Craft believes that the
substantial portion of BHC's share of such funding requirements for
1997 and 1998 will be offset by the proceeds of the Viacom option
exercise.
Chris-Craft's television stations make commitments for programming
that will not be available for telecasting until future dates. At
December 31, 1996, commitments for such programming totalled
approximately $177.8 million, including $59.0 million applicable to
UTV. Chris-Craft also has a remaining commitment to invest over time
up to $30.6 million, including $19.8 million applicable to UTV, in
management buyout limited partnerships. Chris-Craft capital
expenditures generally have not been material in relation to its
financial position, and the related capital expenditure commitments at
December 31, 1996 (including any related to UPN) were not material.
Chris-Craft expects that its expenditures for UPN, future film
contract commitments and capital requirements for its present business
will be satisfied primarily from operations, marketable securities or
cash balances.
As set forth in Note 9, Chris-Craft has been named as a defendant
(or potentially responsible party ) in certain actions seeking
recovery for environmental damage allegedly related to (i) the
activities (discontinued since 1983) of 50% owned Montrose Chemical
Corporation of California and (ii) the activities of Montrose Chemical
Co., a predecessor company to Chris-Craft. As further set forth in
Note 9, Chris-Craft does not presently consider liability to be
probable in any of the Montrose related matters, and no amount has
been reserved in Chris-Craft's financial statements.
RESULTS OF OPERATIONS 1996 versus 1995
Chris-Craft 1996 net income declined to $812,000, or $.01 per
share, from 1995 net income of $21,965,000, or $.69 per share. UPN
start-up losses increased, as expected, and earnings at Chris-Craft's
core television station group declined from 1995's record level.
Television Division station revenues declined 3% in 1996, to
$437,287,000 from $450,239,000 in 1995, reflecting lackluster
advertising demand and lower share in several key markets. Chris-
Craft in recent years determined not to acquire certain expensive and
popular syndicated programs at several Television Division stations
because their high prices appear to make acceptable profit unlikely.
Accordingly, certain revenues have been foregone, reducing market
share at those stations, but Chris-Craft believes those decisions
promote the overall profitability of its station group. Station
programming expenses rose only 5% in 1996, and all other station
expenses declined 1%. Total station income was the third highest in
Chris-Craft history, but declined 14% to $130,450,000 from 1995 s
record $151,382,000. Television Division operating income declined
only 9% in 1996, to $115,718,000 from $127,149,000, reflecting
improved results at our television production subsidiaries, as well as
the recording in 1995 of one-time expenses totalling approximately
$3,700,000 incurred in establishing a national sales representative
subsidiary.
Industrial Division operating revenues increased 12% in 1996, to
$19,403,000 from $17,379,000 in 1995. The revenue gain primarily
reflects higher sales of packaging and solid surface release films, as
well as growth in sales of sterilization products marketed by the
Division's health care products unit. Industrial Division operating
income rose 5%, to $2,058,000 from $1,960,000, as profit margins
declined slightly, mostly due to pricing pressure in the health care
industry.
Consolidated operating income, which additionally reflects Chris-
Craft corporate office expense, declined 7%, to $103,268,000 from
1995's $110,633,000. Corporate office expense declined $3,968,000 in
1996, primarily because 1995's corresponding amount included unusually
high retirement plan expense, described below.
Interest and other income totalled $81,879,000 in 1996, compared to
$83,949,000 in 1995. This income consists mostly of amounts earned on
consolidated cash and marketable
securities holdings.
BHC's equity in UPN start-up losses increased, as expected, to
$146,313,000 in 1996 from $129,303,000 in 1995. The increase
primarily reflects the expansion in 1996 of the network's prime time
schedule from two to three weekday evenings. BHC recorded 100% of
UPN's losses in 1996 and 1995, consistent with its sole ownership of
the network during those years. As described above, Viacom has
completed its acquisition of a 50% interest in UPN, and BHC will
record its then pro rata interest in future BHC losses. UPN is still
in its early development and is expected for the next several years to
continue to incur substantial start-up losses.
Minority interest reflects the interest of shareholders other than
Chris-Craft in the net income of BHC, 75.9% owned by Chris-Craft at
December 31, 1996 and 73.9% owned by Chris-Craft at December 31, 1995,
and the interest of shareholders other than BHC in the net income of
UTV, 59.0% owned by BHC at December 31, 1996 and 57.3% owned by BHC at
December 31, 1995.
RESULTS OF OPERATIONS - 1995 versus 1994
Chris-Craft 1995 operating results reflect record station group
earnings and a substantial increase in interest income. However, as
expected, start-up losses at United Paramount Network lowered net
income to $21,965,000, or $.69 per share, compared to $64,741,000, or
$2.04 per share, in 1994.
Television station earnings rose to $151,382,000, just above 1994 s
then record earnings of $150,647,000. A 6% reduction in station
programming expenses more than offset a 2% decline in station
operating revenues. The decline in full year station operating
revenues, to $450,239,000 from $457,533,000 in 1994, reflects
disappointing softness in the 1995 fourth quarter television
advertising market, which contributed to a 14% decline in station
operating revenues in that period. Television Division operating
income rose 2% in 1995, to a record $127,149,000 from $124,552,000 in
1994, as the modest increase in station earnings was augmented by a
$5,500,000 reduction in program development expense. Operating income
would have risen even further except for one-time expenses of
approximately $3,700,000 incurred establishing a national sales
representative subsidiary, United Television Sales, Inc.
Industrial Division operating results improved in 1995
following the discontinuance of operations at its unprofitable fiber
products plant. While the elimination of that business resulted in a
decline in 1995 Industrial Division operating revenues, to $17,379,000
from $23,831,000 in 1994, revenues of the Division's continuing
businesses increased 10% in 1995. Industrial Division operating
income totalled $1,960,000 in 1995, reversing 1994's operating loss of
$3,557,000. The Division's continuing businesses recorded operating
income of $1,569,000 in 1994.
After Chris-Craft corporate office expense, which increased in
1995, primarily due to a $4.9 million rise in retirement plan expense
resulting from the 1995 increase in the market value of Chris-Craft
common stock, consolidated operating income rose to a record
$110,633,000 from $107,832,000 in 1994.
Interest and other income, net increased to $83,949,000 in 1995
from $59,928,000 in 1994, primarily reflecting higher interest rates
earned on Chris-Craft's money market portfolio.
UPN incurred start-up losses of $129,303,000 in 1995, about as
expected, compared to the network's 1994 pre-launch loss of
$3,977,000.
Income tax provisions for 1995 and 1994 are net of $20,000,000
reversals by BHC of state income taxes accrued in 1989 and 1990,
following the favorable resolution in each year of routine audits.
Excluding the effect of such reversals, Chris-Craft's effective income
tax rate would have been 47% in 1995 and 43% in 1994, compared with
the respective actual rates of 27% and 35%.
Minority interest reflects the increase in Chris-Craft's ownership
of BHC to 73.9% at December 31, 1995 from 72.7% at December 31, 1994,
and an increase in BHC's ownership of UTV, to 57.3% at December 31,
1995 from 55.2% at December 31, 1994.
