SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
--------------------------------
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
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
------- -------
As of July 31, 1999 there were 25,319,453 shares of the issuer's Common
Stock outstanding and 8,228,427 shares of the issuer's Class B Common
Stock outstanding.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CHRIS-CRAFT INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
(UNAUDITED)
-------------------------------------
June 30, December 31,
1999 1998
----------- -----------
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 186,157 $ 204,297
Marketable securities (substantially
all U.S. Government securities) 1,205,062 1,211,246
Accounts receivable, net 93,320 88,382
Film contract rights 46,091 99,883
Prepaid expenses and other current
assets 60,548 52,933
----------- -----------
Total current assets 1,591,178 1,656,741
----------- -----------
INVESTMENTS 84,264 69,881
----------- -----------
FILM CONTRACT RIGHTS, less current
portion 15,932 23,619
----------- -----------
PROPERTY AND EQUIPMENT, net 52,695 51,579
----------- -----------
INTANGIBLE ASSETS 421,945 428,254
----------- -----------
OTHER ASSETS 17,467 15,349
----------- -----------
$ 2,183,481 $ 2,245,423
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
- ----------------------------------------
CURRENT LIABILITIES:
Film contracts payable within one year $ 73,830 $ 96,595
Accounts payable and accrued expenses 111,983 130,515
Income taxes payable 39,118 41,653
----------- -----------
Total current liabilities 224,931 268,763
----------- -----------
FILM CONTRACTS PAYABLE AFTER ONE YEAR 38,972 62,050
----------- -----------
OTHER LONG-TERM LIABILITIES 24,928 26,321
----------- -----------
MINORITY INTEREST 485,936 479,820
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 7)
SHAREHOLDERS' INVESTMENT:
Prior preferred stock - $1.00 dividend;
currently authorized 73,399 shares;
outstanding 73,399 shares 1,578 1,578
Convertible preferred stock - $1.40
dividend; currently authorized 234,609
shares; outstanding 234,609 and 235,935
shares 4,106 4,129
Class B common stock - par value $.50
per share; currently authorized
50,000,000 shares; outstanding 8,236,413
and 8,127,937 shares 4,118 4,064
Common stock - par value $.50 per share;
currently authorized 100,000,000 shares;
outstanding 25,525,989 and 24,556,196
shares 13,554 13,069
Capital surplus 420,750 376,375
Retained earnings 956,453 993,184
Treasury stock, at cost (10,531) -
Accumulated other comprehensive income 18,686 16,070
----------- -----------
1,408,714 1,408,469
----------- -----------
$ 2,183,481 $ 2,245,423
=========== ===========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
CHRIS-CRAFT INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands of dollars except per share data)
(UNAUDITED)
-----------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
OPERATING REVENUES $ 123,825 $ 125,685 $ 235,285 $ 230,659
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Expenses directly
associated with
revenues 56,879 55,539 111,651 110,150
Selling, general and
administrative 39,259 35,658 76,381 76,681
---------- ---------- ---------- ----------
96,138 91,197 188,032 186,831
---------- ---------- ---------- ----------
Operating income 27,687 34,488 47,253 43,828
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest and other
income, net 24,464 20,013 43,140 39,724
Equity in United
Paramount Network
loss (27,188) (22,471) (57,338) (42,381)
---------- ---------- ---------- ----------
(2,724) (2,458) (14,198) (2,657)
---------- ---------- ---------- ----------
Income before income
taxes and minority
interest 24,963 32,030 33,055 41,171
INCOME TAX PROVISION 10,600 12,000 14,200 15,500
---------- ---------- ---------- ----------
Income before
minority interest 14,363 20,030 18,855 25,671
MINORITY INTEREST (7,641) (7,908) (11,385) (11,779)
---------- ---------- ---------- ----------
Net income $ 6,722 $ 12,122 $ 7,470 $ 13,892
========== ========== ========== ==========
Earnings per share:
Basic $ .20 $ .36 $ .22 $ .41
========== ========== ========== ==========
Diluted $ .16 $ .28 $ .18 $ .33
========== ========== ========== ==========
The accompanying notes to condensed consolidated financial
statements are an integral part of these statements.
CHRIS-CRAFT INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of dollars)
(UNAUDITED)
-----------------------------------------------
Six Months
Ended June 30,
--------------------
1999 1998
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,470 $ 13,892
Adjustments to reconcile net income to net
cash provided from operating activities:
Film contract payments (50,302) (50,642)
Film contract amortization 47,943 41,455
Depreciation and other amortization 11,633 10,944
Equity in United Paramount Network loss 57,338 42,381
Minority interest 11,385 11,779
Other (7,714) (653)
Changes in assets and liabilities:
Accounts receivable (4,938) (1,010)
Other assets (7,939) (1,807)
Accounts payable and other liabilities 240 (1,759)
Income taxes 914 6,548
--------- ---------
Net cash provided from operating
activities 66,030 71,128
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposition of marketable securities, net 10,869 55,192
Investment in United Paramount Network (59,950) (44,250)
Station acquisition (includes $77,712 of
intangibles) - (80,280)
Other investments (12,460) (21,734)
Capital expenditures, net (6,440) (4,605)
Other (637) (845)
--------- ---------
Net cash used in investing activities (68,618) (96,522)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital transactions of subsidiaries (5,894) (49,283)
Purchase of treasury stock (10,531) (10,758)
Proceeds from option exercises 1,075 3,039
Other (202) (209)
--------- ---------
Net cash used in financing activities (15,552) (57,211)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (18,140) (82,605)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 204,297 290,009
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 186,157 $ 207,404
========= =========
The accompanying notes to condensed consolidated financial statements
are an integral part of these statements.
CHRIS-CRAFT INDUSTRIES, INC.
----------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. PRINCIPLES OF CONSOLIDATION:
The accompanying condensed consolidated financial statements include
the accounts of Chris-Craft Industries, Inc. and its subsidiaries,
including Chris-Craft's majority owned (79.96% at June 30, 1999)
television broadcasting subsidiary, BHC Communications, Inc., and BHC's
majority owned (58.5% at June 30, 1999) subsidiary, United Television,
Inc. (UTV). The pro rata interests of BHC and UTV minority shareholders
in the net income of the respective companies are reflected in minority
interest in the accompanying condensed consolidated statements of income.
The minority shareholders' interests in the net assets of BHC and UTV are
reflected as minority interest in the accompanying condensed consolidated
balance sheets. Intercompany accounts and transactions have been
eliminated.
The financial information included herein has been prepared by
Chris-Craft, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However,
Chris-Craft believes that the disclosures herein are adequate to make the
information presented not misleading. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the financial statements and the notes thereto included in Chris-Craft's
latest annual report on Form 10-K. The information furnished reflects
all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of the
results for the interim periods. The results for these interim periods
are not necessarily indicative of results to be expected for the full
year, due to seasonal factors, among others.
2. MARKETABLE SECURITIES:
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.
At June 30, 1999, Chris-Craft's marketable securities consisted of
U.S. Government securities, which had a cost of $1,098,178,000 and a fair
value of $1,097,292,000, and equity securities, which had a cost of
$68,288,000 and a fair value of $107,770,000. The difference between
aggregate cost and fair value of $38,596,000 ($18,686,000, net of income
taxes and minority interests) is reflected as an increase to
shareholders' investment in the accompanying condensed consolidated
balance sheet. Of the investments in U.S. Government securities, all
mature within one year.
At December 31, 1998, Chris-Craft's marketable securities consisted
of U.S. Government securities, which had a cost of $1,093,744,000 and a
fair value of $1,095,373,000, and equity securities, which had a cost of
$83,881,000 and a fair value of $115,873,000. The difference between
aggregate cost and fair value of $33,621,000 ($16,070,000, net of income
taxes and minority interests) is reflected as an increase to
shareholders' investment in the accompanying condensed consolidated
balance sheet.
3. UNITED PARAMOUNT NETWORK:
In July 1994, BHC, along with Viacom Inc.'s Paramount Television
Group, formed the United Paramount Network, a 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. 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 totalled $3,227,000 at June 30, 1999 and $615,000 at
December 31, 1998, and is included in Investments in the accompanying
condensed consolidated balance sheets. UPN is still in its development
and is expected to continue to incur significant start-up losses and to
require significant funding for the next several years.
UPN's condensed statements of operations are as follows (in
thousands):
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Operating revenues $ 32,918 $ 26,593 $ 63,372 $ 47,796
Operating expenses 87,662 71,987 178,726 133,357
--------- --------- --------- ---------
Operating loss (54,744) (45,394) (115,354) (85,561)
Other income, net 367 451 677 798
--------- --------- --------- ---------
Net loss $ (54,377) $ (44,943) $(114,677) $ (84,763)
========= ========= ========= =========
4. SHAREHOLDERS' INVESTMENT:
Chris-Craft paid 3% stock dividends on its common and Class B common
stock in the respective shares of such classes on April 1, 1999. During
the six months ended June 30, 1999, 133,883 shares of Class B common
stock were converted into 133,883 shares of common stock, and 1,326
shares of $1.40 convertible preferred stock were converted into 46,044
shares of common stock and 46 shares of Class B common stock. In
addition, 91,093 shares of common stock, including 34,780 shares held in
treasury, were issued upon exercise of stock options, and 34,780 shares
of common stock were received in partial payment of option exercises.
During the six month period, 233,400 shares of common stock were
purchased by Chris-Craft, all of which were held in treasury at June 30,
1999. As of June 30, 1999, 598,702 shares of common stock and 12,899
shares of $1.00 prior preferred stock remained authorized for purchase.
As of June 30, 1999, shares of Chris-Craft's authorized but unissued
common stock were reserved for issuance as follows:
Shares
----------
Conversion of Class B common stock 8,236,413
Conversion of $1.40 convertible preferred stock 8,183,818*
Stock options (including options
outstanding for 2,764,214 shares) 5,333,868
----------
21,754,099
==========
*Including Class B common shares.
5. COMPREHENSIVE INCOME:
Effective January 1, 1998, Chris-Craft adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income."
Other comprehensive income includes only unrealized gains and losses on
marketable securities classified as available-for-sale (see Note 2), net
of a reclassification adjustment for gains (losses) included in net
income. Comprehensive income is as follows (in thousands):
Three Months Six Months
Ended Ended
June 30, June 30,
---------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
Net income $ 6,722 $12,122 $ 7,470 $13,892
Other comprehensive income (loss),
net of taxes and minority
interests 191 (717) 2,616 6,713
------- ------- ------- -------
Comprehensive income $ 6,913 $11,405 $10,086 $20,605
======= ======= ======= =======
6. CAPITAL TRANSACTIONS OF SUBSIDIARIES:
Since April 1990, BHC's Board of Directors has authorized the
purchase of up to 7,081,087 Class A common shares. Through June 30,
1999, 6,895,590 shares were purchased, including 226,503 shares from UTV
in June 1998, for a total cost of $516.5 million, including $62.5 million
in the first six months of 1998. From January 1, 1997 through June 30,
1999, UTV purchased 107,500 of its common shares at an aggregate cost of
$10.6 million, including $.8 million in the first six months of 1999 and
$7.0 million in the first six months of 1998.
Such purchases, together with proceeds from the exercise of UTV
stock options and, in both periods, BHC's special $1.00 per share
dividend and UTV's $.50 per share dividend are reflected in capital
transactions of subsidiaries in the accompanying condensed consolidated
statements of cash flows, net of intercompany eliminations and minority
interests.
7. COMMITMENTS AND CONTINGENCIES:
Commitments of Chris-Craft's television stations for film contracts
entered into but not available for broadcasting at June 30, 1999
aggregated approximately $368.5 million, including $98.5 million
applicable to UTV. BHC also has a remaining commitment to invest over
time up to $28.5 million, of which $17.8 million is in investment limited
partnerships, including $14.0 million applicable to UTV.
BHC expects to make significant expenditures developing UPN. See
Note 3.
In 1997, UTV signed a definitive agreement to purchase the assets of
UHF television station WRBW in Orlando, Florida, for $60 million and
possible future consideration. See Note 10.
As set forth in Note 9 of Notes to Consolidated Financial Statements
in Chris-Craft's 1998 Annual Report, 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. Chris-
Craft does not presently consider liability to be "probable" in any of
the Montrose California related matters 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.
In April 1999, a jury awarded damages totalling $7.3 million
(excluding interest and legal fees which are not expected to be material)
to a former WWOR employee who filed suit alleging discrimination by the
station. The station and its counsel believe the award to be
unjustified, and intend to appeal. The judgement is not yet final, and
it is not possible to reasonably estimate the amount, if any, which
ultimately will be paid. Accordingly, no amount has been reserved in
Chris-Craft's financial statements relating to this matter.
8. EARNINGS PER SHARE:
Computations of earnings per share, all of which give retroactive
effect to the April 1999 3% stock dividend, are as follows (in thousands
of dollars except per share amounts):
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
BASIC:
- ------
Weighted average common
and Class B common
shares outstanding 33,522,204 33,504,521 33,562,489 33,489,661
========== ========== ========== ==========
Net income $ 6,722 $ 12,122 $ 7,470 $ 13,892
Less: Preferred stock
dividends (100) (102) (201) (207)
---------- ---------- ---------- ----------
Income available to
common shareholders $ 6,622 $ 12,020 $ 7,269 $ 13,685
========== ========== ========== ==========
Basic earnings per
share $ .20 $ .36 $ .22 $ .41
========== ========== ========== ==========
DILUTED:
- --------
Weighted average common
and Class B common
shares outstanding 33,522,204 33,504,521 33,562,489 33,489,661
Assumed conversion of
$1.40 preferred stock 8,199,481 8,535,648 8,212,457 8,560,379
Assumed exercise of
stock options 280,242 339,491 241,277 357,472
---------- ---------- ---------- ----------
Total shares used
in computation 42,001,927 42,379,660 42,016,223 42,407,512
========== ========== ========== ==========
Income available to
common shareholders $ 6,622 $ 12,020 $ 7,269 $ 13,685
Convertible preferred
stock dividend 81 84 164 170
Dilution of UTV net
income from UTV
stock options (26) (26) (34) (40)
---------- ---------- ---------- ----------
Income available
assuming dilution $ 6,677 $ 12,078 $ 7,399 $ 13,815
========== ========== ========== ==========
Diluted earnings per
share $ .16 $ .28 $ .18 $ .33
========== ========== ========== ==========
9. SEGMENT REPORTING:
Chris-Craft has two reportable segments, the Television Division and
the Industrial Division. UPN, which is accounted for on the equity
method, is also considered a reportable segment under SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information."
However, all required segment information relating to UPN is included in
Note 3.
Operating revenues and operating income for the second quarter and
six months ended June 30, 1999 and 1998 are as follows (in thousands):
Operating Revenues Operating Income
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
Second Quarter
Television Division $118,369 $120,500 $ 33,169 $ 37,512
Industrial Division 5,456 5,185 1,049 865
Corporate and other - - (6,531) (3,889)
-------- -------- -------- --------
$123,825 $125,685 $ 27,687 $ 34,488
======== ======== ======== ========
Six Months
Television Division $224,864 $220,075 $ 56,542 $ 54,041
Industrial Division 10,421 10,584 1,834 1,814
Corporate and other - - (11,123) (12,027)
-------- -------- -------- --------
$235,285 $230,659 $ 47,253 $ 43,828
======== ======== ======== ========
10. SUBSEQUENT EVENT:
In July 1999, UTV completed the acquisition of the assets of UHF
television station WRBW in Orlando, Florida, for $60 million plus a net
amount of $8,174,000 related to the purchase of receivables, assumption
of programming obligations and other adjustments. The purchase price was
paid from working capital. UTV remains obligated for possible future
consideration relating to the purchase of up to $25 million.
CHRIS-CRAFT INDUSTRIES, INC.
----------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Liquidity and Capital Resources
- -------------------------------
Chris-Craft's financial position continues to be strong and highly
liquid. Cash and marketable securities totalled $1.39 billion at June
30, 1999, and Chris-Craft has no debt outstanding. Chris-Craft's 79.96%
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.
Chris-Craft's operating cash flow is generated primarily by its
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 $2.4 million in the six month
period ended June 30, 1999 and by $9.2 million in the corresponding 1998
period), and is dependent upon the mix of programs aired and payment
terms of the stations' contracts. Reflecting such amounts, broadcast
cash flow in the first six months of 1999 increased 17%, while station
earnings increased 5%, 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.
Such balances declined slightly, to $1.39 billion at June 30, 1999, from
$1.42 billion at December 31, 1998. Such $24.3 million decline was
incurred despite six month operating cash flow of $66 million, primarily
due to UPN funding by BHC and Chris-Craft treasury stock purchases.
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. BHC has paid $1.00 per share special cash
dividends in February 1999, aggregating $22.5 million, February 1998,
aggregating $22.7 million, and February 1997, aggregating $23.6 million,
with Chris-Craft receiving $18 million of each such amount. BHC plans to
consider annually the payment of a special dividend.
Chris-Craft, from time to time, has purchased shares of its own
capital stock, including 233,400 common shares purchased during the first
six months of 1999 at an aggregate cost of $10,531,000. At June 30,
1999, 598,702 common shares remained authorized for purchase.
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,
1998, 6,895,590 shares were purchased, including 226,503 shares in 1998
from United Television, Inc., BHC's 58.5% owned subsidiary, for a total
cost of $516.5 million. During the three year period ended December 31,
1998, UTV expended $42.6 million acquiring its own common shares, and
729,649 UTV shares remained authorized for purchase at that date. No
additional such shares were acquired by BHC during the first six months
of 1999, and UTV expended $.8 million acquiring its own common shares
during that period.
UTV purchased the assets of UHF television station In January 1998,
WHSW, Channel 24, in Baltimore, Maryland for $80.3 million in cash. The
station's call letters were changed to WUTB and the station became a UPN
affiliate. In 1997, UTV signed a definitive agreement to purchase the
assets of UHF television station WRBW, Channel 65, in Orlando, Florida.
The acquisition was completed in July 1999 for $60 million plus a net
amount of $8,174,000 related to the purchase of receivables, assumption
of programming obligations and other adjustments. The purchase price was
paid from working capital. UTV remains obligated for possible future
consideration relating to the purchase of up to $25 million. 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 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. BHC and Viacom now share equally in UPN losses and
funding requirements. UPN, still in its development, incurred start-up
losses of $177.2 million in 1998, $170.2 million in 1997, $146.3 million
in 1996 and $129.3 million in 1995, and is expected for the next several
years to continue to incur substantial start-up losses and to require
significant funding. BHC funding of UPN totalled $60 million in the
first six months of 1999.
Chris-Craft's television stations make commitments for programming
that will not be available for telecasting until future dates. At June
30, 1999, commitments for such programming totalled approximately $368.5
million, including $98.5 million applicable to UTV. BHC also has a
remaining commitment to invest over time up to $28.5 million, of which
$17.8 million is in investment limited partnerships, including $14.0
million applicable to UTV. Chris-Craft's capital expenditures generally
have not been material in relation to its financial position, and the
related capital expenditure commitments at June 30, 1999 (including any
related to UPN) were not material. During 1998, Chris-Craft stations
began converting to digital television (DTV). The conversion will
require the purchase of digital transmitting equipment to telecast over
newly assigned frequencies. In April 1999, KBHK in San Francisco became
the first of the Chris-Craft stations to make the initial conversion to
DTV signal transmission. This conversion is expected to take a number of
years and will be subject to competitive market conditions. Chris-Craft
expects that its expenditures for UPN, future film contract commitments
and capital requirements for its present business, including the cost to
convert to DTV, will be satisfied primarily from operations, marketable
securities or cash balances.
As set forth in Note 7, 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 7, 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.
Chris-Craft, which completed an assessment of its year 2000 issues
in 1998, believes that the total estimated compliance cost is immaterial.
Chris-Craft expects to have completed all remediation efforts, including
third party systems testing, by September 30, 1999. Chris-Craft
continues to believe that such issues will not have a material effect on
its business, results of operations or financial condition.
Quantitative and Qualitative Disclosures about Market Risk
- ----------------------------------------------------------
Chris-Craft is subject to certain market risk relating to its
marketable securities holdings, which are all held for other than trading
purposes. The table below provides information as of June 30, 1999 about
the U.S. Government securities which are subject to interest rate
sensitivity and the equity securities which are subject to equity market
sensitivity.
(in thousands)
Cost Fair Value
---- ----------
U.S. Government securities $ 1,098,178 $ 1,097,292
Equity securities $ 68,288 $ 107,770
Results of Operations
- ---------------------
Chris-Craft net income in the second quarter of 1999 totalled
$6,722,000, or $.20 per share ($.16 per share diluted), compared to net
income in last year's second quarter of $12,122,000, or $.36 per share
($.28 per share diluted). Lower earnings at our core television station
group and higher start-up losses at UPN were only partially offset by
increased interest and other income.
For the first six months of 1999, Chris-Craft net income totalled
$7,470,000, or $.22 per share ($.18 per share diluted), compared to net
income of $13,892,000, or $.41 per share ($.33 per share diluted), in
last year's comparable period. The decline in year to date earnings
mostly reflects higher UPN losses.
Operating revenues and operating income for the second quarter and
six months ended June 30, 1999 and 1998 are as follows (in thousands):
Operating Revenues Operating Income
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
Second Quarter
Television Division $118,369 $120,500 $ 33,169 $ 37,512
Industrial Division 5,456 5,185 1,049 865
Corporate and other - - (6,531) (3,889)
-------- -------- -------- --------
$123,825 $125,685 $ 27,687 $ 34,488
======== ======== ======== ========
Six Months
Television Division $224,864 $220,075 $ 56,542 $ 54,041
Industrial Division 10,421 10,584 1,834 1,814
Corporate and other - - (11,123) (12,027)
-------- -------- -------- --------
$235,285 $230,659 $ 47,253 $ 43,828
======== ======== ======== ========
Station group earnings in the second quarter declined 9%, to
$36,372,000 from last year's $40,017,000, as station operating revenues
fell 2%, to $115,904,000 from $118,007,000, and station operating
expenses rose 2%. Television Division operating income accordingly
declined 12%, to $33,169,000 from $37,512,000 last year.
For the first six months of 1999, station group earnings increased
5%, to $63,071,000 from $60,241,000, mainly due to approximately $4.8
million of copyright royalties, of which $4.3 million was recorded in the
first quarter, paid to our New York station, WWOR, for prior years, when
certain of its programming was carried on distant cable systems. Station
operating revenues for the six months, including the royalty payments,
rose 2%, to $220,327,000 from $215,631,000. Reflecting the increase in
station group earnings, Television Division operating income in the
period increased 5%, to $56,542,000 from $54,041,000.
Industrial Division results in 1999 have not varied significantly
from 1998 results.
Corporate office expense increased $2.6 million in the second
quarter, primarily reflecting a $1.3 million increase in stock price
based retirement plan expense. Corporate office expense for the six
month period declined $.9 million, as a $4.4 million decline in first
quarter stock price based retirement plan expense more than offset the
second quarter expense increases.
Interest and other income, which consists mostly of amounts earned
on Chris-Craft's consolidated cash and marketable securities holdings,
rose to $24,464,000 in the second quarter from $20,013,000 last year, due
mostly to marketable security gains, which offset a decline in interest
income. Interest and other income totalled $43,140,000 in the six month
period, compared to $39,724,000 last year.
UPN's losses have widened in 1999 due to the expansion of the
network's prime time schedule to five weekday evenings this year from
three last year, ratings declines and expenses related to cancelled
programs. BHC's 50% share of UPN's losses rose to $27,188,000 from
$22,471,000 in the second quarter, and to $57,338,000 from $42,381,000 in
the six month period.
Chris-Craft's effective income tax rate rose to approximately 42% in
the 1999 second quarter from approximately 37% in last year's second
quarter, and rose to approximately 43% in the 1999 six month period, from
approximately 38% in last year's corresponding period, primarily
reflecting the realization in 1998 of certain income tax benefits.
Minority interest reflects the interest of shareholders other than
Chris-Craft in the net income of BHC, 79.96% owned by Chris-Craft at June
30, 1999 and June 30, 1998, and the interest of shareholders other than
BHC in the net income of UTV, 58.5% owned by BHC at June 30, 1999 and
58.6% owned by BHC at June 30, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The information appearing in Management's Discussion and Analysis
under the caption "Quantitative and Qualitative Disclosures about Market
Risk" is incorporated herein by this reference.
CHRIS-CRAFT INDUSTRIES, INC.
----------------------------
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
The following matters were submitted to a vote of security holders
at the Registrant's annual meeting of stockholders which was held on May
4, 1999.
The following were elected directors, each receiving the number of
votes set opposite his or her name:
Broker
For Withheld Non-votes
--- -------- ---------
Jeanne J. Kirkpatrick 121,870,113 417,309 -0-
Norman Perlmutter 121,875,927 411,495 -0-
William D. Siegel 121,852,750 434,672 -0-
Evan C Thompson 121,857,930 429,492 -0-
The selection of PricewaterhouseCoopers LLP as Chris-Craft's
auditors for the current year was ratified by the following vote:
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
122,122,521 36,279 128,621 -0-
The 1999 Management Incentive Plan was approved and adopted by the
following votes:
Broker
For Against Abstain Non-votes
--- ------- ------- ---------
112,903,379 4,092,052 703,900 4,588,090
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) No report on Form 8-K was filed during the quarter for which
this report is filed.
SIGNATURE
---------
Pursuant to the requirements 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.
CHRIS-CRAFT INDUSTRIES, INC.
----------------------------
(Registrant)
By: /s/ JOELEN K. MERKEL
----------------------------
Joelen K. Merkel
Vice President and Treasurer
(Principal Accounting Officer)
Date: August 13, 1999
EXHIBIT INDEX
Incorporated by
Reference to: Exhibit No. Exhibit
- ------------- ----------- -------
27 Financial Data Schedule
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<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED
FROM 10Q DATED JUNE 30, 1999
AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 186157
<SECURITIES> 1205062
<RECEIVABLES> 98435
<ALLOWANCES> 5115
<INVENTORY> 2526
<CURRENT-ASSETS> 1591178
<PP&E> 165728
<DEPRECIATION> 113033
<TOTAL-ASSETS> 2183481
<CURRENT-LIABILITIES> 224931
<BONDS> 0
0
5684
<COMMON> 17672
<OTHER-SE> 1385358
<TOTAL-LIABILITY-AND-EQUITY> 2183481
<SALES> 10421
<TOTAL-REVENUES> 235285
<CGS> 6609
<TOTAL-COSTS> 188032
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 33055
<INCOME-TAX> 14200
<INCOME-CONTINUING> 7470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7470
<EPS-BASIC> .22
<EPS-DILUTED> .18
</TABLE>
