SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 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:
Name of each Exchange
Title of each class on which registered
Prior Preferred Stock New York Stock Exchange
$1.00 cumulative dividend Pacific Exchange
Convertible Preferred Stock New York Stock Exchange
$1.40 cumulative dividend Pacific Exchange
Common Stock, $.50 par value New York Stock Exchange
Pacific Exchange
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. [ ]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of February 28, 1998, was approximately $1,500,000,000.
As of February 28, 1998, there were 23,628,351 shares of the registrant's
Common Stock and 7,912,783 shares of the registrant's Class B Common Stock
outstanding.
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 I, II
registrant's annual
report to stockholders
for the fiscal year ended
December 31, 1997 (the
"Annual Report") that are
specifically identified
herein as incorporated by
reference into this Form
10-K.
Those portions of the III
registrant's proxy
statement for the
registrant's 1998 Annual
Meeting (the "Proxy
Statement") that are
specifically identified
herein as incorporated by
reference into this Form
10-K.
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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 (78.8% at February 28, 1998) subsidiary, BHC Communications, Inc.
("BHC"), which owns 100% of Chris-Craft Television, Inc. ("CCTV"), 100% of
Pinelands, Inc. ("Pinelands") and, as of February 28, 1998, 58.8% of United
Television, Inc. ("UTV").
At February 28, 1998, Chris-Craft (including UTV) had 1,169 full-time
employees and 135 part-time employees.
On January 20, 1998, UTV acquired the assets of a UHF television station in
Baltimore, Maryland, at which time the station's call letters were changed to
WUTB, and the station became an affiliate of the United Paramount Network
("UPN"), a fifth broadcast television network which is 50%-owned by BHC. In
October 1997, UTV agreed to purchase the assets of UHF television station WRBW
in Orlando, Florida, for $60,000,000 and possible future consideration. The
acquisition is subject to approval by the Federal Communications Commission and
other conditions.
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 three
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:
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Total
Commercial
Network DMA TV Stations DMA Cable
Station and Affiliation/ House- DMA Operating in TV Pene-
Location (a) Channel Holds(b) Rank (b) Market (c) tration(d)
- ------------ ------------ -------- -------- ------------ ----------
KCOP
Los Angeles UPN 13 5,009,230 2nd 7VHF 63%
10UHF
WWOR (e)
Secaucus UPN 9 6,755,510 1st 6VHF 71%
14UHF
KPTV
Portland UPN 12 976,190 24th 4VHF 63%
2UHF
KMSP
Minneapolis/
St. Paul UPN 9 1,448,100 14th 4VHF 52%
3UHF
KTVX
Salt Lake
City ABC 4 690,310 36th 4VHF 56%
2UHF
KMOL
San Antonio NBC 4 648,550 38th 3VHF 65%
3UHF
KBHK
San Francisco UPN 44 2,297,880 5th 4VHF 71%
10UHF
WUTB
Baltimore UPN 24 988,040 23rd 3VHF 65%
3UHF
KUTP
Phoenix UPN 45 1,289,210 17th 4VHF 59%
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.
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Television stations derive their revenues primarily from sell-
ing advertising time. The television advertising sales market consists primar-
ily 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
television 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 stations, 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 station, 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.
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
available 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, 1997 was not significant to Chris-Craft's financial
position. BHC television stations also produce
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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
syndicated television shows, many of which have been shown previously on a
major network, and syndicated feature films, which were either made for network
television or have been exhibited previously in motion picture theaters (most
of which films have been shown previously on network or cable television).
Syndicated 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
syndication 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
advertising 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,
therefore, with less inventory.
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 television stations and broadcasting networks for sales of air
time. Chris-Craft believes that the effect of barter on BHC television
stations is not significantly different from its impact on the industry as a
whole.
BHC television stations are frequently required to make substantial
financial commitments to obtain syndicated programming while such programming
is still being broadcast by another network and before it is available for
broadcast by BHC stations, or even before it has been produced. Generally,
syndication 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
programming 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
unamortized film contract rights for programming available for telecasting, and
deposits on film contracts for programming not available for telecasting
aggregating $121,977,000 as of December 31, 1997. The stations were committed
for film and sports rights contracts aggregating $178,100,000 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 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.
Network 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.
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. The term of KMOL's affiliation agreement automatically
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renews for two year periods, unless either party notifies the other that the
affiliation will not be renewed. Current FCC rules do not limit the duration
of affiliation 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 may give the
network the right to offer that program to another station in the area.
United Paramount Network
UPN, owned 50% by BHC and 50% by Viacom Inc.'s Paramount Television
Group ("Paramount"), broadcasts six hours of original prime time programming on
three nights per week. The network also broadcasts two hours of previously
exhibited movies on Saturday afternoons and two hours of children's programming
on Sunday mornings. UPN intends to expand its prime time programming to five
nights per week as soon as practicable, as well as to begin broadcasting in
other day parts over the next several years.
UPN licenses its programming on the same bases as are customary in the
industry. UPN seeks license or ownership rights for programming from all
available sources on arms-length terms.
As of February 13, 1998, UPN's programming was carried by 178
affiliates, in markets covering a total of 90.1% of all U.S. households. Of
these station affiliates, 95 are primary affiliates, including all of BHC's and
Paramount's previously independent stations, in markets covering 71.5% of U.S.
households, and 83 are secondary affiliates in markets covering an additional
18.6% of such households. UPN continues to seek additional affiliates to
expand its household reach. The terms of UPN's primary affiliate station
agreements range up to ten and a half years and provide commercial time for
sale by the stations as consideration for broadcasting 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, shared
equally by BHC and Paramount, are expected to continue to be significant for
the next several years. See Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 2 of Notes to Consolidated
Financial Statements.
Sources of Revenue
The principal source of revenues for BHC stations is the sale of
advertising time to national and local advertisers. Such time sales are
represented 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. Most advertising contracts are short-term. Like that of the
television broadcasting business generally, BHC's television business is
seasonal. In terms of revenues, generally the fourth quarter is strongest,
followed by the second, third and first.
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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. UTV has 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 determine 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
Telecommunications Act of 1996 (the "Telecom Act") and by the Budget
Reconciliation Act of 1997, 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. A renewal application for KMSP was timely filed on
December 1, 1997 and remains pending. On March 2, 1998, Lakeland Group
Television, Inc., licensee of television station KGLT, Minneapolis, Minnesota,
filed a petition to deny the KMSP renewal unless and until UTV permits KGLT's
antenna to remain on UTV's television tower on reasonable and equitable terms.
UTV intends to vigorously oppose the petition, which it does not believe will
have a material adverse effect on UTV's license for KMSP. 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; its renewal
application is due to be filed on April 1, 1998. WWOR UPN 9's license renewal
was granted July 16, 1996 and is due to expire on June 1, 1999. WUTB UPN 24's
license was assigned to UTV of Baltimore, Inc., a subsidiary of UTV, on January
20, 1998 and is due to expire on October 1, 2001.
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
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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, consistent 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 households 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, KUTP UPN 45 and
WUTB UPN 24, the nine 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
organization, 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 directed 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 authorized the FCC to
establish an advisory committee to recommend a system for rating video
programming that contains sexual, violent, or other indecent material about
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. On March 12, 1998, the FCC voted to accept an industry proposal
providing for a voluntary ratings system of "TV Parental Guidelines" under
which all video programming will be designated in one of six categories to
permit the electronic blocking of selected video programming. The FCC has
begun a separate proceeding to address technical issues related to the "V-
Chip." The FCC has directed that all
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television receiver models with picture screens 13 inches or greater be
equipped with "V-Chip" technology under a phased implementation beginning on
July 1, 1999. Chris-Craft cannot predict how changes in the implementation of
the ratings system and "V-Chip" technology will affect Chris-Craft's business.
The Telecom Act also directed the FCC to adopt regulations requiring increased
closed-captioning of video programming, and the FCC recently did so. Subject
to various exemptions, television stations will be required to begin broad-
casting specified amounts or a specified percentage of new programs with
closed captioning in the year 2000 and specified percentages of pre-rule
programming commencing in the year 2008.
FCC regulations prohibit the holder of an attributable interest in a
television station from having an attributable interest in a cable television
system located within the predicted coverage area of that station. FCC
regulations 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
broadcaster 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 June 1997, the U.S. Supreme Court upheld the
constitutionality of the must-carry provisions.
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
informational 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 educational
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. Alternatively, a station may
qualify for staff-level approval even if it broadcasts "somewhat less" than
three hours per week of Core Programming by demonstrating 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 alternative 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 processing 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 programming, e.g., its sponsorship of Core Programming on
other stations in the market, or nonbroadcast activities "which enhance the
value" of such programming. 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. Chris-Craft believes that each
of its stations currently meets the three hour programming guideline.
The FCC has taken a number of steps to implement digital television
service ("DTV") (including high definition) in the United States. In December
1996, the FCC adopted a DTV broadcast standard. On February 17, 1998, the FCC
affirmed an amended table of digital channel allotments and rules for the
implementation of DTV, initially adopted in 1997. The digital table of
allotments provides each existing television station licensee or permittee with
a second broadcast channel to be used during the transition to DTV, conditioned
upon the surrender of one of the channels at the end of the DTV transition
period. The DTV channels assigned to the BHC television stations are as
follows: KCOP, channel 66; KBHK, channel 45; KMSP, channel 26; WWOR, channel
38; KPTV, channel 30; KMOL, channel 58; KTVX, channel 40; KUTP, channel 26; and
WUTB, channel 41. Implementation
10
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of DTV will improve the technical quality of television. Furthermore, the
implementing rules permit broadcasters to use their assigned digital spectrum
flexibly to provide either standard or high-definition video signals and
additional services, including, for example, data transfer, subscription video,
interactive materials, and audio signals as long as they continue to provide
at least one free, over-the-air television service. However, the digital
table of allotments was devised on the basis of certain technical assumptions
which have not been subjected to extensive field testing and which, along with
specific digital channel assignments, may be subjected to further administra-
tive and judicial review. Conversion to DTV may reduce the geographic reach
of the BHC television stations or result in increased interference with, in
either case, a corresponding loss of population coverage. DTV implementation
will impose additional costs on the BHC television stations, primarily due to
the capital costs associated with construction of DTV facilities and increased
operating costs both during and after the transition period. In addition, the
Telecommunications Act requires the FCC to assess and collect a fee for any
use of a broadcaster's DTV channel for which it receives subscription fees or
other compensation other than advertising revenue. The FCC has set a target
date of 2006 for expiration of the transition period, subject to biennial
reviews to evaluate the progress of DTV, including the rate of consumer
acceptance. Chris-Craft expects that, during 1998, BHC's tele-
vision stations will begin converting to DTV. Future capital expenditures by
Chris Craft will be compatible with the new technology whenever possible.
The FCC currently is reviewing certain of its rules governing the
relationship 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 relaxing or eliminating 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
television 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 $35,025 per station.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act or regulations and policies of the FCC
thereunder. 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
Commission, 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.
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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
relation 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
programs achieve higher ratings than other programs.
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 equal to one UHF station but larger than the other
nine 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, in
1997, KTVX ranked second of the six television stations in terms of audience
share. In San Antonio, in 1997, KMOL ranked second 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. Prior to its
acquisition by UTV in January 1998, the Baltimore station operated as a Home
Shopping Network affiliate. As such, it did not compete in the Baltimore
market for advertising revenue.
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 is 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.
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.
12
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"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.
Four direct broadcast satellite ("DBS") systems currently provide service. The
number of subscribers to DBS services increased substantially during the past
three years, from approximately 600,000 at the end of 1994, to approximately
6.7 million as of February 1998. 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 1997, wireless cable systems served about 1.1 million
subscribers. Two four-channel MDS licenses have been granted in 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
probability 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 various
improvements; whether all television broadcast stations will be afforded
sufficient spectrum 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. 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 compression 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.
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Sales of plastic film to two large chemical manufacturers equaled 16.1%
and 3.5%, and to two health care customers equaled 8.7% and 7.6%, of 1997
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 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 May 1999.
Physical facilities consisting of offices and studio facilities are
owned by UTV in Minneapolis, San Antonio and Phoenix and are leased in
Baltimore, Salt Lake City and San Francisco. The Baltimore lease expires in
March
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2000. The Salt Lake City lease expires in August 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 Baltimore facility is approximately 7,800
square feet and is located in an office park in a suburb of Baltimore. The San
Antonio facility is approximately 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.
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 July 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 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.
WUTB's transmitter facilities are located on a site near Baltimore. The
building containing the transmitter, and the tower on which the antenna is
mounted, are shared with another television station. The lease for the tower
and building expires in December 1999 and is renewable for two five-year
periods.
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.
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Factory and
Office Space Site
Plant Location Principal Product (Square Feet) (Acres)
- -------------- ----------------- ------------- -------
Gary, Indiana Plastic flexible films
and water-disposable
hospital bags 48,000 5
Northbrook,
Illinois Healthcare products 5,166 --
South Warehouse for
Holland, healthcare products
Illinois distribution 33,000 --
__________________
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.
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 Stringfellow
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 approximately
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 Stringfellow 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 Liability 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
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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 CBS Corporation (formerly
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 environment 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 (now CBS) 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. Montrose, Chris-Craft and
the Zeneca Affiliates have counterclaimed against the United States and the
State on the grounds that they are the former and current owners of the
contaminated sediments and allowed the sediments to be used as a repository
for industrial sewage. 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. Montrose and EPA are
investigating the former plant site and evaluating potential response actions.
In January 1997, the Ninth Circuit Court of Appeals reversed the
District Court's 1995 decisions awarding defendants summary judgment on
the first cause of action on statute of limitations grounds, and also
holding that defendants' maximum potential liability on that cause of action
was $50 million. In July 1996, in reaction to the District Court's 1995
decisions, EPA issued two internal memoranda in which it concluded that ocean
sediments on the Palos Verdes Shelf 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. EPA
has said it hopes to select such response actions by mid-1998. The actions
under consideration include capping a portion of the contaminated sediments,
or alternatively instituting controls aimed at preventing contaminated fish
from being caught and eaten. In August 1997, in response to petitions filed
by Montrose, Chris-Craft, the Zeneca Affiliates and Westinghouse in the
Court of Appeals for the District of Columbia Circuit challenging EPA's
July 1996 actions, EPA initiated a formal rulemaking proceeding to add the
area of sediments to EPA's National Priorities List of Contaminated Sites.
In January 1998, the court of appeals dismissed the petitions for lack of
jurisdiction. EPA's rulemaking proceeding is ongoing.
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 governmental entities that had
been sued by Montrose, Chris-Craft and other defendants 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. In March 1997, the plaintiffs lodged with the District
Court an amended $45.7 million settlement with the LACSD Defendants, which
purports to cover claims both for natural resource damages and also for
response costs (which are asserted by EPA) relating to the Palos Verdes Shelf.
In attempting to justify the settlement, plaintiffs have said they value their
total natural resource damage and response cost claims with respect to the
area of sediments at approximately $382 million.
As to both causes of action, 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
17
<PAGE>
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 on, among other things, 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
statements.
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
intercept 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
designated 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 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. 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 performing a feasibility study estimated to cost approximately
$10 million to determine the extent of contamination in the area and to
evaluate possible corrective actions. 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 in one or more of the
foregoing matters, under CERCLA Chris-Craft might 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 an accrual of reserves would be appropriate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of Chris-Craft, as of February 28, 1998,
are as follows:
Has served
Positions with Chris-Craft as officer
Name and age as of February 28, 1998 since
- -------------- ------------------------------- -----------
Herbert J. Siegel Chairman of the Board and
President; 69 1968
Evan C Thompson Executive Vice President
and President, Television
Division; 55 1982
John C. Siegel Senior Vice President; 45 1985
William D. Siegel Senior Vice President; 43 1985
Joelen K. Merkel Vice President and
Treasurer; 46 1980
Brian C. Kelly General Counsel and
Secretary; 46 1992
The principal occupation of each of the individuals for the past
five years is stated in the foregoing table.
All officers hold office until the meeting of the Board following
the next annual meeting of stockholders or until removed by the Board.
19
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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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements, Notes thereto, Report
of Independent 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.
20
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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.
21
<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.
22
<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 27, 1998
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 27, 1998
Herbert J. Siegel
Chairman, President and
Director (principal executive
officer)
WILLIAM D. SIEGEL March 27, 1998
William D. Siegel
Senior Vice President and
Director (principal
financial officer)
JOELEN K. MERKEL March 27, 1998
Joelen K. Merkel
Vice President and Treasurer
(principal accounting officer)
EVAN C THOMPSON March 27, 1998
Evan C Thompson
Executive Vice President and
Director
23
<PAGE>
HOWARD ARVEY March 27, 1998
Howard Arvey
Director
LAWRENCE R. BARNETT March 27, 1998
Lawrence R. Barnett
Director
JOHN C. BOGLE March 27, 1998
John C. Bogle
Director
T. CHANDLER HARDWICK, III March 27, 1998
T. Chandler Hardwick, III
Director
JEANE J. KIRKPATRICK March 27, 1998
Jeane J. Kirkpatrick
Director
DAVID F. LINOWES March 27, 1998
David F. Linowes
Director
NORMAN PERLMUTTER March 27, 1998
Norman Perlmutter
Director
JAMES J. ROCHLIS March 27, 1998
James J. Rochlis
Director
JOHN C. SIEGEL March 27, 1998
John C. Siegel
Director
24
<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, 1997 and 1996
Consolidated Statements of Income - For the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Investment - For
the Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
SCHEDULES:
UPN Financial Statements --
Report of Independent Accountants
Balance Sheets - December 31, 1997 and 1996
Statements of Operations -
For the Years Ended December 31, 1997, 1996 and 1995
Statements of Changes in Partners' Capital (Deficit) -
For the Years Ended December 31, 1997, 1996 and 1995
Statements of Cash Flows - For the Years
Ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
25
<PAGE>
United Paramount Network
(a partnership between BHC Network
Partner, Inc., BHC Network Partner II, Inc.,
BHC Network Partner III, Inc.,
PCI Network Partner Inc. and
PCI Network Partner II Inc.)
Report and Financial Statements
December 31, 1997, 1996 and 1995
<PAGE>
Report of Independent Accountants
February 6, 1998
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., BHC Network
Partner III, Inc., PCI Network Partner Inc., and PCI Network Partner
II Inc.) at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the
responsibility of United Paramount Network'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
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>
UNITED PARAMOUNT NETWORK
BALANCE SHEETS
(in thousands) December 31,
---------------------
1997 1996
---------- ---------
Assets
Current assets:
Cash and cash equivalents $ 23,622 $ 557
Accounts receivable (net of allowance for
doubtful accounts of $430 and $430,
respectively) 39,287 25,057
Program rights and development costs (net of
reserve for abandonment of $7,721 and
$5,613, respectively) 16,596 17,815
Other current assets 512 402
--------- ---------
Total current assets 80,017 43,831
--------- ---------
Restricted investments 8,755 1,157
Property and equipment, at cost:
Furniture, fixtures, computer equipment and
other (net of accumulated depreciation of
$901 and $508, respectively) 966 915
Intangible assets (net of accumulated
amortization of $1,484 and $108, respectively) 5,682 163
Other assets 14,523 2,827
--------- ---------
$ 109,943 $ 48,893
========= =========
Liabilities and Partners Capital (Deficit)
Current liabilities:
Accounts payable $ 16,258 $ 4,027
Accrued program costs 61,040 18,168
Accrued expenses and other liabilities 30,421 25,304
--------- ---------
Total current liabilities 107,719 47,499
--------- ---------
Commitments and contingencies (Note 7)
Partners' capital (deficit):
BHC Network Partner (4,179) (4,172)
BHC Network Partner II (3,837) (3,703)
BHC Network Partner III 9,128 9,269
PCI Network Partner 890 -
PCI Network Partner II 222 -
--------- ---------
Total partners capital 2,224 1,394
--------- ---------
$ 109,943 $ 48,893
========= =========
The accompanying notes are an integral part of these financial
statements.
UNITED PARAMOUNT NETWORK
STATEMENTS OF OPERATIONS
(in thousands)
For the Year Ended
December 31,
-------------------------------
1997 1996 1995
--------- ---------- ---------
Net revenues $ 89,997 $ 56,948 $ 30,376
Operating costs and expenses:
Operating expenses 177,874 132,593 99,940
Selling, general and administrative
expenses 82,294 67,359 58,924
Depreciation and amortization 1,794 364 252
--------- --------- ---------
261,962 200,316 159,116
--------- --------- ---------
Operating loss (171,965) (143,368) (128,740)
--------- --------- ---------
Other income (expense):
Interest expense to related parties - (14,147) (4,535)
Interest and other income 1,736 193 62
Net income (loss) on investment in
joint venture 32 (3,138) (625)
--------- --------- ---------
1,768 (17,092) (5,098)
--------- --------- ---------
Net loss $(170,197) $(160,460) $(133,838)
========= ========= =========
The accompanying notes are an integral part of these financial
statements.
UNITED PARAMOUNT NETWORK
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
BHC BHC BHC PCI PCI
Network Network Network Network Network
Partner Partner II Partner III Partner Partner II Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <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
Exercise of
option by PCI/NP - - - 155,014 38,754 193,768
Allocation of
option exercise 3,881 73,731 77,612 (124,178) (31,046) -
Distribution to
partners (2,907) (55,224) (58,130) - - (116,261)
Capital
contributions 1,205 22,888 24,092 36,268 9,067 93,520
Allocation of 1997
net loss (2,186) (41,529) (43,715) (66,214) (16,553) (170,197)
- ---------------------------------------------------------------------------------
Balance at
December 31, 1997 $(4,179) $ (3,837) $ 9,128 $ 890 $ 222 $ 2,224
=================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
UNITED PARAMOUNT NETWORK
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
For the Year Ended
December 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(170,197) $(160,460) $(133,838)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization of program costs 169,771 126,793 91,744
Payments for programming (118,912) (121,822) (98,420)
Depreciation and amortization 1,794 364 252
Abandonment reserve 2,108 982 4,631
Changes in assets and liabilities:
Increase in accounts receivable (14,230) (16,017) (9,025)
Increase in accounts payable, accrued
expenses and other current liabilities 8,470 25,116 12,546
(Increase) decrease in other assets (12,110) 207 3,052
--------- --------- ---------
Net cash used in operating activities (133,306) (144,837) (129,058)
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (467) - (1,113)
Cash placed in restricted account (7,598) (183) (974)
Increase in intangible asset - - (271)
Net investment in joint venture 304 (77) (2,750)
--------- --------- ---------
Net cash used in investing activities (7,761) (260) (5,108)
--------- --------- ---------
Cash flows from financing activities:
Advances from related party - 125,580 109,935
Exercise of option by PCI/NP 186,873 - -
Capital contributions 93,520 20,000 23,186
Distributions to partners (116,261) - -
--------- --------- ---------
Net cash provided by financing activities 164,132 145,580 133,121
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 23,065 483 (1,045)
Cash and cash equivalents:
Beginning of year 557 74 1,119
--------- --------- ---------
End of year $ 23,622 $ 557 $ 74
========= ========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ - $ - $ 4,530
========= ========= =========
Supplemental schedule of non-cash
financing activities:
Start-up costs incurred by PCI/NP and
contributed to the partnership $ 6,895 $ - $ -
========= ========= =========
Advances from related party converted
to equity $ - $ 235,515 $ -
========= ========= =========
Accrued interest converted to equity $ - $ 14,153 $ -
========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
UNITED PARAMOUNT NETWORK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ---------------------------------------------------------------------
Note 1 - Organization
In July 1994, BHC Network Partner, Inc. ("BHC/NP"), a then 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 ("Viacom"), formed the United
Paramount Network ("UPN" or the "Network"), a broadcast television
network.
UPN was organized as a partnership in December 1994 between BHC/NP and
BHC Network Partner II, Inc. ("BHC/NP II"), a wholly owned indirect
subsidiary of BHC. BHC Network Partner III, Inc. ("BHC/NP III"), a
wholly owned indirect subsidiary of BHC, became a partner in 1996. On
December 30, 1996, all advances from related parties and related
accrued interest were converted to partnership equity. PCI/NP had an
option to acquire an interest in UPN equal to that of BHC/NP, BHC/NP
II, and BHC/NP III (collectively referred to as the "BHC Partners").
The option price included approximately one-half of the BHC Partners'
aggregate cash contributions to UPN through the exercise date, plus
interest, and additional cash available for ongoing UPN expenditures.
On January 15, 1997, PCI/NP completed its exercise of its option in
accordance with the terms of the option agreement and, together with
PCI Network Partner II, Inc., a wholly owned indirect subsidiary of
Viacom, became an equal partner with BHC Partners in UPN. In
accordance with the option agreement, BHC Partners received
distributions amounting to approximately $116 million.
UPN began providing programming for broadcast in January 1995. At
December 31, 1997, 1996 and 1995, the Network had 187 affiliates in
markets covering approximately 97%, 164 affiliates in markets covering
over 92% and 150 affiliates in markets covering over 90% of U.S.
television households, respectively. The Network's revenues are
derived primarily from providing television programming 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 BHC Partners and PCI/NP (collectively
known as "Partners") and the sale of advertising. Profits or losses
are allocated between the Partners in accordance with the partnership
agreement. UPN is still in its early development and the cost of
developing and expanding its programming 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
Cash equivalents are securities having maturities at time of purchase
not exceeding three months.
Intangible Assets
Intangible assets represent primarily the costs incurred by PCI/NP
during the start up phase of the network and contributed to the
partnership as a result of the acquisition by PCI/NP of an interest in
the partnership (Note 1). Also included in intangible assets are
costs associated with logo design and development. The assets are
being amortized on a straight line basis over five years.
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
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
Revenues are recognized substantially as advertisements are aired, at
contractual rates.
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.
NOTE 3 - Restricted Investments
Restricted investments consist of cash and marketable securities
placed in an account as a security deposit and as collateral for a
loan to a third party. The restricted investments are not available
for current operations of the Network and, therefore, have been
classified as non-current in the accompanying balance sheet. 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 and are
therefore carried at amortized costs.
NOTE 4 - Other Assets
Included in other assets at December 31, 1997 are deferred network
costs of $12,000,000 and investment in joint venture of $2,523,000.
At December 31, 1996, other assets are comprised of investment in
joint venture of $2,827,000. Network costs are amortized over the
same period as the related agreements. In 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 funded 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. The investment in
the Venture is presented net of reserves of $2,119,000 and $2,158,000
at December 31, 1997 and 1996, respectively.
NOTE 5 - Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
(in thousands)
December 31,
-------------------------
1997 1996
--------- ---------
Accrued advertising costs $ 18,976 $ 16,930
Accrued compensation 4,917 3,453
Accrued sales commissions 224 1,807
Other accrued expenses 6,304 3,114
--------- ---------
$ 30,421 $ 25,304
========= =========
NOTE 6 - Related Party Transactions
Prior to September 1997, advertising time was sold through Premier
Advertising Sales ("Premier") a wholly owned subsidiary of Paramount
Communications, Inc., which is a subsidiary of Viacom Inc. (Note 1).
Net revenues for sales made by Premier totaled $43,019,000 in 1997 and
at December 31, 1997, the Network had an accounts receivable balance
with Premier of $1,825,000. In September 1997, the Network
established its own sales force which sells advertising time for
broadcast on UPN programs.
During the normal course of business, the Network enters into various
contracts to purchase programming from related parties. In 1997,
capitalized programming costs from related parties totaled
$71,663,000.
Prior to September 1997, with respect to certain of its programming
provided by Viacom, UPN derived no revenue and incurred no programming
expense.
NOTE 7 - Commitments and Contingencies
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 $594,000, $562,000 and $427,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
As of December 31, 1997, the future minimal rental payments under
operating leases are as follows:
1998 $ 720,000
1999 701,000
2000 503,000
Thereafter -
-----------
Total $ 1,924,000
===========
As of December 31, 1997, the Network had entered into various network
related agreements and contracts for programming which was not
currently available for telecasting. The aggregate amounts of the
payments required under these agreements totaled approximately
$168,807,000 and $71,000,000 at December 31, 1997 and 1996,
respectively.
In the normal course of business, the Network is at times subject to
pending and threatened legal actions. In management's opinion, any
liabilities or benefits resulting from these matters will not have a
material effect on the financial position or results of operations of
the Network.
<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
26
<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.
* 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.
[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.
27
<PAGE>
[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.
28
Exhibit 13
STOCK PRICE, DIVIDEND AND RELATED INFORMATION
- -----------------------------------------------------------------------------
Chris-Craft common stock is traded on the New York Stock Exchange and the
Pacific 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.
1997 1996
High Low High Low
---------------------------------------
First Quarter 44 3/4 39 3/8 44 39 7/8
Second Quarter 50 38 3/4 44 40 1/4
Third Quarter 52 15/16 47 3/4 44 38 3/8
Fourth Quarter 55 48 1/16 42 1/4 39 1/8
Chris-Craft paid 3% stock dividends on its common stock in April 1997 and
April 1996. Chris-Craft has declared a 3% stock dividend payable in April
1998. The Board of Directors plans to continue to consider, on an annual
basis, the payment of dividends in common stock. As of February 17, 1998,
there were 2,702 holders of record of common stock and 1,687 holders of record
of Class B common stock.
Report of Independent Accountants
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, 1997 and
1996, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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.
PRICE WATERHOUSE LLP
New York, New York
February 12, 1998
<PAGE>
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------
Year ended December 31,
(In thousands of dollars) 1997 1996 1995
- -----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 93,501 $ 812 $ 21,965
Adjustments to reconcile net income
to net cash provided from operating
activities:
Film contract amortization 95,244 95,291 89,321
Film contract payments (99,513) (90,802) (90,994)
Prepaid broadcast rights 21,114 5,252 4,249
Depreciation and other
amortization 19,568 19,787 20,093
Equity in United Paramount
Network loss 87,430 146,313 129,303
Gain on change of ownership in
United Paramount Network (153,933)
Minority interest 49,483 18,522 25,714
Other 4,965 (1,488) 1,980
Changes in assets and liabilities:
Accounts receivable 1,463 2,158 6,682
Other assets (7,816) (259) 1,268
Accounts payable and other
liabilities 14,921 3,891 10,495
Income taxes 21,004 (6,355) (23,402)
- -----------------------------------------------------------------------------
Net cash provided from
operating activities 147,431 193,122 196,674
- -----------------------------------------------------------------------------
Cash Flows from Investing Activities:
Disposition of marketable securities 1,002,103 1,089,124 697,232
Purchase of marketable securities (948,862) (899,924) (813,070)
Distribution from United Paramount
Network 116,261 - -
Investment in United Paramount
Network (48,185) (145,580) (128,585)
Other investments (4,631) (40,423) (8,748)
Capital expenditures, net (7,788) (10,472) (9,079)
Other (4,042) (1,585) (946)
- -----------------------------------------------------------------------------
Net cash provided from (used in)
investing activities 104,856 (8,860) (263,196)
- -----------------------------------------------------------------------------
Cash Flows from Financing Activities:
Capital transactions of subsidiaries (101,756) (93,437) (67,605)
Purchase of treasury stock (22,449) (17,897) (19,967)
Proceeds from exercise of employee
stock options 14,664 1,359 2,218
Dividends on preferred stock (420) (444) (467)
- -----------------------------------------------------------------------------
Net cash used in financing
activities (109,961) (110,419) (85,821)
- -----------------------------------------------------------------------------
Net Increase (Decrease) in Cash
and Cash Equivalents 142,326 73,843 (152,343)
Cash and Cash Equivalents at
Beginning of Year 147,683 73,840 226,183
- -----------------------------------------------------------------------------
Cash and Cash Equivalents at
End of Year $ 290,009 $ 147,683 $ 73,840
=============================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------
Year ended December 31,
(In thousands of dollars
except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------
Operating Revenues:
Television revenues $ 443,499 $ 446,292 $ 454,702
Sales of manufactured products 21,147 19,403 17,379
- -----------------------------------------------------------------------------
464,646 465,695 472,081
- -----------------------------------------------------------------------------
Operating Expenses:
Television expenses 212,183 217,928 214,223
Cost of manufactured products sold 14,336 13,472 11,754
Selling, general and administrative 142,602 131,027 135,471
- -----------------------------------------------------------------------------
369,121 362,427 361,448
- -----------------------------------------------------------------------------
Operating income 95,525 103,268 110,633
- -----------------------------------------------------------------------------
Other Income (Expense):
Gain on change of ownership in United
Paramount Network 153,933 - -
Interest and other income, net 80,556 81,879 83,949
Equity in United Paramount Network
loss (87,430) (146,313) (129,303)
- -----------------------------------------------------------------------------
147,059 (64,434) (45,354)
- -----------------------------------------------------------------------------
Income before provision for income
taxes and minority interest 242,584 38,834 65,279
Provision for Income Taxes 99,600 19,500 17,600
- -----------------------------------------------------------------------------
Income before minority interest 142,984 19,334 47,679
Minority Interest 49,483 18,522 25,714
- -----------------------------------------------------------------------------
Net income $ 93,501 $ 812 $ 21,965
=============================================================================
Weighted Average Common Shares
Outstanding 32,456 31,990 31,808
=============================================================================
Earnings per Share:
Basic $ 2.87 $ .01 $ .68
=============================================================================
Diluted $ 2.26 $ .01 $ .52
=============================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
December 31,
(In thousands of dollars) 1997 1996
- -----------------------------------------------------------------------------
Assets
Current Assets:
Cash and cash equivalents $ 290,009 $ 147,683
Marketable securities (substantially all U.S.
Government securities) 1,211,920 1,247,496
Accounts receivable, less allowance for doubtful
accounts of $5,736 and $5,993 89,472 90,935
Film contract and, in 1996, prepaid broadcast
rights 95,859 115,498
Prepaid expenses and other current assets 62,254 66,799
- -----------------------------------------------------------------------------
Total current assets 1,749,514 1,668,411
- -----------------------------------------------------------------------------
Investments 50,130 48,194
- -----------------------------------------------------------------------------
Film Contract Rights, including deposits,
less estimated portion to be used within one year 26,118 28,536
- -----------------------------------------------------------------------------
Property and Equipment, at cost:
Land, buildings and improvements 43,207 43,047
Machinery and equipment 106,209 101,690
- -----------------------------------------------------------------------------
149,416 144,737
Less-Accumulated depreciation 102,014 94,805
- -----------------------------------------------------------------------------
47,402 49,932
- -----------------------------------------------------------------------------
Intangible Assets 339,792 322,824
Other Assets 13,473 19,362
- -----------------------------------------------------------------------------
$ 2,226,429 $ 2,137,259
=============================================================================
<PAGE>
Liabilities and Shareholders Investment
Current Liabilities:
Film contracts payable within one year $ 98,033 $ 97,222
Accounts payable and accrued expenses 131,869 112,577
Income taxes payable 33,056 40,527
- -----------------------------------------------------------------------------
Total current liabilities 262,958 250,326
- -----------------------------------------------------------------------------
Film Contracts Payable after One Year 70,934 80,837
- -----------------------------------------------------------------------------
Other Long-Term Liabilities 25,089 10,918
- -----------------------------------------------------------------------------
Minority Interest 484,268 506,260
- -----------------------------------------------------------------------------
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 246,601 shares; outstanding 246,601
and 253,195 shares (liquidating value $23.00
per share, aggregating $5,672) 4,315 4,431
Class B common stock par value $.50 per share;
currently authorized 50,000,000 shares;
outstanding 7,930,384 and 7,870,807 shares 3,965 3,935
Common stock par value $.50 per share; currently
authorized 100,000,000 shares; outstanding
23,652,015 and 22,472,409 shares 12,617 12,027
Capital surplus 343,956 311,623
Retained earnings 1,010,384 954,048
Increase to reflect marketable securities
at market value 6,365 1,276
- -----------------------------------------------------------------------------
1,383,180 1,288,918
- -----------------------------------------------------------------------------
$ 2,226,429 $ 2,137,259
=============================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS INVESTMENT
- -----------------------------------------------------------------------------
Outstanding Shares
------------------------------------------------
Class B $1.00 $1.40
Common Common Preferred Preferred
---------- --------- --------- ---------
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
Net income - - - -
Marketable securities
valuation adjustment - - - -
Capital transactions of
subsidiaries - - - -
Dividends on preferred stock - - - -
Common stock dividend - 3% 676,458 238,283 - -
Conversion of preferred stock 103,482 108,335 - (6,594)
Conversion of Class B common
stock 287,041 (287,041) - -
Stock options, including
related tax benefits 599,125 - - -
Acquisition of treasury stock - - - -
Retirement of treasury stock (486,500) - - -
- ------------------------------------------------------------------------------
Balance at December 31, 1997 23,652,015 7,930,384 73,399 246,601
==============================================================================
Treasury
Shares Dollar Amount (In thousands)
-------- -------------------------------------------------------------
Market
Common Preferred Capital Retained Treasury Valuation
Common Stocks Stocks Surplus Earnings Stock Account
----------------------------------------------------------------------
- $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
- - - - 93,501 - -
- - - - - - 5,089
- - - 714 - - -
- - - - (420) - -
- 457 - 36,288 (36,745) - -
- 106 (116) 8 - - -
- - - - - - -
- 300 - 17,976 - - -
(486,500) - - - - (22,896) -
486,500 (243) - (22,653) - 22,896 -
- --------------------------------------------------------------------------
- $16,582 $5,893 $343,956 $1,010,384 $ - $ 6,365
==========================================================================
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
CHRIS-CRAFT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
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 (78.6% at December 31, 1997 and 75.9% at December
31, 1996) television broadcasting subsidiary, BHC Communications, Inc. BHC
wholly owned subsidiaries operate three television stations, and BHC s
majority owned (58.5% at December 31, 1997 and 59.0% at December 31, 1996)
subsidiary, United Television, Inc. (UTV), operates six television stations,
one of which was acquired in January 1998. See Note 11.
BHC accounts for its interest in the partnership that operates the United
Paramount Network (UPN), a fifth broadcast television 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 January 15, 1997,
when Viacom Inc. completed its acquisition of a 50% interest in the
partnership. Thereafter, BHC has recorded 50% of UPN s start-up losses.
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 1997 presentation.
(B) Financial Instruments
Cash and cash equivalents totalled $290,009,000 at December 31, 1997 and
$147,683,000 at December 31, 1996. Cash equivalents are 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, 1997:
U.S. Government
securities $1,097,346 $ 619 $ 182 $1,097,783
Other 100,794 17,008 3,665 114,137
- -------------------------------------------------------------------------
$1,198,140 $ 17,627 $3,847 $1,211,920
=========================================================================
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
=========================================================================
All U.S. Government securities held at December 31, 1997 mature within
one year.
Certain additional information related to Chris-Craft s marketable
securities as of and for the years ended December 31, 1997, 1996 and 1995 is
as follows:
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Sales proceeds $1,002,103 $1,089,124 $697,232
Realized gains 1,256 4,749 2,374
Realized losses 177 466 4,697
Net unrealized gain 13,780 2,073 14,316
Adjustment for unrealized
gain, net of deferred
income taxes and minority
interests $ 6,365 $ 1,276 $ 6,728
=========================================================================
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 the 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, 1997. 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, 1997 are $44,077,000, $21,013,000, $3,973,000 and $1,871,000 in
1999, 2000, 2001 and thereafter, respectively. The net present value at
December 31, 1997 of such payments, based on an 8.5% discount rate, was
approximately $60,000,000. 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, 1997 and 1996 are as follows:
(In thousands) 1997 1996
- -------------------------------------------------------------------------
Television Division $339,018 $322,050
Industrial Division 774 774
- -------------------------------------------------------------------------
$339,792 $322,824
=========================================================================
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
$65,905,000 at December 31, 1997 and $56,653,000 at December 31, 1996.
Intangible assets at December 31, 1997 include goodwill totalling $35,191,000
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 $43,944,000 in 1997, $40,853,000 in 1996 and $46,039,000 in
1995. Barter expense in each year approximated barter revenue.
(G) Earnings per Share
Chris-Craft has adopted Statement of Financial Accounting Standards No.
128, Earnings per Share , and per share amounts have been computed thereunder
as follows:
Year ended December 31,
(In thousands except per share data) 1997 1996 1995
- -------------------------------------------------------------------------
BASIC
Net income $93,501 $ 812 $21,965
Less: Preferred stock dividends (420) (436) (464)
- -------------------------------------------------------------------------
Income available to common
shareholders $93,081 $ 376 $21,501
=========================================================================
Average common shares
outstanding 32,456 31,990 31,808
=========================================================================
Basic per share amount $ 2.87 $ .01 $ .68
=========================================================================
DILUTED
Income available to common
shareholders $93,081 $ 376 $21,501
Effect of dilutive securities
Convertible preferred
stock dividend 347 - 391
Dilution of UTV net income
from UTV stock options (138) (180) (179)
- -------------------------------------------------------------------------
Income available
assuming dilution $93,290 $ 196 $21,713
=========================================================================
Average common shares
outstanding 32,456 31,990 31,808
Effect of dilutive securities -
Convertible preferred stock 8,389 - 9,495
Stock options 344 191 224
- -------------------------------------------------------------------------
Average shares outstanding
assuming dilution 41,189 32,181 41,527
=========================================================================
Diluted per share amount $ 2.26 $ .01 $ .52
=========================================================================
Amounts give retroactive effect to all stock dividends declared through
February 12, 1998. All securities which could dilute per share amounts are
included in the computation of diluted earnings per share.
(H) Stock-Based Compensation
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 and Disclosure of Noncash Investing
Activities
Cash paid for income taxes totalled $79,400,000 in 1997, $28,800,000 in
1996 and $46,500,000 in 1995.
The 1997 distribution from UPN to BHC was net of approximately
$38,800,000, representing additional BHC capital contributions.
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 $116,261,000 to BHC pursuant to the option
exercise, and BHC realized a 1997 pretax gain on the exercise of $153,933,000.
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 $48,185,000 in 1997 and $145,580,000
in 1996, plus the additional BHC capital contributions set forth above, and
BHC s pro rata share of UPN losses in those years, totalled $1,112,000 at
December 31, 1997 and $1,394,000 at December 31, 1996, and is included in
Investments 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 funds from the Viacom option exercise
will substantially offset BHC s aggregate UPN funding for 1997 and 1998.
Condensed consolidated financial statements of UPN are as follows:
BALANCE SHEETS
December 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------
Current assets $ 80,017 $ 43,831
Other assets 29,926 5,062
- -------------------------------------------------------------------------
$ 109,943 $ 48,893
=========================================================================
Current liabilities $ 107,719 $ 47,499
Partners' capital 2,224 1,394
- -------------------------------------------------------------------------
$ 109,943 $ 48,893
=========================================================================
STATEMENTS OF OPERATIONS
Year ended December 31,
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Operating revenues* $ 89,997 $ 56,948 $ 30,376
Operating expenses* 261,962 200,316 159,116
- -------------------------------------------------------------------------
Operating loss (171,965) (143,368) (128,740)
Other income (expense), net 1,768 (2,945) (563)
- -------------------------------------------------------------------------
Loss before interest on
BHC advances (170,197) (146,313) (129,303)
Interest on BHC advances
(eliminated in consolidation) - (14,147) (4,535)
- -------------------------------------------------------------------------
Net loss $ (170,197) $ (160,460) $ (133,838)
=========================================================================
* With respect to certain of its programming, through August 31, 1997
UPN derived no revenue and incurred no programming expense.
Note 3
- -------------------------------------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following:
December 31,
(In thousands) 1997 1996
- -------------------------------------------------------------------------
Accounts payable $ 8,465 $ 10,556
Payable for securities purchased 650 304
Accrued expenses-
Payroll and compensation 64,198 51,125
Deferred barter revenue 38,721 33,896
Other 19,835 16,696
- -------------------------------------------------------------------------
$ 131,869 $ 112,577
=========================================================================
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 10.96014 shares of common stock and 21.92025 shares of Class B
common stock, and to 231.0 votes (11.28894, 22.57786 and 237.3, respectively,
as adjusted for the 1998 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 32.88039 shares of common stock and 32.9 votes (33.86680 and 33.9,
respectively, as adjusted for the 1998 stock dividend described below).
Chris-Craft, from time to time, has purchased shares of its capital
stock, including 1997 purchases of 486,500 shares of common stock. At December
31, 1997, 227,502 shares of common stock and 12,899 shares of $1.00 prior
preferred stock remained authorized for purchase. An additional 1,000,000
shares of common stock were authorized for purchase after December 31, 1997.
As of December 31, 1997, shares of Chris-Craft s authorized but unissued
common stock were reserved for issuance as follows:
Shares
- -------------------------------------------------------------------------
Conversion of Class B common stock 7,930,384
Conversion of $1.40 convertible preferred stock* 8,108,337
Stock options (including options outstanding
for 1,210,111 shares) 2,963,845
- -------------------------------------------------------------------------
19,002,566
=========================================================================
*Including Class B common shares.
On January 27, 1998, the Board of Directors declared a 3% common stock
dividend, payable in April 1998, 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, 1997, 4,893,604 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 78.6% of BHC s then
outstanding equity and 97.4% of BHC s voting power. From January 1990, when
BHC became a public company and was 60% owned by Chris-Craft, through December
31, 1997, BHC purchased 6,381,087 shares of its Class A common stock at an
aggregate cost of $453,520,000. BHC treasury stock expenditures totalled
$95,408,000 in 1997, $62,639,000 in 1996 and $30,504,000 in 1995. At December
31, 1997, 700,000 Class A common shares remained authorized for purchase.
UTV has also acquired its own shares, expending $2,755,000 in 1997,
$32,810,000 in 1996 and $30,449,000 in 1995, and received proceeds of
$3,939,000 in 1997, $4,008,000 in 1996 and $2,009,000 in 1995 from the
exercise of stock options. BHC's ownership in UTV has accordingly increased
to 58.5% at December 31, 1997 from 55.2% at December 31, 1994.
Such transactions, together with BHC special dividends of $1.00 per share
in 1997 and 1995, and UTV dividends of $.50 per share in 1997, 1996 and 1995,
are reflected in the accompanying Consolidated Statements of Cash Flows 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,
1997 were as follows:
Option Price
(In thousands of dollars Shares under --------------------------
except per share data) Option per Share Total
- -------------------------------------------------------------------------
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
Increase to reflect
3% stock dividend 47,694 - -
Exercised (639,900) $25.77-$34.09 (17,317)
Cancelled (1,620) $31.92-$32.87 (55)
- -------------------------------------------------------------------------
Outstanding,
December 31, 1997 1,050,511 $31.10-$35.11 $ 33,321
=========================================================================
Chris-Craft received 74,867 common shares in 1997, 18,039 common shares
in 1996 and 2,217 common shares in 1995 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, 1997,
were as follows:
Option Price
(In thousands of dollars Shares under -------------------------
except per share data) Option per Share Total
- -------------------------------------------------------------------------
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
Increase to reflect
3% stock dividend 4,358 - -
Granted 43,704 $42.88 1,873
Exercised (34,092) $22.86-$41.75 (992)
- -------------------------------------------------------------------------
Outstanding,
December 31, 1997 159,600 $28.32-$42.88 $5,885
=========================================================================
At December 31, 1997, all options outstanding under the plans were
exercisable, and options for 1,753,734 shares were available for grant.
Options outstanding expire at various dates from April 1998 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 have been reduced to the pro forma amounts as follows:
(In thousands except per Year ended December 31,
share amounts) 1997 1996 1995
- -------------------------------------------------------------------------
Net income:
As reported $93,501 $ 812 $21,965
Pro forma $92,855 $ 239 $21,506
Earnings (loss) per share:
Basic -
As reported $ 2.87 $ .01 $ .68
Pro forma $ 2.85 $ (.01) $ .66
Diluted -
As reported $ 2.26 $ .01 $ .52
Pro forma $ 2.25 $ (.01) $ .51
=========================================================================
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
1997, 1996 and 1995 were $13.16, $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, 1997, 1996 and 1995,
respectively: dividend yields of zero for all periods; expected volatility of
16.3%, 20.1% and 21.4%; risk free interest rates of 6.4%, 6.3% and 6.8%; and
expected option life of five years for all 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) 1997 1996 1995
- -------------------------------------------------------------------------
Service cost $3,837 $3,595 $3,259
Interest cost on projected
benefits obligation 3,121 2,775 2,480
Actual return on plan assets (2,781) (3,415) (4,185)
Amortization of deferred items 502 1,509 2,762
- -------------------------------------------------------------------------
$4,679 $4,464 $4,316
=========================================================================
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) 1997 1996
- -------------------------------------------------------------------------
Actuarial present value of:
Vested benefit obligation $(34,305) $(30,376)
Nonvested benefit obligation (2,658) (1,789)
- -------------------------------------------------------------------------
Accumulated benefit obligation (36,963) (32,165)
Effect of projected compensation increases (12,718) (12,173)
- -------------------------------------------------------------------------
Projected benefit obligation (49,681) (44,338)
Fair value of plan assets (primarily listed
securities and temporary investments) 32,633 29,144
- -------------------------------------------------------------------------
Excess (17,048) (15,194)
Unrecognized net asset at date of initial
application of SFAS No. 87, being amortized
over 15 years (134) (184)
Unrecognized net gain from past
experience, being amortized over 15 years (2,040) (580)
- -------------------------------------------------------------------------
Pension liability $(19,222) $(15,958)
=========================================================================
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 $16,936,000 in 1997, $5,677,000 in 1996 and
$11,670,000 in 1995.
Note 8
- -------------------------------------------------------------------------
INCOME TAXES:
Income taxes are provided in the accompanying Consolidated Statements of
Income as follows:
Year ended December 31,
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------
Current:
Federal $ 63,000 $ 22,400 $ 23,300
State 18,600 5,800 (14,000)
- -------------------------------------------------------------------------
81,600 28,200 9,300
- -------------------------------------------------------------------------
Deferred:
Federal 17,900 (8,900) 7,300
State 100 200 1,000
- -------------------------------------------------------------------------
18,000 (8,700) 8,300
- -------------------------------------------------------------------------
$ 99,600 $ 19,500 $ 17,600
=========================================================================
Following the favorable resolution of routine audits, state income taxes
in 1995 reflect a $20,000,000 reversal of amounts accrued in prior years.
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) 1997 1996 1995
- -------------------------------------------------------------------------
Taxes at federal statutory rate $ 84,904 $ 13,592 $ 22,847
State income taxes, net 12,155 3,933 (8,418)
Amortization of intangible assets 3,127 3,151 3,151
Dividend from BHC 1,260 - 1,260
Dividend exclusion (735) (768) (764)
Other (1,111) (408) (476)
- -------------------------------------------------------------------------
$ 99,600 $ 19,500 $ 17,600
=========================================================================
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) 1997 1996
- -------------------------------------------------------------------------
Accrued liabilities not deductible until paid $30,781 $22,619
Investments - 11,735
Film contract rights 6,193 6,407
Tax credit and loss carryforwards 8,291 7,177
Other 286 628
- -------------------------------------------------------------------------
45,551 48,566
Valuation allowance (8,981) (8,943)
- -------------------------------------------------------------------------
Deferred tax assets, net 36,570 39,623
- -------------------------------------------------------------------------
Investments (12,975) -
Property and equipment (2,711) (2,740)
SFAS 115 adjustment (4,951) (681)
Other (580) (689)
- -------------------------------------------------------------------------
Deferred tax liabilities (21,217) (4,110)
- -------------------------------------------------------------------------
Net deferred tax liabilities $15,353 $35,513
=========================================================================
The valuation allowance reflects the uncertainty with respect to 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, 1997, net operating loss carryforwards of approximately
$16,000,000 are available for tax purposes and expire in various years through
2012.
Tax benefits of $3,612,000, $270,000 and $222,000 arising from the
exercise of employee stock options were credited to capital surplus in 1997,
1996 and 1995, respectively.
Note 9
- -------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES:
In October 1997, UTV signed a definitive agreement to purchase the assets
of UHF television station WRBW in Orlando, Florida, from Rainbow Broadcasting,
Ltd., for $60,000,000 and possible future consideration of up to $25,000,000.
The acquisition is subject to FCC approval and other conditions in the
agreement.
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 $178,100,000
at December 31, 1997 (including $79,000,000 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 is a defendant in one of these actions. After insurance
reimbursements totalling $558,000 in 1997, $327,000 in 1996 and $1,001,000 in
1995, Montrose-related net expenses of $3,383,000 in 1997, $1,666,000 in 1996
and $437,000 in 1995 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 1997, the Federal and State
Governments stated they estimate the alleged damages at approximately $482
million. The action also seeks recovery for costs related to alleged hazardous
substance contamination of the Montrose plant site in Torrance, California.
Chris-Craft intends vigorously to defend itself in this action.
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
proceeding, 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 . Accordingly,
under Statement of Financial Accounting Standards No. 5, Accounting for
Contingencies , no amount has been reserved for this action in Chris-Craft s
financial statements.
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. 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 in one or more of
the foregoing matters, 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 an 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.
Note 11
- -------------------------------------------------------------------------
SUBSEQUENT EVENT:
In November 1997, UTV signed a definitive agreement to purchase the
assets of UHF television station WHSW-TV (now station WUTB, a UPN affiliate)
in Baltimore, Maryland, from SKMD Broadcasting Partnership, for $80,000,000.
The acquisition was completed on January 20, 1998, and the purchase price was
paid from working capital.
SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------
As of and for the year ended December 31,
(In thousands of dollars
except per share data) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------
Operating revenues $ 464,646 $ 465,695 $ 472,081 $ 481,364 $ 439,733
=============================================================================
Operating income $ 95,525 $ 103,268 $ 110,633 $ 107,832 $ 75,332
Gain on change of
ownership in United
Paramount Network 153,933 - - - -
Interest and other
income, net 80,556 81,879 83,949 59,928 52,661
Equity in United
Paramount Network loss (87,430) (146,313) (129,303) (3,977) -
Income associated with
Time Warner Inc.
securities - - - - 256,622
Income taxes (99,600) (19,500) (17,600) (57,300) (147,200)
Minority interest (49,483) (18,522) (25,714) (41,742) (88,347)
- ------------------------------------------------------------------------------
Net income $ 93,501 $ 812 $ 21,965 $ 64,741 $ 149,068
==============================================================================
Earnings per share -
Basic $ 2.87 $ .01 $ .68 $ 2.00 $ 4.75
Diluted 2.26 .01 .52 1.54 3.56
Cash and marketable
securities 1,501,929 1,395,179 1,523,438 1,520,461 1,536,107
Working capital 1,486,556 1,418,085 1,531,416 1,532,579 1,502,671
Film contract rights 121,977 144,034 145,902 148,473 186,079
Investments 50,130 48,194 10,065 2,838 -
Total assets 2,226,429 2,137,259 2,203,853 2,232,217 2,283,178
Long-term debt - - - - -
Minority interest 484,268 506,260 560,326 584,202 615,615
Shareholders'
investment $1,383,180 $1,288,918 $1,319,020 $1,306,218 $1,258,227
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -----------------------------------------------------------------------------
(In thousands of dollars First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter Year
- -----------------------------------------------------------------------------
Year Ended
December 31, 1997
Operating revenues $106,472 $123,959 $110,907 $123,308 $464,646
Operating income 17,525 29,746 18,809 29,445 95,525
Gain on change of
ownership in
United Paramount
Network 152,224 - - 1,709 153,933
Interest and
other income, net 19,285 20,374 20,558 20,339 80,556
Equity in United
Paramount Network
loss (17,898) (16,404) (19,579) (33,549) (87,430)
Income before income
taxes and minority
interest 171,136 33,716 19,788 17,944 242,584
Net income 75,159 10,031 4,524 3,787 93,501
Earnings per share -
Basic 2.32 .31 .14 .11 2.87
Diluted $ 1.83 $ .24 $ .11 $ .09 $ 2.26
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
Interest and other
income, net 23,160 19,748 18,555 20,416 81,879
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
Earnings (loss)
per share -
Basic .01 .08 (.05) (.03) .01
Diluted $ .01 $ .06 $ (.05) $ (.03) $ .01
INDUSTRY SEGMENT INFORMATION
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 Depreciation
of dollars) Operating income and Capital Identifiable
Revenues (Loss) (b) Amortization Expenditures Assets
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1997
Television Division $443,499 $ 113,908 $ 19,187 $ 7,040 $2,177,679(c)
Industrial Division 21,147 2,889 359 747 9,174
Other (a) - (21,272) 22 1 39,576
- --------------------------------------------------------------------------------------
$464,646 $ 95,525 $ 19,568 $ 7,788 $2,226,429
======================================================================================
Year Ended
December 31, 1996
Television Division $446,292 $ 115,718 $ 19,451 $ 10,144 $2,106,234(c)
Industrial Division 19,403 2,058 305 534 9,269
Other (a) - (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(c)
Industrial Division 17,379 1,960 236 537 8,096
Other (a) - (18,476) 24 8 39,328
- --------------------------------------------------------------------------------------
$472,081 $ 110,633 $ 20,093 $ 12,109 $2,203,853
======================================================================================
(a) 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.
(b) See Consolidated Statements of Income for the reconciliation of operating income to net
income.
(c) Includes marketable securities having an aggregate carrying value of $1,204,776 at December
31, 1997, $1,245,241 at December 31, 1996 and $1,427,186 at December 31, 1995.
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- ----------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Chris-Craft's financial position is strong and highly liquid.
Consolidated cash and marketable securities totalled $1.50 billion at December
31, 1997, and Chris-Craft has no debt outstanding. Chris-Craft's 79% owned
television broadcasting subsidiary, BHC Communications, Inc., has expended
significant funds developing United Paramount Network since UPN's inception in
1994, but cash flow provided from BHC's operating activities has exceeded such
BHC funding of UPN. Further, Chris-Craft believes that the funds from the
1997 Viacom option exercise, described below, will substantially offset BHC's
aggregate UPN funding for 1997 and 1998.
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
(payments exceeded amortization by $4.3 million in 1997, and amortization
exceeded payments by $4.5 million in 1996), and is dependent upon the mix of
programs aired and payment terms of the stations' contracts. Reflecting such
amounts, broadcast cash flow in 1997 declined 8%, while station earnings
declined only 3%, 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 increased to $1.50 billion at
December 31, 1997, from $1.40 billion at December 31, 1996. Such increase
primarily reflects the $116.3 million distribution from UPN, described below.
Operating cash flow for 1997 declined to $147.4 million from $193.1 million,
primarily because 1997 income tax payments related to the UPN distribution are
reflected as a reduction of operating cash flow, while the distribution is
reported as a cash flow from investing activities.
BHC generates most of Chris-Craft's consolidated cash flow. Parent
company obligations consist solely of corporate office expenditures, current
and accrued. Most parent company cash flow in recent years has been provided
from the receipt by Chris-Craft of its share of special dividends paid by
BHC. In February 1997, BHC paid a special cash dividend of $1.00 per share,
aggregating $23.6 million, of which $18 million was received by Chris-Craft.
In February 1998, BHC paid a similar special cash dividend of $1.00 per share,
aggregating $22.7 million, of which $18 million was received by Chris-Craft.
BHC plans to consider annually the payment of a special dividend.
Since April 1990, BHC's Board of Directors has authorized the purchase of
up to 7,081,087 Class A common shares. Through December 31, 1997, 6,381,087
shares were purchased for a total cost of $453.5 million, including $95.3
million in 1997. From 1993 through December 31, 1997, UTV purchased 1,385,876
of its common shares at an aggregate cost of $87.1 million, of which $2.8
million was expended in 1997, and, at December 31, 1997, 798,149 UTV shares
remained authorized for purchase.
In January 1998, UTV acquired the assets of UHF television station WHSW,
Channel 24, in Baltimore, Maryland for $80 million in cash. The station's
call letters were changed to WUTB and the station became a UPN affiliate. UTV
has signed a definitive agreement to purchase the assets of WRBW in Orlando,
Florida for approximately $60 million and possible future consideration of up
to $25 million. UTV expects to use a portion of available cash and marketable
securities balances to complete this transaction, which is subject to FCC
approval as well as satisfaction of certain other conditions. Chris-Craft
intends to further 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 $155 million in cash (an amount equal to one-half of
BHC's aggregate cash contributions to UPN through the exercise date, plus
interest), additional cash available for ongoing UPN expenditures, as well as
a non-cash contribution of UPN development costs previously incurred by
Viacom. UPN distributed $116.3 million to BHC following the closing, and BHC
recorded a 1997 pretax gain of $153.9 million on the transaction. BHC and
Viacom now share equally in UPN losses and funding requirements. BHC funding
of UPN totalled $48.2 million in 1997 and $145.6 million in 1996. 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
aggregate share of such funding requirements for 1997 and 1998 will be offset
by the funds from 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,
1997, commitments for such programming totalled approximately $178.1 million,
including $79.0 million applicable to UTV. BHC 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, 1997 (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 a
"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
("Montrose 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 California related matters and believes it has been erroneously
identified as a potentially responsible party and is unable to determine at
this stage if it could have any liability regarding Montrose Chemical Co.
Accordingly, no amount has been reserved in Chris-Craft's financial statements
relating to these matters.
RESULTS OF OPERATIONS - 1997 VERSUS 1996
Chris-Craft 1997 net income rose to $93,501,000, or $2.87 per share
($2.26 per share diluted), from $812,000, or $.01 per share ($.01 per share
diluted), in 1996. The substantial increase in net income is primarily due to
the pretax gain of $153,933,000 realized by BHC on Viacom's acquisition of its
UPN interest. In addition, the amount of UPN start-up losses included in
Chris-Craft's operating results was reduced significantly in 1997, reflecting
the reduction, to 50% from 100%, in BHC's ownership interest in UPN.
Varying economic and competitive factors in the markets served by the
Television Division's station group produced uneven station results in 1997.
Station operating revenues declined to $434,729,000 from $437,287,000, less
than 1%. Station programming expenses declined slightly, but total station
operating expenses rose about 1%, due to a $3.5 million increase in expense
associated with stock price based retirement plans. As a result, station
group operating income declined 3% in 1997, to $125,966,000 from $130,450,000
in 1996. That decline was almost fully offset by the increase in earnings at
the Division's television production subsidiaries, to $7,098,000 in 1997 from
$3,267,000 in 1996. Television Division operating income accordingly declined
less than 2%, to $113,908,000 from $115,718,000.
Industrial Division operating income increased 40%, to $2,889,000 from
$2,058,000 in 1996, and the Division's operating revenues increased 9%, to
$21,147,000 from $19,403,000. The Division's improved results reflect
strength throughout its major product lines and higher profit margins. Margin
improvement was realized through cost reductions, effective outsourcing and
elimination of certain less profitable products.
Chris-Craft corporate office expense increased $6.8 million in 1997.
Such expense associated with stock price based retirement plans rose $6.9
million, as the market price of Chris-Craft common stock rose 27% in 1997.
Consolidated operating income accordingly declined 7%, to $95,525,000 from
$103,268,000 in 1996.
UPN's start-up loss widened in 1997, to $170,197,000 from $146,313,000 in
1996, mainly due to expenses associated with the expansion of UPN's schedule
and with the ongoing development of the network's programming strategy. The
UPN equity loss recorded in Chris-Craft's financial statements nonetheless
declined significantly, to $87,430,000 from $146,313,000 in 1996, reflecting
the 1997 reduction in BHC's ownership interest. UPN is still in its early
development and is expected for the next several years to continue to incur
substantial start-up losses.
Interest and other income consists mostly of amounts earned on
Chris-Craft's consolidated cash and marketable securities holdings. Interest
and other income declined slightly to $80,556,000 from $81,879,000 in 1996.
An increase in interest income was offset by a decline in marketable
securities gains and an increase, to $3.4 million from $1.7 million, in
expense related to Montrose matters.
Chris-Craft's effective income tax rate declined to 41.1% in 1997 from
50.2% in 1996. Nondeductible goodwill amortization had an abnormal impact on
Chris-Craft's effective tax rate in 1996 because of the low level of
Chris-Craft's pretax earnings.
Minority interest reflects the interest of shareholders other than
Chris-Craft in the net income of BHC, 78.6% owned by Chris-Craft at December
31, 1997, 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, 58.5% owned by BHC at December 31, 1997, 59.0%
owned by BHC at December 31, 1996 and 57.3% owned by BHC at December 31, 1995.
RESULTS OF OPERATIONS - 1996 VERSUS 1995
Chris-Craft 1996 net income declined to $812,000, or $.01 per share ($.01
per share diluted), from 1995 net income of $21,965,000, or $.68 per share
($.52 per share diluted). 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 appeared to make
acceptable profit unlikely. Accordingly, certain revenues were foregone,
reducing market share at those stations, but Chris-Craft believes those
decisions promoted 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, reflecting
a decline in expense associated with stock price based retirement plans.
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.
Exhibit 21
The following were the registrant's subsidiaries as of
December 31, 1997, 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
Chris-Craft Television, Inc. Delaware
BHC Network Partner, 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
UTV of Baltimore, Inc. Delaware
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 12, 1998 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, 1997, and
our report dated February 6, 1998 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 27, 1998
[ARTICLE] 5
[LEGEND] THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM THE REGISTRANT'S FORM 10-K
FOR THE YEAR ENDED DECEMBER 31,
1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
[MULTIPLIER] 1000
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-END] DEC-31-1997
[CASH] 290009
[SECURITIES] 1211920
[RECEIVABLES] 95208
[ALLOWANCES] 5736
[INVENTORY] 2826
[CURRENT-ASSETS] 1749514
[PP&E] 149416
[DEPRECIATION] 102014
[TOTAL-ASSETS] 2226429
[CURRENT-LIABILITIES] 262958
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 5893
[COMMON] 16582
[OTHER-SE] 1360705
[TOTAL-LIABILITY-AND-EQUITY] 2226429
[SALES] 21147
[TOTAL-REVENUES] 464646
[CGS] 14336
[TOTAL-COSTS] 369121
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 242584
[INCOME-TAX] 99600
[INCOME-CONTINUING] 93501
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 93501
[EPS-PRIMARY] 2.87
[EPS-DILUTED] 2.26
</TABLE>
