<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/XX/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from _____________ to _____________________________
Commission File Number 1-10321
ACKERLEY COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 91-1043807
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Fifth Avenue, Suite 3770
Seattle, Washington 98104
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (206) 624-2888
Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Aggregate market value of voting Common Stock held by nonaffiliates of
Registrant as of March 15, 1996: $87,497,991.
Number of shares of common stock, $.01 par value, outstanding as of March 15,
1996: 9,849,669 Common Stock and 5,727,125 Class B Common Stock.
Documents incorporated by reference and parts of Form 10-K into which
incorporated: Registrant's Definitive Proxy Statement for May 1, 1996 Annual
Meeting--Part III
<PAGE>
PART I
ITEM 1 - BUSINESS
GENERAL
Ackerley Communications, Inc. (the "Company"), founded in 1975, is a
diversified communications company which, through its operating subsidiaries,
engages in three principal businesses: (i) out-of-home media, including
outdoor and airport advertising; (ii) television and radio broadcasting; and
(iii) sports marketing and promotion, primarily through its Full House Sports
& Entertainment division, which includes the ownership of the Seattle
SuperSonics (the "SuperSonics"), a franchise of the National Basketball
Association ("NBA"), and the Seattle SeaDogs, a franchise of the
Continental Indoor Soccer League.
The Company's businesses generally are leaders in their respective
markets, positions that the Company believes to be sustainable by virtue of
the substantial governmental regulation of outdoor advertising and
broadcasting and the exclusive franchising practices in airport advertising
and professional sports. The Company believes that the diversity of its
operations minimizes its reliance on any particular geographic region,
advertising medium or customer.
STRATEGY. Since 1993, the Company's strategy has been to build its more
mature and stable out-of-home media business and to control costs in each
business segment. Additionally, the Company instituted plans to expand and
enhance its broadcasting business and to pursue additional revenue producing
opportunities through the development of a new arena in Seattle. The
Company's continuing strategy includes:
* Improving the profitability of its outdoor advertising business by
increasing revenue while controlling operating costs. Prior to
1993, the Company had increased net revenue and improved operating
performance in its existing markets by constructing and, in some
cases, acquiring additional displays, thereby achieving
comprehensive coverage and economies of scale in those markets.
Since 1993, however, the Company has focused its management and
sales efforts on optimizing the mix of rate and usage of its current
display inventory in each of its markets. In order to increase
sales, the Company expanded its sales force and instituted a
commission-based sales compensation plan.
* Renegotiating its airport advertising franchise agreements when they
expire to improve their economic terms. Alternatively, to the
extent that an expiring franchise agreement does not meet the
Company's selection criteria for new franchise agreements, generally
based on projected Operating Cash Flow, the Company will not renew
or bid on the agreement.
* Pursuing television broadcast station acquisitions generally in ADI
markets ranking from 50 to 150. The Company's television business
historically has grown through opportunistic acquisitions. The
Company intends to pursue acquisitions of stations in situations
where the Company believes its management approach can be
successfully employed. Specifically, the Company will seek to
acquire, on financially attractive terms, stations that currently
generate positive cash flow but which offer opportunities for
revenue and cash
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flow enhancement. The purchase of television station KFTY in Santa
Rosa, which is awaiting FCC approval, exemplifies this strategy.
* Creating additional interest in sports marketing and promotion
through the development of a new arena in Seattle and pursuing other
revenue-generating opportunities related to the new arena.
Construction of the new arena was completed in time for the
1995-1996 NBA season. In-arena advertising and additional seating
in the new arena provides opportunities for greater revenue
generation, while the luxury boxes and concessions provide sources
of revenue not previously available to the Company. Since the
Company shares in revenues generated by events at the arena, the
Company has acquired an indoor soccer franchise and will consider
acquiring additional sports franchises under certain circumstances.
* Acquiring additional radio stations in Seattle to be operated in
conjunction with its current stations, KJR(AM), KJR(FM) (formerly
KLTX(FM)), and KUBE(FM). In 1994, the Company acquired its third
station through its investment in the New Century Seattle Partner,
L.P. This acquisition gave the Company three signals in the same
area, thereby enhancing revenue opportunities while realizing cost
savings associated with eliminating the duplication of functions.
See "Business-Broadcasting-Radio-Operations" below.
OUT-OF-HOME MEDIA
The Company's out-of-home media business segment involves the sale of
advertising space on outdoor displays and on display units located in airport
terminal facilities. National advertisers generally categorize outdoor and
airport advertising as out-of-home media because, unlike radio and television
broadcasting, newspapers and magazines, the primary focus of outdoor and
airport advertising is to disseminate the advertiser's message outside the
home environment.
OUTDOOR ADVERTISING
INDUSTRY OVERVIEW. During the nineteenth century, companies began to
lease out space on wooden boards for advertising messages, or "bills." Today,
outdoor advertising extends nationwide, providing advertisers with a low-cost
means of reaching large audiences. It is currently used by large national
advertisers as part of multi-media advertising campaigns and increasingly by
local merchants as a means of contacting their target markets.
The Company believes that outdoor advertising is one of the most
cost-effective forms of advertising. Poster space generally is sold in
packages called "showings," which comprise a given number of displays in a
market area. Posters provide advertisers with access either to a specified
percentage of the general population or to a specific target audience.
Displays making up a showing are placed in well-traveled areas and are
distributed so as to reach a wide audience in a particular market. An
outdoor advertising company establishes and publishes rate cards
periodically, typically once a year, which set monthly rates for painted
bulletins, poster panels and junior posters for each market it covers. Rates
are based, in part, on surveys made by independent traffic audits that
determine a given display's exposure to the public. Actual rates charged to
customers are subject to negotiation. Advertising contracts relating to
painted bulletins, poster panels and junior posters generally have terms of
one year or less.
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In addition to cost-effectiveness, outdoor advertising has other
advantages for certain types of advertisers. Because the advertising message
can be placed to reach potential customers close to the point of sale,
restaurants, motels, service stations and similar businesses find outdoor
advertising particularly attractive. In addition, repeated viewings by
people traveling the same route on a daily basis makes outdoor advertising
especially suitable for companies, such as banks, insurance companies, soft
drink manufacturers and radio and television stations, that sell their
products by promoting a particular image.
While outdoor advertising remains a stable and predictable source of
revenue, the Company believes that the number and diversity of advertisers
using the medium has increased. Over the past few years the emphasis has
shifted from national to local and regional sales and to customers who have
not traditionally used outdoor advertising. Advertisers shifting a
significant portion of their advertising dollars into outdoor advertising
include city and state governments (lottery advertising), health care
services, specialty retailers, food products companies and telephone
equipment and service companies.
OPERATIONS. The Company's outdoor advertising business involves the
sale of space on advertising display faces and includes, in many cases, the
design of advertisements and the construction of outdoor structures that
carry these displays. The Company operates its outdoor advertising business
primarily in the greater metropolitan areas of Seattle and Tacoma,
Washington; Portland, Oregon; Boston and Worcester, Massachusetts; and Miami,
Fort Lauderdale and West Palm Beach, Florida. The Company, which has a total
of approximately 9,200 advertising displays nationwide, is the dominant
operator of outdoor advertising in each of its markets. The Company believes
that its strong market position, the geographical diversity of its operations
and its emphasis on local advertisers lend stability to its revenue base,
reduce its reliance on any single local economy or advertiser and mitigate
the effects of fluctuations in national advertising expenditures. The
Company also believes that its outdoor advertising operation will continue to
be a substantial source of revenue but anticipates that any future growth in
this business will result primarily through diversification of its customer
base and increased demand brought about by creative marketing.
The principal outdoor advertising display used by the Company is the
billboard, of which there are three standardized types:
* PAINTED BULLETINS, which generally are 14 feet high and 48
feet wide, consist of panels that are hand painted at the Company's
facilities in accordance with design specifications supplied by the
advertiser or, less frequently, panels covered with a single sheet of
vinyl on which an image has been printed by computer. The panels are then
transported to the site of the billboard and mounted to the face of the
display. To attract more attention, panels may extend beyond the linear
edges of the display face and may include three-dimensional embellishments.
Painted bulletins are usually located near major highways for maximum
impact. Space is usually sold to advertisers for periods of four to twelve
months.
* POSTER PANELS, which generally are 12 feet high by 25 feet wide,
are the most common type of billboard. Lithographed or silk-screened paper
sheets that are supplied by the advertiser are prepasted and packaged in
airtight bags by the Company and applied, like wallpaper, to the face of
the
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display. Poster panels are usually located on major traffic arteries.
Space is usually sold to advertisers for periods of one to twelve months.
* JUNIOR POSTERS are usually 6 feet high by 12 feet wide. The
displays are prepared and mounted in the same manner as poster panels.
Most junior posters, because of their smaller size, generally are
concentrated on city streets and are targeted to pedestrian traffic. Space
on junior posters usually is sold to advertisers for periods of one to
twelve months.
At December 31, 1995, the Company owned 1,350 painted bulletins, 6,402 poster
panels and 1,457 junior posters distributed among markets served as follows:
<TABLE>
<CAPTION>
DMA PAINTED POSTER JUNIOR
MARKET RANK(1) BULLETINS PANELS POSTERS
------ ------- --------- ------ -------
<S> <C> <C> <C> <C>
NORTHWEST:
Seattle/Tacoma. . . . . 12 218 1,692 369
Portland. . . . . . . . 25 144 1,184 --
BOSTON:
Boston/Worcester. . . . 6 279 2,038 89
FLORIDA:
Miami/Fort Lauderdale . 16 502 1,136 999
West Palm Beach . . . . 45 207 352 --
_______________
</TABLE>
(1) Source: Stations Volume of the Television-Cable Fact Book, 1995
Edition. Designated Market Area ("DMA") rank is a common measure of
market size based on population used by the media industry and reported
upon by the Nielsen Rating Service.
The Company owns all of its outdoor displays, which generally are
located on leased property. The typical lease provides for a term ranging
from five to 15 years and for a reduction in or termination of rental
payments in the event the view of the advertising structure becomes
obstructed during the lease term. Usually, a property owner may terminate
the lease in the event the site undergoes development. In the event of such
lease termination, the Company seeks to relocate the structure at an
alternate site, subject to zoning requirements, in order to maintain its
inventory of advertising displays in the particular geographic region.
SALES AND MARKETING. The Company sells advertising space on the
Company's outdoor displays directly to advertisers, especially in the case of
local and regional sales. The Company also sells advertising space to
advertising agencies and specialized media buying services acting on behalf
of national advertisers. These agencies charge the Company a commission for
their services. In recent years, the Company has focused increasingly on
selling to local and regional advertisers.
A broad cross-section of advertisers utilize the Company's outdoor
advertising services, including tobacco, food and beverage, financial
service, automotive and entertainment companies. As a result of the
Company's efforts to diversify its advertiser base and to reduce the
percentage of its net revenue attributable to
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the advertising of tobacco products, the Company's largest outdoor
advertising customer accounted for less than 3.0% of the Company's gross
revenue in 1995.
COMPETITION. The Company's outdoor advertising business competes
directly with others engaged in the same business and indirectly with other
types of advertising media, including television, radio, magazines,
newspapers, business publications and direct mail marketing. Substantial
competition exists among the various advertising media on a
cost-per-rating-point basis and on the ability to reach effectively a
particular demographic section of the market. As a general matter,
competition is confined to a defined geographic market. While there are a
few companies in the outdoor advertising business that are substantially
larger than the Company, the Company is the largest owner and operator of
outdoor advertising displays in the geographic markets in which it operates.
The Company believes that it provides higher graphic quality, more timely
installation and better sign maintenance than other outdoor advertisers in
its markets.
REGULATION. The location of outdoor advertising structures is regulated
through zoning regulations adopted by state and local governments.
Typically, the Company's outdoor advertising structures are located in
commercial and industrial zones. In some jurisdictions there is a limitation
on the number of outdoor advertising structures that can be located within
the city limits. Local zoning ordinances either restrict or prohibit outdoor
advertising structures in specific areas in the various markets in which the
Company operates. In addition, the 1965 Federal Highway Beautification Act
(the "FHBA") requires states to adopt programs of effective regulation of
outdoor advertising along federal highways in order to qualify for their full
share of federal highway aid. However, the FHBA provides for the payment of
compensation to the owner of a lawfully erected outdoor advertising structure
that is removed by operation of the statute. In the event that a
governmental entity seeks to compel the removal of one of the Company's
outdoor advertising structures, the Company follows a policy of actively
resisting unless adequate compensation is paid. The Company has initiated
several lawsuits of this character and has prevailed in each such action. In
addition, the Company has negotiated resolutions to other disputes without
recourse to litigation.
AIRPORT ADVERTISING
INDUSTRY OVERVIEW. Practically all airport complexes across the United
States grant franchises for the use of displays, signs and other units to
provide advertising services. Airport advertising is particularly attractive
to advertisers targeting an affluent audience with travel-related needs. The
airport advertising business is dominated by less than five competitors, with
the Company the largest by a significant margin based on revenues.
The airport advertising business requires a prospective franchisee to
obtain from the appropriate airport authority a franchise agreement
authorizing the franchisee to install, maintain and sell advertising space on
advertising display units in the airport's terminal facilities. Many airport
authorities have established advertising guidelines for, and some airport
authorities reserve the right to approve, the location and content of
advertising materials.
Airport franchise agreements are individually negotiated with the
appropriate authority charged with the management of the airport facility,
usually a county, city or other governmental authority. In some instances,
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the franchisee enters into agreements with individual airlines maintaining
separate terminal facilities under terms similar to those negotiated with the
relevant airport authority. The franchise agreements have an average initial
term of three to five years and require the payment of a concession fee to
the airport authority based on a negotiated percentage of gross revenue
derived from advertising in the airport facility. The amount generally is
based on the size of the facility, the number of display units that can be
located in the facility and the size and demographic characteristics of
travelers using the facility. Many franchise agreements also require
guaranteed minimum annual payments to be made in the event the fees otherwise
payable to the airport authority are less than such minimum amount.
Typically, at the conclusion of the initial franchise term, the franchise is
either extended indefinitely, on an at-will basis, or subjected to a
competitive bidding process.
OPERATIONS. The Company is the largest owner and operator of airport
advertising displays in the United States. It owns, maintains and sells
advertising space on approximately 4,800 advertising display units in over
110 airport terminals throughout the United States, including principal
airports serving the greater metropolitan areas of Boston, Washington, D.C.,
Miami, Houston, St. Louis and Seattle.
Airport advertising display units generally consist of freestanding
displays (primarily 4 x 4 feet in size, with some 8 x 8 feet and some 10 x 20
feet), interior-lighted units (3 x 5 feet) and multiple display hotel and
motel reservation boards with direct telephone lines to the advertised
facilities. With the permission of the governing authority, the Company may
install other types of display units at an airport. The Company sells
advertising space on airport advertising display units for periods ranging
from one month to one year.
SALES AND MARKETING. National and local advertisers purchase airport
advertising from the Company at rates based on passenger traffic surveyed at
the relevant airport. The Company sells advertising space on the Company's
airport advertising display units directly to the advertisers and also sells
to advertising agencies and specialized media buying services acting on
behalf of national advertisers. A broad cross-section of advertisers utilize
the Company's airport advertising services, including hotels, motels and
automobile rental companies, media and telecommunication companies and
financial services companies. The Company's largest airport advertising
customer accounted for less than 1% of the Company's gross revenue in 1995.
COMPETITION. The award of an advertising franchise at each airport
terminal facility generally is the result of a competitive process.
Franchises are awarded based on the amount of any guaranteed minimum payment
offered and the percentage of gross revenue to be paid to the airport
authority, the franchisee's ability to meet specialized needs set forth in
the governing agency's specifications and the franchisee's reputation and
experience. The Company believes that its position as industry leader, its
history in the business, its reputation for quality service and reliability
and the size and expertise of its sales force generally provides it with a
competitive advantage.
BROADCASTING
The Company's broadcasting business segment involves the sale of air time to
a broad range of national and local advertisers. The Company operates in six
geographically diverse markets that offer a large and affluent population
base attractive to many advertisers.
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TELEVISION
INDUSTRY OVERVIEW. Television station revenue is derived primarily from
local, regional and national advertising and, to a lesser extent, from
network compensation from studio rental and commercial production activities.
Advertising rates are based upon a program's popularity among the viewers an
advertiser wishes to attract, the number of advertisers competing for the
available time, the size and demographic makeup of the market served by the
station and the availability of alternative advertising media in the market
area. The size of a television station's audience is determined by
independent rating service surveys.
Affiliation with one of the major networks has a significant impact on
the composition of the station's revenue, expenses and operations. A typical
affiliate receives the majority of its programming each day from the network.
This programming, together with cash payments, is provided to the affiliate
by the network in exchange for a substantial majority of the advertising time
during network programs. The network sells this advertising time and retains
the revenue so generated.
OPERATIONS. The following table sets forth certain information with
respect to the Company's television stations and the markets in which they
operate:
<TABLE>
<CAPTION>
NO. OF
COMMERCIAL
STATIONS
CALL DATE NETWORK DMA RANKED IN
MARKET LETTERS ACQUIRED AFFILIATION RANK(1) MARKET(2) FREQUENCY(3)
- ------ ------- -------- ----------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Syracuse, New York . . . . . . . . . . . . . . . WIXT May 1982 ABC 67 3 VHF VHF
2 UHF(4)
Colorado Springs/Pueblo, Colorado. . . . . . . . KKTV January CBS 97 3 VHF VHF
1983 1 UHF(5)
Bakersfield, California. . . . . . . . . . . . . KGET October NBC 129 4 UHF(6) UHF
1983
Vancouver, British Columbia and portions
of Seattle, Washington (station located
in Bellingham, Washington) . . . . . . . . . . KVOS June 1985 (7) (7) (7) VHF
Salinas/Monterey, California . . . . . . . . . . KCBA June 1986 FOX 115 1 VHF UHF
3 UHF(8)
</TABLE>
- ---------------
(1) Source: Stations Volume of the Television Cable Fact Book, 1995 Edition.
(2) Source: Stations Volume of the Television Cable Fact Book, 1995 Edition.
Does not include public broadcasting stations, satellite stations or
translators which rebroadcast signals from distant stations.
(3) Very high frequency ("VHF") stations transmit on channels 2 through 13;
ultra high frequency ("UHF") stations transmit on channels 14 through 69.
Technical factors, such as station power, antenna location and height and
topography of the area, determine the geographic market served by a
television station. In general, a UHF station requires greater power or
antenna height to cover the same area as a VHF station.
(4) Two additional UHF channels have been allocated in the Syracuse market;
however, there has been no construction activity to date with respect to
these channels.
(5) Two additional UHF channels have been allocated in the Colorado
Springs/Pueblo market; however, there has been no construction activity to
date with respect to these channels.
(6) Two additional UHF channels have been allocated in the Bakersfield market;
however, there has been no construction activity to date with respect to
these channels.
(7) KVOS, located in Bellingham, Washington, serves primarily the Vancouver,
British Columbia market (located in size between the markets of
Sacramento-Stockton-Modesto, California, and Orlando-Daytona
Beach-Melbourne, Florida, which have DMA rankings of 21 and 22,
respectively) and a portion of the Seattle, Washington market (DMA rank
12) and Whatcom County, Washington (equivalent in size to Eureka,
California, with an DMA rank of 189). The station's primary competition
consists of 4 Canadian VHF stations.
(8) One additional UHF channel has been allocated in the Salinas/Monterey
market; however, there has been no construction activity to date with
respect to this channel.
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The Company's major-network affiliated television stations operate under
standard two-year contracts which are automatically renewed for successive
two-year terms unless the Company or the network exercises its right to
cancel. Although federal regulations prohibit network contracts with terms
of more than two years, successive terms are permitted. Under the terms of a
network contract, the networks offer the Company's network-affiliated
stations a variety of programs. The Company's network-affiliated stations
have a right of first refusal to broadcast network programs before those
programs can be offered to any other television station in the same market.
The Company generally seeks to maximize the amount of commercial time it
has available to sell to advertisers to attract broader and better defined
audiences within its markets by emphasizing non-network programming during
certain significant time periods. Such programming includes locally produced
news, as well as syndicated and first-run talk programs, children's
programming and movies acquired from independent sources.
In the case of KVOS, which is located in Bellingham, Washington and
serves primarily the market of Vancouver, British Columbia, Canada, the
percentage of network programming preempted by alternate programming is
substantial. This preemption is due primarily to Canadian regulations that
require Canadian cable television operators to delete the signals of United
States-based stations broadcasting network programs in regularly scheduled
time slots and replace them with the signals of the Canadian-based network
affiliates broadcasting at the same time. By substituting this alternate
programming, KVOS is able to maximize the amount of time it is on the air in
the Vancouver market.
On November 30, 1995, the Company entered into a definitive agreement to
purchase, for approximately $7.8 million, the assets of television station
KFTY, an independent station licensed for the market of Santa Rosa,
California. The Federal Communications Commission granted preliminary
approval on March 6, 1996. The sale is subject to final approval by the
Federal Communications Commission. The Company expects the transaction to
close in April 1996.
SALES AND MARKETING. The principal sources of television broadcasting
revenue for the Company are the sale of time to advertisers in the form of
local, regional and national spot or schedule advertising and, to a much
lesser extent, network compensation. Spot or schedule advertising consists
of short announcements and sponsored programs either on behalf of advertisers
in the immediate area served by the station (local) or on behalf of national
and regional advertisers (national).
During 1995, local spot or schedule advertising, which is sold by the
Company's personnel at each station, accounted for approximately 42% of the
total revenue generated by the Company's television stations. National spot
or schedule advertising, which is sold primarily through national sales
representative firms on a commission-only basis, accounted for approximately
56% of the total revenue generated by the Company's television stations in
1995.
Network compensation revenue is based upon network hourly rates payable
to a station by a network and is tied to the number of network programs
broadcast. Network hourly rates are fixed by the terms of the contract
between the network and the station and are subject to change by the network,
although the station has
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the right to terminate the contract if the change involves a decrease in
rates. In the aggregate, network compensation revenue does not represent a
significant portion of the total net revenue generated by the Company's
stations.
COMPETITION. The Company's television stations compete for revenue with
other television stations in their respective markets, as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail and local cable
systems. Factors material to maintaining an individual station's competitive
position in the television broadcast industry include the station's
management experience, authorized power, assigned frequency, network
affiliation, audience identification and local program acceptance, together
with the strength of the local competition.
The Company's television stations compete for both audience and
advertising with stations within their markets, as well as with cable
television and other news and entertainment media serving the same markets.
Cable television systems, which operate generally on a subscriber-payment
basis, compete by carrying television signals from outside the broadcast
market and by distributing programming originated exclusively for cable
systems. Cable operators historically have not sought to compete with
broadcast stations for a share of the local news audience. To the extent
they elect to do so, increased competition from cable operators for local
news audiences could have an adverse effect on the Company's advertising
revenue. The Company also may face future competition from high-powered
direct broadcast satellite services which could transmit programming directly
to homes equipped with special receiving antennas or to cable television
systems for transmission to their subscribers. In addition, the Company's
television stations compete for audience with other forms of home
entertainment, such as home videotape and disc players. Moreover, the
television industry is continually faced with technological change and
innovation, the possible rise in popularity of competing entertainment and
communications media, changes in labor conditions and in government
regulations.
RADIO
INDUSTRY OVERVIEW. Radio stations in the United States operate either
on the amplitude modulation ("AM") band, comprising 107 different frequencies
located between 540 and 1600 kilohertz ("KHz") in the low frequency band of
the electromagnetic spectrum, or the frequency modulation ("FM") band,
comprising approximately 100 different frequencies located between 88 and 108
megahertz ("MHz") in the very high frequency band of the electromagnetic
spectrum. FM radio stations have captured a high percentage of the listening
audience, in part because of the perception that stereo broadcasting, which
was once only available on FM radio stations, provides enhanced sound quality.
Radio station revenue is derived substantially from local, regional and
national advertising and, to a lesser extent, from network compensation.
Approximately 73% of the Company's radio broadcasting revenue is derived from
local advertising generated by a station's local sales staff. National sales
are made on a station's behalf by a national independent sales
representative. The representative obtains advertising from national
advertising agencies and receives a commission based on a percentage of gross
advertising revenue generated. The principal costs incurred in the operation
of radio stations are salaries, programming, promotion and advertising,
sports broadcasting rights fees, rental of premises for studios and
transmitting equipment and music license royalty fees.
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OPERATIONS. The following table sets forth certain information with
respect to the Company's radio stations:
<TABLE>
<CAPTION>
RADIO STATION
RADIO NO. OF FORMAT AND
STATION COMMERCIAL PRIMARY
CALL DATE POWER ARBITRON STATIONS IN DEMOGRAPHIC
MARKET LETTERS ACQUIRED (WATTS) RANK(1) MARKET(1) TARGET
----------- --------- ---------- --------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Seattle/Tacoma, KJR(AM) May 1984 5,000 13 15 AM Sports Talk;
Washington Men 25-54
KJR(FM)(2) October 1987 100,000 18 FM 70'S Hits
Adults 25-54
KUBE(FM) July 1994 100,000 Top 40 CHR
Persons 12-34
- ---------------
</TABLE>
(1) Source: Arbitron, Fall 1995 Edition.
(2) Formerly KLTX (FM)
The Company purchased KJR(AM), located in Seattle, Washington, in May
1984. KJR(AM) acquired the broadcast rights to SuperSonics games from the
Company in the 1987-1988 season, and now serves as the SuperSonics' flagship
radio station. In October 1987, the Company acquired KJR(FM), also located
in Seattle.
On February 4, 1994, the Company entered into an agreement with Century
Management, Inc. which resulted in the formation of New Century Seattle
Partners, L.P. (the "Partnership") for the purpose of operating the assets of
KJR(AM), KJR(FM) and KUBE(FM). This venture was approved by the Federal
Communications Commission ("FCC") and closed on July 14, 1994. Under the
terms of the Amended and Restated Limited Partnership Agreement dated July
14, 1994, the Partnership purchased certain assets of KUBE(FM) from
affiliated companies of Cook Inlet, Inc., an Alaska-based Native American
corporation, and KJR Radio, Inc. contributed certain assets of KJR(AM) and
KJR(FM) to the Partnership. Century Management, Inc. is the general partner
of the Partnership. KJR Radio, Inc. is a limited partner holding
approximately 98.0% of the equity interests in the Partnership. The other
limited partners include ASDP/New Century, Inc., a Massachusetts corporation,
and Union Venture Corporation, a California corporation.
On March 9, 1994, the Company sold radio station WAXY(FM) in Fort
Lauderdale, Florida, to Clear Channel Radio, Inc. for approximately $14.0
million in cash, of which $13.0 million was for the assets of the radio
station and $1.0 million was for a prepaid outdoor advertising contract. At
December 31, 1993, the net book value of WAXY(FM) was approximately $10.7
million.
SALES AND MARKETING. The principal source of radio broadcasting revenue
for the Company is the sale of air time to local advertisers. Advertising
rates charged by each of the Company's radio stations are based primarily on
the station's ability to attract audiences in the target demographic groups
and the number of stations competing in the market area. The size of a radio
station's audience is measured by independent rating service surveys.
10
<PAGE>
During 1995, local spot or schedule advertising, which is sold by the
Company's personnel at each station, accounted for approximately 73% of the
revenue generated by the Company's radio stations. National spot or schedule
advertising, which is sold primarily through national sales representative
firms on a commission-only basis, accounted for approximately 23% of the
Company's radio broadcasting revenue in 1995. The remaining revenue
consisted of tower rentals and production fees.
COMPETITION. Radio stations compete with other broadcasting stations in
their respective market areas, as well as with other advertising media such
as newspapers, television, cable television, magazines, outdoor advertising,
transit advertising and mail marketing. Competition within the radio
broadcasting industry occurs primarily in individual market areas, and a
station in one market generally does not compete with stations in other
market areas. In addition to management experience, factors material to
competitive position include the station's rank in its market, transmitter
power, assigned frequency, audience characteristics, local program acceptance
and the number and characteristics of the stations in the market area. A
competing station or a station changing its format could enter into direct
competition with, and precipitate a decline in the ratings of, any one of the
Company's stations.
In addition, because a radio station's success in the ratings may depend
to a large extent upon the presence of radio personalities who are able to
develop large followings among listeners in a particular radio market, the
arrival of a radio personality at a competing station or the loss of such
person at one of the Company's radio stations could adversely affect that
station's ratings.
Congress and the FCC have under consideration, and may in the future
consider and adopt, new laws, regulations and policies regarding a wide
variety of matters that may have an adverse competitive impact on the
Company's radio broadcast properties. See "-- Broadcasting Regulation" below.
BROADCASTING REGULATION
The television and radio industries are subject to extensive federal
regulation under the Communications Act of 1934, as amended (the
"Communications Act"), which, among other things, requires approval by the
FCC of transfers, assignments and renewals of broadcasting licenses, limits
the number of broadcasting properties the Company may acquire and restricts
alien ownership of capital stock of licensees. The FCC's multiple ownership
rules limit certain ownership of media interests in the same market, such as
stations of the same type (radio or television) serving the same geographic
market, a radio station and a television station serving the same geographic
market, a cable system and a television station serving the same geographic
market and a radio station and a daily newspaper serving the same geographic
market. However, since 1992, the rules have permitted an entity to own up to
three radio stations, no more than two of which are AM or FM stations, in
markets with fewer than 15 stations, so long as the owned stations represent
less than 50% of the stations in the market. In radio markets with 15 or
more commercial radio stations, an entity may own up to two AM and two FM
commercial stations, so long as the combined audience share of those stations
does not exceed 25%. The rules also restrict the total number of
broadcasting stations which the Company may own nationwide generally to 20 AM
and 20 FM radio stations and 12 television stations (so long as the
television stations do not reach more than 25% of television households
nationwide). The Company currently is in compliance with the FCC's
11
<PAGE>
rules governing the number of stations which may be owned. These limitations
on ownership may affect the Company's ability to acquire additional stations
in the future.
The success of the Company's broadcasting segment depends upon its
continuing to hold broadcast licenses from the FCC. Radio station licenses
are issued for terms of seven years and television station licenses are
issued for terms of five years. The Company's television stations KCBA, KVOS,
and WIXT have licenses which expire (subject to renewal) on December 1, 1998,
February 1, 1999 and June 1, 1999, respectively. Television stations KGET
and KKTV each has a license renewal application currently pending at the FCC.
No competing applications have been filed, although petitions to deny the
license renewal applications of television stations KKTV and KGET have been
filed by various parties. The Company's radio station, KJR(AM) and KJR(FM),
have a license which expires (subject to renewal) on February 1, 1998.
While in the vast majority of cases licenses are renewed by the FCC,
there can be no assurance that the Company's broadcasting licenses will be
renewed, especially if competing applications to obtain the licenses are
filed. With respect to television stations KKTV and KGET, the Company
believes that none of the petitions will result in a denial of the license
renewal application of any of these stations.
In determining whether to grant or renew a broadcast license, the FCC
considers a number of factors pertaining to the licensee, including
compliance with the Communications Act's limitations on alien ownership,
compliance with various rules limiting common ownership of broadcast, cable
and newspaper properties and the "character" of the licensee and those
persons holding attributable interests therein.
The Communications Act requires broadcasters to serve the "public
interest." Since the late 1970s, the FCC gradually has relaxed or eliminated
many of the more formalized procedures it developed to promote the broadcast
of certain types of programming responsive to the needs of a station's
community of license. However, licensees continue to be required to present
programming that is responsive to community problems, needs and interests and
to maintain certain records demonstrating such responsiveness. Complaints
from listeners or viewers concerning a station's programming often will be
considered by the FCC when it evaluates renewal applications of a licensee,
although such complaints may be filed at any time. Stations also must follow
various rules promulgated under the Communications Act that regulate, among
other things, political advertising, sponsorship identifications, the
advertisement of contests and lotteries and technical operations, including
limits on radio frequency radiation. In addition, licensees must develop and
implement affirmative action programs designed to promote equal employment
opportunities and must submit reports to the FCC with respect to these
matters on an annual basis and in connection with a renewal application.
In March 1993, the FCC issued new rules establishing must-carry rights
and retransmission consent rights for television stations, as required by the
Cable Television Consumer Protection and Competition Act of 1992 (the "Cable
Act"). By June 17, 1993, each local television station had to elect either
(i) to require its local cable television operator to carry its signal (the
"must-carry option"), or (ii) to grant its consent to the local cable
operator (the "retransmission consent option"). If a broadcaster chooses the
must-carry option, the cable operator generally is required to carry such
broadcaster's signal. However, the must-carry rights are not absolute, and
their exercise depends on variables such as the number of activated channels
on, and the location and size of, the cable system and the amount of
duplicative programming on a broadcast station. If a
12
<PAGE>
broadcaster chooses the retransmission consent option, it may prohibit cable
systems from carrying its signal or permit carriage under a negotiated
compensation arrangement.
The Company's four network-affiliated stations have chosen the
retransmission consent option within their respective markets. By September
6, 1993, all cable systems were required to notify their subscribers which TV
stations they would be carrying when the new cable TV rules went into full
effect on October 6, 1993. Of the Company's four network-affiliated
television stations, three (KKTV, KCBA and KGET) granted retransmission
consents to their local cable systems, while the other (WIXT) agreed to
extend for one year the deadline to complete its negotiations with its local
cable systems. WIXT has continued to extend that deadline by subsequent
agreements. While the Company believes that the remaining negotiation will
be concluded successfully and that even if it is not successful the Company's
operation would suffer no material adverse effect, there can be no assurance
that this will be the case.
On February 8, 1996, the Telecommunications Act of 1996, Pub. L. No.
104-104, 110 Stat. 56, was enacted. The new law requires the FCC to
substantially change many of its rules regulating the television and radio
industries. In general, the new law requires the FCC to conduct various
rulemaking proceedings to change its existing rules as required by the new
law. The FCC has issued a tentative timetable for conducting the various
rulemaking proceedings, which indicates that many FCC rules may change
between March 1996 and the end of the year. The rule changes required by the
new law will include changes (i) allowing one entity to own an unlimited
number of radio stations nationwide, and allowing one entity to own an
increased number of radio stations in a market, (ii) allowing one entity to
own television stations reaching up to thirty five percent of the national
audience, (iii) extending radio and television license terms to eight years,
and (iv) relaxing the radio and television license renewal process. The new
law also requires the FCC to conduct a rulemaking proceeding to determine
whether to change its rule limiting the number of television stations an
entity can own in a single market.
The final rules that the FCC may adopt to implement the above referenced
provisions of the new law, as well as rules implementing other provisions of
the new law and not referenced above, may have an adverse competitive impact
on the Company's business.
Other FCC rules are also subject to change. These changes may have an
adverse competitive impact on the Company. For example, the FCC has adopted
rule changes which will result in the expansion of the AM radio band,
addition of more AM and FM stations, or increased power for existing AM and
FM stations, by reducing the mileage spacing between existing stations and
allowing the utilization of certain other engineering techniques (e.g.,
directional antennas and terrain shielding). Investigations by Congressional
committees, the FCC and other governmental agencies into certain practices
and conditions in the broadcasting industry (including broadcasting spectrum
and/or license fees, copyright law revisions, advertising practices, cable
television and trafficking rules) have resulted in various proposals or
inquiries now pending or which may be considered in the future by such
governmental bodies.
Congress and the FCC have under consideration, and may in the future
consider and adopt, additional new laws, regulations and policies regarding a
wide variety of matters that could, directly or indirectly, affect the
operation, ownership and profitability of the Company's broadcast properties.
Such matters include, for
13
<PAGE>
example, proposals to impose spectrum use or other governmentally imposed
fees upon licensees; the FCC's equal employment opportunity rules and other
matters relating to minority and female involvement in the broadcasting
industry; proposals to change rules relating to political broadcasting;
technical and frequency allocation matters, including those relative to the
implementation of digital audio broadcasting on both a satellite and
terrestrial basis; proposals to permit expanded use of FM translator
stations; proposals to restrict or prohibit the advertising of beer, wine and
other alcoholic beverages on radio; changes to broadcast technical
requirements; and proposals to auction the right to use the radio broadcast
spectrum to the highest bidders.
Additional FCC proposals which may have an adverse effect on the Company
include the expansion of operating hours of daytime-only stations. The
Company cannot predict whether any such proposed changes will be adopted nor
can it judge in advance what impact, if any, any such proposed changes might
have on its business. In addition, the Company cannot predict what other
changes might be considered in the future, nor can it judge in advance what
impact, if any, such other changes might have on its business.
The FCC has proposed the adoption of rules for implementing advanced
(including high-definition) television service ("ATV") in the United States.
Implementation of ATV will improve the technical quality of television.
Under certain circumstances, however, conversion to ATV operations may reduce
a station's geographical coverage area. Implementation of ATV will impose
additional costs on television stations providing the new service, due to
increased equipment and operating costs. At the same time, there is a
potential for increased revenues derived through the use of high-definition
television. While the Company believes the FCC will authorize ATV in the
United States, the Company cannot predict when such authorization might be
given or the effect such authorization might have on the Company's business.
Television station KVOS, which derives much of its revenue from the
Vancouver, British Columbia market, is regulated by certain aspects of
Canadian law. In particular, although under Canadian tax laws advertising
expenses are ordinarily deductible as business expenses, a Canadian firm may
not deduct the cost of advertising on a United States-based television
station which is directed into a Canadian market. In order to compensate for
this disparity, KVOS sells advertising time in Canada at a discount from its
standard rate. KVOS also is subject to certain restrictions on its broadcast
of network programming. See "-- Operations" above.
OTHER BUSINESSES
The Company's third business segment includes its basketball and indoor
soccer operations. This segment, however, also incorporates the operations
of the Company's real estate holdings and the expenses of the Company's
corporate office.
14
<PAGE>
THE SEATTLE SUPERSONICS
The SuperSonics franchise is one of 29 members of the NBA. Teams in the
NBA play a regular season schedule of 82 games from November through April
and play several preseason exhibition games. Based on their regular season
records, 16 teams qualify for post-season play, which culminates in the NBA
championship. The SuperSonics have qualified for post-season play in each of
the last three years.
INDUSTRY OVERVIEW. NBA members share equally in the association's
profits and have joint and several liability for its obligations. NBA
affairs are supervised by a Board of Governors made up of a representative
selected by each of the members. Through its elected Commissioner, the Board
of Governors arbitrates disputes between members, assures that the conduct of
members, players and officials is in accordance with the NBA Constitution and
Bylaws, reviews and authorizes player transactions between members and
imposes sanctions (including fines and suspensions) on members, players and
officials who are found to have breached NBA rules. The sale of any NBA
franchise is subject to the approval of a majority of the association's
owners.
OPERATIONS. Since 1983 the Company has owned and operated the
SuperSonics, the NBA franchise for Seattle, Washington. The franchise has
been operated in Seattle since it was granted by the NBA in 1966. The
franchise, which is subject to the Constitution and Bylaws of the NBA,
operates for an indefinite term of years so long as the Company maintains its
membership in good standing.
Currently, the SuperSonics maintain a full roster of 12 active players.
The minimum roster under NBA rules is 11 players. The SuperSonics acquire
new players primarily through the college draft, by signing veteran free
agents uncommitted to another NBA franchise or by trading players with
another franchise. NBA rules limit the aggregate annual salaries payable by
each team to its players.
SALES AND MARKETING. A major source of revenue for the SuperSonics is
ticket sales for home games, as 100% of the revenue from these sales are
retained by the home team. Average paid attendance per game increased from
13,172 for the 1992-93 regular season, to 13,250 for the 1993-94 regular
season, and to 13,846 for the 1994-95 regular season. Average paid
attendance for the 1995-96 through February 29, 1996 regular season increased
to 15,173. The SuperSonics maintained consistent growth in average paid
attendance from the 1992-93 season through the 1994-95 season, attributable
mainly to the team's improved win/loss record. The substantial increase in
the 1995-96 average paid attendance through February 29, 1996 is mainly due
to the SuperSonics move to the new Key Arena in November 1995.
In November 1993, the NBA granted franchises to the cities of Toronto
and Vancouver, Canada for $125 million each to begin play in the 1995-96
season. The SuperSonics has received its proportionate share of the
franchisee fees received from these additional franchises. The SuperSonics
share equally with the other NBA teams in revenue resulting from NBA
agreements with television networks for the broadcast of league games and
other NBA activities. The proportion of revenue resulting from the sale of
broadcast rights, particularly television broadcast rights, has increased
significantly in recent years and is expected to become a more significant
portion of total NBA revenue, primarily because of the growth of cable
television. In the spring of 1993, the NBA entered into a new contract with
NBC providing for the television broadcast of certain
15
<PAGE>
league games through the 1997-98 season. This contract provides for a
minimum payment to the NBA of $750 million over the four-year term of the
contract.
Other sources of revenue for the Company derived from its ownership of
the SuperSonics include broadcast licensing, team advertising sponsorships
and in-arena advertising. All of the SuperSonics' games are broadcast
exclusively over KJR(AM), the Company-owned radio station in Seattle.
Broadcasting rights to the SuperSonics' games are licensed to local cable
systems and, outside the Seattle/Tacoma market, additional radio stations not
affiliated with the Company. Broadcast revenue related to the SuperSonics,
including the current contracts with NBC and Turner Network Television, is
included in the Company's broadcasting segment.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 380 persons
in its out-of-home media segment, 610 persons in its broadcasting segment and
61 persons in its other businesses segment. A sales force of approximately
50 employees based in New York, St. Louis and the Washington, D.C. area and
in other regional offices, which is responsible for selling advertising space
on the Company's outdoor advertising structures and airport displays, is
included in this tabulation.
Approximately 280 of the Company's employees are represented by various
unions under 14 collective bargaining agreements. The Company believes that
its employee relations are good. Collective bargaining agreements covering
approximately 1% of the Company's employees are terminable during 1996. The
Company believes that these collective bargaining agreements will be
renegotiated or automatically extended and that any renegotiation will not
materially adversely affect its operations.
FINANCIAL INFORMATION REGARDING BUSINESS SEGMENTS
Financial information concerning each of the business segments in which
the Company is engaged is set forth in Note 13 to the Notes to Consolidated
Financial Statements.
16
<PAGE>
RESTRICTIONS ON OPERATIONS
The Company's Credit Agreement dated February 17, 1995 (the "1995 Credit
Agreement"), with certain of its bank lenders, the Indenture dated October 7,
1993 (the "Indenture") respecting its 10_% Senior Secured Notes Due 2003
("Senior Notes"), and its Note Agreements dated December 20, 1988 and Note
Agreements dated December 1, 1989, with certain insurance company lenders as
amended (collectively the "Subordinated Note Agreements") contain
restrictions on the Company's operations. The 1995 Credit Agreement,
Indenture and Subordinated Note Agreements include restrictions on aggregate
indebtedness, acquisitions of securities or assets of operating businesses,
stock issuances, the creation of liens, loans and advances, investments,
capital expenditures, guarantees, dividends on or purchases of its capital
stock, changes in lines of business, and transactions with affiliates. The
1995 Credit Agreement and Indenture also restrict the Company's ability to
prepay other debt. The 1995 Credit Agreement and Subordinated Note
Agreements generally prohibit the Company from engaging in a merger or
certain sales of assets without the consent of the respective lenders.
Additionally, acquisitions of additional business operations would generally
require consents or waivers from certain of the Company's lenders with
respect to several of the above restrictions.
The Company has pledged the stock of all its subsidiaries to secure its
obligations under the 1995 Credit Agreement and Indenture. In the event of a
monetary default under the 1995 Credit Agreement or Senior Notes, the pledgee
under the Pledge Agreement, on behalf of the bank lenders and Senior
Noteholders, could force a sale of all or a portion of the stock of the
subsidiaries to satisfy the Company's obligations.
Additional information concerning the 1995 Credit Agreement, Senior
Notes and Subordinated Note Agreements is set forth in Note 8 to the Notes to
Consolidated Financial Statements.
17
<PAGE>
ITEM 2 - PROPERTIES
The principal executive offices of the Company are located at 800 Fifth
Avenue, Suite 3770, Seattle, Washington 98104. These offices, which consist
of approximately 9,000 square feet, are leased by the Company pursuant to a
lease that expires in 1996.
The following table sets forth certain information regarding the
Company's operating facilities as of December 31, 1995:
<TABLE>
<CAPTION>
APPROXIMATE APPROXIMATE
SQUARE FOOTAGE SQUARE FOOTAGE
LOCATION NATURE OF FACILITY OWNED LEASED
- -------- ------------------ -------------- --------------
<S> <C> <C> <C>
OUT-OF-HOME MEDIA:
Seattle, Washington (Outdoor) Plant 35,889 --
Boston, Massachusetts (Outdoor) Plant 31,882 4,900
Miami, Florida (Outdoor) Plant 242,980 --
Airport Advertising Offices -- 12,544
BROADCASTING:
Syracuse, New York (WIXT) Station Operations 25,000 --
Colorado Springs, Colorado (KKTV) Station Operations 30,000 753
Bakersfield, California (KGET) Station Operations 16,740 --
Bellingham, Washington (KVOS) Station Operations 13,130 4,752
Salinas, California (KCBA) Station Operations 30,000 3,000
Seattle, Washington
(KJR(AM), KJR-FM and KUBE(FM)) Station Operations -- 16,082
Portland, Oregon Antenna Facility 3,500 --
OTHER BUSINESSES:
Seattle, Washington (Sports Operations) Offices & Practice 30,000 16,904
Facility
Seattle, Washington (Corporate) Offices -- 24,029
</TABLE>
The Company believes that its facilities are adequate for its present
business and that additional space is generally available for expansion
without significant delay. In 1995, the Company paid aggregate annual
rentals on office space of approximately $1.3 million.
Effective October 1, 1995, the Company entered into a fifteen-year lease
with the City of Seattle for the new Key Arena, a 17,100-seat events facility.
Construction for the arena was completed in September 1995. It was first
occupied and used by the SuperSonics in November 1995, the beginning of the
1995-1996 season. It also will be used by the SeaDogs beginning in the 1996
season.
At December 31, 1995, the Company owned 285 vehicles and leased 59
vehicles of various types for use in its operations. The Company owns a
variety of broadcast-related equipment, including broadcast towers,
transmitters, generators, microwave systems and audio and video equipment
used in its broadcasting business.
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<PAGE>
The Company also owns an airplane which is used for travel between the
various facilities and leases an airplane for use by the Supersonics under a
private carrier agreement.
The Company believes that all of its buildings and equipment are
adequately insured in accordance with industry practice.
ITEM 3 - LEGAL PROCEEDINGS
The Company reported in its Current Report on Form 8-K, filed with the
Securities and Exchange Commission on or around February 29, 1996, a $13
million award against certain of the Company's subsidiaries and officers in
connection with a wrongful termination claim by former Company employees.
The Company intends to appeal the verdict. See Note13 to the Company's
Consolidated Financial Statements.
The Company becomes involved from time to time in various claims and
lawsuits incidental to the ordinary course of its operations, including such
matters as contract and lease disputes and complaints alleging employment
discrimination. In addition, the Company participates in various
governmental and administrative proceedings relating to, among other things,
condemnation of outdoor advertising structures without payment of just
compensation, disputes regarding airport franchises and matters affecting the
operation of broadcasting facilities. Other than as indicated above, the
Company believes that the outcome of any such pending claims or proceedings,
individually or in the aggregate, will not have a material adverse effect
upon its business or financial condition.
The NBA regularly becomes involved in litigation with present or former
players, league employees, persons with interests in franchises and others.
The Company is unaware of any pending or threatened litigation which would
have a material adverse effect upon the business or financial condition of
the NBA or any of its members, including the SuperSonics.
ITEM 4 - SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the fourth
quarter of 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company currently are as follows:
Barry A. Ackerley 61 Chairman of the Board, President and Chief
Executive Officer
William N. Ackerley 35 President and Chief Operating Officer
Denis M. Curley 48 Executive Vice President and Chief Financial
Officer, Treasurer and Secretary
Keith W. Ritzmann 43 Vice President and Controller
Mr. Barry Ackerley, one of the founders of the Company, assumed the
responsibilities of President and Chief Operating Officer of the Company
following the resignation of Donald E. Carter effective March 1991 and until
the appointment of William N. Ackerley as Senior Vice President and Chief
Operating Officer
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effective April 1992. He has been the chief executive officer and a director
of the Company and its predecessor and subsidiary companies since 1975 and is
the Chairman of the Board.
Mr. William Ackerley was elected President in August 1993. He has
served as Chief Operating Officer of the Company since 1991 during which time
he also served as General Manager of Ackerley Communications of the
Northwest, Inc. (from March through July 1993) and as General Manager of KJR
Radio, Inc. (from September through November 1991). He has been with the
Company since 1986 and has served in the following capacities: from March
1986 to October 1988, as Vice President of the SuperSonics, in front office
administration; from October 1988 to September 1989, as Vice President of the
Company, working on special projects; from September 1989 to April 1991, as
Project Manager with the Company's subsidiary, The New Seattle Arena, Inc.,
responsible for the development of a proposed sports arena.
Mr. Curley, who joined the Company in December 1984, was named on March
1, 1995 to the position of Executive Vice President and Chief Financial
Officer after having served as Senior Vice President and Chief Financial
Officer of the Company since January 1990. He has been Vice President of
Finance, serving as Chief Financial Officer of the Company, since May 1988,
and Treasurer and Assistant Secretary of the Company since November 1985.
Mr. Ritzmann, who joined the Company in November 1980, was named in
January 1990 to the position of Vice President. He has been the Controller
of the Company since 1986.
Barry A. Ackerley and William N. Ackerley are father and son. Gail A.
Ackerley, one of the current directors and a nominee for re-election as a
director at the 1996 annual shareholder's meeting, is Barry Ackerley's wife
and William Ackerley's mother. There are no other family relationships among
any of the directors or executive officers. All officers serve at the
pleasure of the Board of Directors.
20
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
As of March 15, 1996, the Company had 15,576,794 shares of outstanding
common stock, 9,849,669 shares of which are voting common stock ("Common
Stock") and 5,727,125 of which are Class B voting common stock ("Class B
Common Stock"). As of the same date, there were 581 and 30 shareholders of
record of Common Stock and Class B Common Stock, respectively. American
Stock Transfer & Trust Company is the stock transfer agent for all common
stock.
It has been the policy of the Company's Board of Directors to retain any
Company cash flow for working capital, expansion, and reduction of long-term
debt. The Company paid its first ever cash dividend of $.03 per share on
March 17, 1995. Recently, the Company declared its second annual cash
dividend of $.04 per share payable on April 1, 1996 to shareholders of record
on March 18, 1996. The Company's Board of Directors presently intends to pay
a similar dividend next year. Such payment and any other future payment of
dividends will depend upon, among other things, the Company's earnings and
financial condition, capital requirements and general economic conditions.
In this respect, payment of dividends is restricted by the terms of the 1995
Credit Agreement and Subordinated Note Agreements and the Indenture.
Additionally, the Delaware general corporation law would restrict the payment
of dividends under certain circumstances.
The Company's Common Stock is listed and traded on AMEX under the symbol
AK. The table below sets forth the high and low sales prices according to
AMEX, for each full quarterly period within the two most recent fiscal years.
These quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1994 High Low 1995 High Low
- ---- ---- --- ---- ---- ---
<S> <C> <C> <C> <C> <C>
First Quarter $8 3/8 $5 3/8 First Quarter $10 1/2 $ 6 1/2
Second Quarter $8 1/4 $5 7/8 Second Quarter $12 1/2 $ 8 3/4
Third Quarter $6 5/8 $5 5/8 Third Quarter $15 5/8 $12 1/4
Fourth Quarter $7 $5 5/8 Fourth Quarter $15 7/8 $13 1/4
</TABLE>
As of March 15, 1996, the high and low sales price of the Common Stock
were $20 and $191/4 and respectively.
No market has existed for the Class B Common Stock since its initial
issuance in June 1987. Moreover, there are significant restrictions, set
forth in the Company's Third Restated Certificate of Incorporation, on the
ability of a stockholder to transfer shares of Class B Common Stock. As a
consequence, there does not exist an established trading market for the Class
B Common Stock.
21
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company for the years ended December 31, 1991 through 1995 have been derived
from the audited consolidated financial statements of the Company. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the "Consolidated Financial Statements" and Notes thereto included elsewhere
in this report.
<TABLE>
<CAPTION>
YEAR END DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
- ------------------------------------------
Revenue $235,820 $211,728 $192,958 $187,295 $182,193
Less agency commissions and discounts (28,423) (25,626) (22,341) (22,769) (22,838)
-------- -------- -------- -------- ---------
Net revenue 207,397 186,102 170,617 164,526 159,355
Expenses and other income
Operating expenses 156,399 143,469 132,744 125,441 128,153
Disposition of assets -- (2,506) 759 (2,147) 22,243
Depreciation and Amortization 13,243 10,883 12,018 13,915 21,014
Interest expense 25,010 25,909 22,431 23,809 27,595
Litigation expense 14,200 -- -- -- --
Other (Income) expense (56) (657) (458) 13 (512)
-------- -------- -------- -------- --------
Total expenses and other income 208,796 177,098 167,524 161,031 198,493
-------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item (1,399) 9,004 3,093 3,495 (39,138)
Income taxes 1,515 73 133 1,188 --
-------- -------- -------- -------- --------
Income (loss) before extraordinay item (2,914) 8,931 2,960 2,307 (39,138)
Extraordinary item - loss on debt
extinguishment in 1994 and 1993;
utilization of tax loss carry
forward in 1992 -- (2,099) (625) 1,188 --
-------- -------- -------- -------- --------
Net income (loss) applicable to
common shares $ (2,914) $ 6,832 $ 2,335 $ 3,495 $(39,138)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Per common share:
Income (loss) before
extraordinary item $ (.18) $ .57 $ .19 $ .15 $ (2.54)
Extraordinary item -- (.13) (.04) .08 --
-------- -------- -------- -------- --------
Net income (loss) $ (.18) $ .44 $ .15 $ .23 $ (2.54)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Dividends $ .03 $ -- $ -- $ -- $ --
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Common shares used in per
share computation 15,772 15,742 15,602 15,450 15,419
Consolidated Balance Sheet Data (at end of period):
- ---------------------------------------------------
Working capital $ 15,110 $ 16,783 $ 7,970 $(17,375) $ (6,657)
Total assets 189,882 170,783 160,493 166,756 186,694
Total long-term debt 218,797 227,107 215,114 198,700 219,969
Total debt 229,761 234,884 231,676 242,679 264,715
Stockholder's deficiency (99,093) (95,958) (102,852) (105,228) (108,723)
</TABLE>
22
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company reported a net loss of $2.9 million in 1995 and a net income
of $6.8 million and $2.3 million in 1994 and 1993, respectively.
Historically, the Company had sought to expand its businesses through
acquisitions. This acquisition strategy has led the Company to incur
substantial depreciation and amortization expense and interest expense on
long-term debt. Financial results for the past three years reflect the
decreased acquisition activity of the early 1990s combined with the increased
profitability of the Company's existing operations.
On October 7, 1993, the Company completed a refinancing of its senior
indebtedness (the "1993 Refinancing") to obtain more favorable repayment
terms respecting its senior indebtedness and to provide the Company with
liquidity both in the near term and the long term. In connection with the
1993 Refinancing, the Company sold 10 3/4% Series A Senior Secured Notes due
2003 (the "Senior Notes") for approximately $116.5 million in net proceeds
and entered into a credit agreement with a new group of bank lenders (the
"1993 Credit Agreement") providing for up to $71.9 million in borrowings and
up to $4.8 million in standby letters of credit. The net proceeds from the
sale of the Series A Senior Notes and proceeds from the initial borrowing
under the 1993 Credit Agreement were used to repay all outstanding
indebtedness of approximately $136.0 million under the previous credit
agreement with certain bank lenders (the "1991 Credit Agreement") and to
repurchase approximately $45.0 million in principal of outstanding senior
subordinated notes held by certain insurance company lenders (the
"Subordinated Notes").
On March 14, 1994, the Company entered into an agreement with the City
of Seattle for the development and long term lease of the new Key Arena as a
site for the SuperSonics home games and other events. The new 17,100-seat
facility was developed jointly by rebuilding the former Coliseum, beginning
in the second half of 1994. The Company provided approximately $20 million
of the total $94 million development costs, the majority of which was
incurred in 1995. In November 1995, the SuperSonics first occupied the Key
Arena and the SeaDogs are expected to use the arena for the indoor soccer
season beginning June, 1996. The Company also shares in revenues generated
by the various Key Arena concessions and operates an on-site sports retail
facility.
On February 17, 1995, the Company completed another refinancing of its
senior indebtedness (the "1995 Refinancing") to obtain more favorable
interest rates and repayment terms respecting its senior bank indebtedness.
In connection with the 1995 Refinancing, the Company entered into a credit
agreement with a new group of bank lenders (the "1995 Credit Agreement")
providing for up to $65 million in borrowings including up to $7.5 million
dollars in standby letters of credit. The net proceeds from the initial
borrowing under the 1995 Credit Agreements were used to repay all outstanding
indebtedness of approximately $51.3 million under the 1993 Credit Agreement.
Certain subsidiaries of the Company and two of its executive officers
were defendants in a wrongful termination suit brought by former employees.
On February 29, 1996, a jury issued a verdict awarding the plaintiffs
compensatory and punitive damages of approximately $13.0 million. The
Company has recorded an
23
<PAGE>
accrual of $14.2 million related to the verdict including an estimate for
additional legal costs. The Company will appeal the verdict.
During the past four years, the Company maintained growth in net
revenue, completed the sale of its radio stations in three markets, completed
the acquisition of radio station KUBE(FM) in Seattle Washington, entered into
an agreement to purchase television station KFTY in Santa Rosa, California,
and continued the cost containment program initiated in 1991. One by-product
of the cost containment effort that has remained an important part of the
Company's operating strategy is increased scrutiny of expenses. Rather than
concentrating solely on maximizing revenues, the Company focuses on
maximizing the Operating Cash Flow of each of its business segments.
Proposed expenses are evaluated in light of the enhancements to revenue
anticipated to flow from such expenditures.
As with many media companies that have grown through acquisitions, the
Company's acquisitions and dispositions of television and radio stations have
resulted in significant non-cash and non-recurring charges to income. For
this reason, in addition to net income (loss), management believes that
Operating Cash Flow (defined as net revenue less operating expenses plus
other income before amortization, depreciation, interest expense and
disposition of assets) is an appropriate measure of the Company's financial
performance. This measure excludes expenses consisting of depreciation,
amortization, interest, litigation expense, and disposition of assets because
these expenses are not considered by the Company to be costs of ongoing
operations. The Company uses Operating Cash Flow to pay interest and
principal on its long-term debt as well as to finance capital expenditures.
Operating Cash Flow, however, is not to be considered as an alternative to
net income (loss) as an indicator of the Company's operating performance or
to cash flows as a measure of the Company's liquidity.
The regional markets the Company serves, from time to time, experience
varying degrees of recessionary influences. Management cannot presently
determine the potential negative impact of such recessionary influences on
the Company's operations and its financial condition.
24
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth certain historical financial and
operating data of the Company for the three-year period ended December 31,
1995, including separate net revenue, operating expense and other income and
Operating Cash Flow information by segment:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993
--------------- --------------- ----------------
AS % AS % AS %
OF NET OF NET OF NET
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
------ ------- ------ ------- ------ -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Net revenue. . . . . . . . . . . . $207,397 100.0% $186,102 100.0% $170,617 100.0%
Operating expenses and other
(income) expense:
Operating expenses . . . . . . . 156,399 75.4 143,469 77.1 132,774 77.8
Other (income) expense, net. . . (56) (0.0) (657) (0.4) (458) (0.3)
-------- -------- --------
Total operating expenses and
other income . . . . . . . . . . 156,343 75.4 142,812 76.7 132,316 77.5
-------- -------- --------
Operating Cash Flow. . . . . . . . 51,054 24.6 43,290 23.3 38,301 22.5
Other expenses:
Depreciation and amortization. . 13,243 6.4 10,883 5.8 12,018 7.0
Interest expense . . . . . . . . 25,010 12.1 25,909 13.9 22,431 13.2
-------- -------- --------
Total other expenses . . . . . 38,253 18.5 36,792 19.7 34,449 20.2
Income before disposition of
assets, income taxes, and
litigation expense, and extra-
ordinary item . . . . . . . . . 12,801 6.1 6,498 3.5 3,852 2.3
Litigation expense . . . . . . . . 14,200 6.8 -- -- -- --
Disposition of assets. . . . . . . -- -- (2,506) 1.3 759 0.4
Income tax expense . . . . . . . . 1,515 0.7 73 -- 133 0.1
Income (loss) before
extraordinary item . . . . . . . (2,914) (1.4) 8,931 4.8 2,960 1.7
Extraordinary item . . . . . . . . -- -- (2,099) (1.1) (625) (0.3)
-------- -------- --------
Net income (loss). . . . . . . . . $(2,914) (1.4) $ 6,832 3.7 $ 2,335 1.4
-------- -------- --------
-------- -------- --------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
NET REVENUE:
Out-of-home media ...................... $ 93,177 $ 85,436 $ 74,876
Broadcasting............................ 94,108 81,559 75,521
Other................................... 20,112 17,203 18,423
-------- -------- --------
Total net revenue..................... $207,397 $186,102 $170,617
-------- -------- --------
-------- -------- --------
OPERATING EXPENSES AND OTHER INCOME:
Out-of-home media....................... $61,199 $ 58,409 $ 55,335
Broadcasting............................ 54,601 49,901 45,975
Other................................... 40,543 34,502 31,006
-------- -------- --------
Total operating expenses and other income $156,343 $142,812 $132,316
-------- -------- --------
-------- -------- --------
OPERATING CASH FLOW:
Out-of-home media....................... $ 31,978 $ 27,027 $ 19,541
Broadcasting............................ 39,507 33,562 31,343
Other................................... (20,431) (17,299) (12,583)
-------- -------- --------
Total Operating Cash Flow............. $ 51,054 $ 43,290 $ 38,301
-------- -------- --------
-------- -------- --------
CHANGE IN NET REVENUE FROM PRIOR PERIODS:
Out-of-home media....................... 9.1% 14.1% (4.8)%
Broadcasting............................ 12.8 7.9 1.6
Other................................... 16.9 (6.6) 88.3
Change in total net revenue........... 11.4 9.1 3.7
OPERATING DATA AS A PERCENTAGE OF NET REVENUE:
Operating expenses and other income:
Out-of-home media....................... 65.7% 68.4% 73.9%
Broadcasting............................ 58.0 59.8 59.5
Other................................... 201.6 200.6 168.3
Total operating expenses and other income 75.4 76.7 77.6
Operating Cash Flow:
Out-of-home media....................... 34.3% 31.6% 26.1%
Broadcasting............................ 42.0 40.2 40.5
Other................................... (101.6) (100.6) (68.3)
Total Operating Cash Flow............. 24.6 23.3 22.4
</TABLE>
26
<PAGE>
1995 COMPARED WITH 1994
NET REVENUE. Net revenue for 1995 increased by $21.3 million, or 11.4%,
to $207.4 million from $186.1 million in 1994. Net revenue in the Company's
out-of-home media segment increased by $7.7 million, or 9.1%, in 1995 from
1994. This increase was due to increased sales volume reflecting a
strengthening market for national advertising. The Company's broadcasting
segment showed an increase in net revenue of $10.6 million, or 12.8%, for
1995 mainly due to increased rates and sales volumes. Year-to-date net
revenue for the Company's other businesses segment increased $2.9 million, or
16.9%, in 1995 as compared with the same period in the previous year, mainly
due to increased ticket sales from SuperSonics home games.
OPERATING EXPENSES AND OTHER INCOME. Operating expenses and other
income increased $13.5 million, or 9.5%, to $156.3 million from $142.8
million in 1994. However, operating expenses and other income as a
percentage of net revenue decreased to 75.4% for 1995 from 76.7% for 1994.
In 1995, the Company's out-of-home media operating expenses and other income
increased $2.8 million or 4.8%, from the previous year's level due to
expenses related to increased business activity. Operating expenses and
other income in the Company's broadcasting segment increased by $4.7 million
or 9.4% to $54.6 million in 1995 from $49.9 million in 1994, mainly because
of the addition of the operations of KUBE(FM). The other businesses
segment's operating expenses and other income increased $6.0 million, or
17.5%, to $40.5 million in 1995 from $34.5 million in 1994 principally
because of increases in SuperSonics player compensation.
OPERATING CASH FLOW. Because the increase in revenues exceeded the
increase in operating expenses and other income for the same period,
Operating Cash Flow increased by $7.8 million or 17.9% in 1995 from 1994. The
increase in Operating Cash Flow in the out-of-home media and broadcasting
segments more than offset the decrease in the other businesses segment's
Operating Cash Flow. As a result, Operating Cash Flow as a percentage of net
revenue increased to 24.6% in 1995 from 23.3% in 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased by $2.4 million, or 21.7%, to $13.2 million in 1995 as compared to
$10.9 million in 1994. The majority of this increase resulted from the
amortization of film broadcasting rights. Depreciation and amortization
expenses were further increased by a full year's depreciation and
amortization of the assets of radio station KUBE(FM) which was purchased in
July 1994.
INTEREST EXPENSE. Interest expense for 1995 decreased by $0.9 million,
or 3.5%, to $25.0 million from $25.9 million in 1994. This decrease was due
mainly to a combination of lower average interest rates and a slightly lower
average debt level during 1995 compared to 1994.
LITIGATION EXPENSE. In 1995, the Company recorded an accrual for a
litigation expense of $14.2 million. There was no such accrual in 1994.
INCOME TAX EXPENSE. In 1995, the Company's income tax expense increased
to $1.5 million from $0.1 million in 1994 mainly due to the settlement of a
state income tax matter and the effects of alternative minimum taxes. The
Company benefited from its ability to utilize operating loss carryforwards to
minimize income tax expense in 1995 and anticipates to continue to incur
income tax expense under the alternative minimum tax until operating loss
carryforwards are substantially reduced.
EXTRAORDINARY ITEM. As a result of the 1995 Refinancing, the Company
wrote off deferred costs of $2.1 million related to the 1993 Credit Agreement
in 1994. There were no extraordinary items for 1995.
27
<PAGE>
NET INCOME (LOSS). Net loss for 1995 was $2.9 million, a decrease of
$9.7 million from the net income in 1994. This was mainly due to the effect
of recording an accrual for a litigation expense. Net income as a percentage
of net revenue decreased to (1.4%) in 1995 from 3.7% in 1994.
1994 COMPARED WITH 1993
NET REVENUE. Net revenue for 1994 increased by $15.5 million, or 9.1%,
to $186.1 million from $170.6 million in 1993. Net revenue in the Company's
out-of-home media segment increased by $10.6 million, or 14.1%, in 1994 from
1993. This increase was due to increased sales volume reflecting a
strengthening market for national advertising. The Company's broadcasting
segment showed an increase in net revenue of $6.1 million, or 7.9%, for 1994
mainly due to increased rates and sales volumes. Year-to-date net revenue for
the Company's other businesses segment decreased $1.2 million, or 6.6%, in
1994 as compared with the same period in the previous year, mainly because
the SuperSonics played only 5 NBA playoff games in 1994 as compared to 17
games in 1993.
OPERATING EXPENSES AND OTHER INCOME. Operating expenses and other
income increased $10.5 million, or 7.9%, to $142.8 million from $132.3
million in 1993. However, operating expenses and other income as a
percentage of net revenue decreased to 76.7% for 1994 from 77.6% for 1993.
In 1994, the Company's out-of-home media operating expenses and other income
increased $3.1 million or 5.6%, from the previous year's level due to
expenses related to increased business activity. Operating expenses and
other income in the Company's broadcasting segment increased by $3.9 million
or 8.5% to $49.9 million in 1994 from $46.0 million in 1993, mainly because
of the addition of the operations of KUBE(FM). The other businesses
segment's operating expenses and other income increased $3.5 million, or
11.3%, to $34.5 million in 1994 from $31.0 million in 1993 principally
because of increases in SuperSonics player compensation.
OPERATING CASH FLOW. Because the increase in revenues exceeded the
increase in operating expenses and other income for the same period,
Operating Cash Flow increased by $5.0 million or 13.0% in 1994 from 1993. The
increase in Operating Cash Flow in the out-of-home media and broadcasting
segments more than offset the decrease in the other businesses segment's
Operating Cash Flow. As a result, Operating Cash Flow as a percentage of net
revenue increased to 23.3% in 1994 from 22.4% in 1993.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
decreased by $1.1 million, or 9.4%, to $10.9 million in 1994 as compared to
$12.0 million in 1993. The majority of this decrease resulted from a
reduction in expenses associated with assets in the Company's broadcasting
segment which have been fully amortized or depreciated. Depreciation and
amortization expenses were further reduced by the sale of radio station
WAXY(FM).
INTEREST EXPENSE. Interest expense for 1994 increased by $3.5 million,
or 15.5%, to $25.9 million from $22.4 million in 1993. This increase was due
mainly to a combination of higher average interest rates and slightly higher
average debt levels during 1994 compared to 1993, and the amortization of
financing costs associated with the 1993 Refinancing.
28
<PAGE>
DISPOSITION OF ASSETS. In 1994, the Company experienced a gain on the
disposition of assets of $2.5 million compared with a loss on the disposition
of assets of $0.8 million in 1993. The gain in 1994 was related to the sale
of WAXY(FM) in March. In 1993 the Company experienced a loss on the
disposition of assets of $0.8 million related to the sale of a long-term note
receivable in June and the divestiture of its interest in the Flyer Magazine
in December
INCOME TAX EXPENSE. In 1994, the Company had $0.1 million in income tax
expense under the alternative minimum tax compared with $0.1 million income
tax expense in 1993. In both years the Company benefited from the
utilization of operating loss carryforwards.
EXTRAORDINARY ITEM. As a result of the 1995 Refinancing, the Company
wrote off deferred costs of $2.1 million related to the 1993 Credit Agreement
in 1994.
NET INCOME. Net income for 1994 was $6.8 million, an increase of $4.5
million from that in 1993. This increase was mainly due to the effect of
increased business activity from the Company's out-of-home media operations
in which the growth in net revenue surpassed the increase in operating
expenses, as described above. Net income as a percentage of net revenue
increased to 3.8% in 1994 from 1.4% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
On October 7, 1993, the Company completed the 1993 Refinancing to obtain
more favorable repayment terms respecting its senior indebtedness and to
provide the Company with liquidity both in the near term and the long term.
In connection with the 1993 Refinancing, the Company sold Series A Senior
Notes for approximately $116.5 million in net proceeds and entered into a
1993 Credit Agreement providing for up to $71.875 million in borrowings, all
of which was initially borrowed, and up to $4.75 million in standby letters
of credit. The net proceeds from the sale of the Series A Senior Notes and
proceeds from the initial borrowing under the 1993 Credit Agreement were used
to repay all outstanding indebtedness of approximately $136.0 million under
the 1991 Credit Agreement and to repurchase approximately $45.0 million in
principal of outstanding Subordinated Notes.
On February 17, 1995, the Company completed the 1995 Refinancing to
obtain more favorable interest rates and repayment terms respecting its
senior bank indebtedness. In connection with the 1995 Refinancing, the
Company entered into the 1995 Credit Agreement, initially providing for up to
$65 million in borrowings including up to $7.5 million dollars in standby
letters of credit. The net proceeds from the initial borrowing under the
1995 Credit Agreements were used to repay all outstanding indebtedness of
approximately $51.3 million under the 1993 Credit Agreement.
Under the 1995 Credit Agreement, the Company presently has approximately
$21.4 million available for borrowing under the revolving credit facility.
The 1995 Credit Agreement and Subordinated Note Agreements require the
consent of the banks and other lenders prior to any material expansion of the
Company's operations.
Borrowings under the 1995 Credit Agreement bear annual interest at
either the prime rate plus 0.75% or LIBOR plus 2.00% for up to $58.5 million.
Currently, the $7.5 million letter of credit facility constitutes part of
the $58.5 million maximum borrowings and bears annual interest at 2.00%.
These borrowings and the Senior Notes are subject to the Company's compliance
with certain financial covenants and are secured by a pledge of stock of the
Company's subsidiaries.
29
<PAGE>
The Company's working capital decreased to $15.1 million at December 31,
1995 from $16.8 million at December 31, 1994. Cash from operating activities
was used to finance capital expenditures in the amount of $15.1 million in
1995.
The Company's working capital increased to $16.8 million at December 31,
1994 from $8.0 million at December 31, 1993. This increase was attributable
mainly to the 1995 Refinancing which reduced the current portion of long-term
debt by $9.0 million. In addition, net cash from operating activities was
used to finance capital expenditures in the amount of $8.8 million in 1994.
For the periods presented, the Company has financed its working capital
needs from cash provided by operating activities. Historically, the
Company's long-term liquidity needs for acquisitions have been financed
through additions to its long-term debt, principally through bank borrowings
or private placements of subordinated debt. Capital expenditures for new
property and equipment have been financed with both cash provided by
operating activities and long-term debt. Cash provided by operating
activities for 1995 increased to $36.7 million from $11.7 million in 1994
mainly due to an increase in cash received from customers and from certain
advance payments received in relation to the NBA expansion.
At December 31, 1995, the Company's capital resources consisted of $6.4
million in cash and cash equivalents and $20.4 million available under the
1995 Credit Agreement.
The Company expended $3.5 million, $8.8 million and $23.1 million for
capital additions in 1993, 1994 and 1995, respectively. A significant
portion of the 1995 increase was for equipment and leasehold improvements at
the new Key Arena. The Company anticipates that 1996 capital expenditures
consisting primarily of construction and maintenance of billboard structures,
broadcasting equipment, and other capital additions will be between $12.0
million and $15.0 million.
On November 30, 1995, the Company entered into a definitive agreement to
purchase, for approximately $7.8 million, the assets of television station
KFTY, licensed for the market of Santa Rosa, California. The sale is subject
to the final approval by the FCC. The Company expects the transaction to
close during April 1996.
The KFTY acquisition and other 1996 capital additions will be funded
through a combination of borrowing under the 1995 Credit Agreement and cash
from operations.
On March 9, 1994, the Company sold radio station WAXY(FM), in Fort
Lauderdale, Florida, to Clear Channel Radio, Inc. for approximately $14.0
million in cash, of which $13.0 million was for the assets of the radio
station and $1.0 million was for a prepaid outdoor advertising contract. At
the date of sale, the net book value of WAXY(FM) was approximately $10.5
million. The funds received from the sale were used to reduce long-term debt.
On February 4, 1994, the Company entered into an agreement with Century
Management, Inc. which resulted in the formation of New Century Seattle
Partners, L.P. (the "Partnership") for the purpose of operating the assets of
KJR(AM), KJR(FM) and KUBE(FM). On July 14, 1994, the Partnership purchased
certain assets of KUBE(FM) from affiliated companies of Cook Inlet, Inc., an
Alaska-based native American corporation. In order to effect the purchase,
the Partnership incurred approximately $18.1 million of debt.
30
<PAGE>
QUARTERLY VARIATIONS
The Company's results of operations may vary from quarter to quarter due
in part to the timing of acquisitions and to seasonal variations in the
operations of the broadcasting segment. In particular, the Company's net
revenue and Operating Cash Flow historically have been affected positively
during the NBA basketball season (the first, second and fourth quarters) and
by increased advertising activity in the second and fourth quarters.
TAXES
At December 31, 1995, the Company had a net operating loss carryforward
for federal income tax purposes of approximately $70.0 million and an
investment tax credit carryforward of approximately $1.4 million. These
carryforwards expire during the years 1996 to 2008. The Company has recorded
other assets of $1.2 million representing state income tax amounts due from
certain state tax authorities. Such amounts are being contested by the state
authorities. However, the Company is actively pursuing full collection of
the amounts it is owed and believes it will ultimately be successful in these
efforts.
INFLATION
The effects of inflation on the Company's costs generally have been
offset by the Company's ability to correspondingly increase its rate
structure.
NEW ACCOUNTING STANDARD
In March 1995 the FASB issued Statement No. 121 (accounting for the
impairment of long-lived assets and for long-lived assets to be disposed of),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement No. 121 in the fourth quarter of 1995. The effect of adoption on
the consolidated financial statements was not material.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is included in Item 14, pages F-1
through F-23.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
31
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning directors and certain executive officers of
the Company, see the section entitled "Election of Directors" in the
Company's definitive Proxy Statement dated March 25, 1996 ("Proxy Statement")
which is incorporated herein by reference and "Executive Officers of the
Registrant" under Part I of this report.
ITEM 11 - EXECUTIVE COMPENSATION
For information concerning executive compensation see the section
entitled "Election of Directors" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of March 15, 1996, Barry A. Ackerley and Gabelli Funds, Inc. were the
only persons to the Company's knowledge owning beneficially more than 5% of
the outstanding shares of Common Stock and Class B Common Stock. For
information concerning Mr. Ackerley's security ownership and the ownership of
management see the section entitled "Election of Directors" in the Proxy
Statement, which information is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
For information concerning certain relationships and related
transactions, see the Section entitled "Election of Directors" in the Proxy
Statement, which information is incorporated herein by reference, except for
the Sections entitled "Board Report on Executive Compensation" and
"Shareholder Return Performance Presentation".
32
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)(1) and (2) FINANCIAL STATEMENTS AND SCHEDULES.
The following documents are being filed as part of this Report:
INDEX TO FINANCIAL STATEMENTS
Page
Number
------
Report of Ernst & Young LLP, independent auditors...................... F-1
Consolidated balance sheets as of December 31, 1995
and 1994.............................................................. F-2
Consolidated statements of operations for the
years ended December 31, 1995, 1994 and 1993........................... F-3
Consolidated statements of stockholders' deficiency
for the years ended December 31, 1995, 1994 and 1993................... F-4
Consolidated statements of cash flows for the years
ended December 31, 1995, 1994 and 1993................................. F-5
Notes to consolidated financial statements............................. F-6
Summary of quarterly financial data (unaudited)........................ F-23
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown
in the consolidated financial statements or notes thereto. Columns omitted from
schedules filed have been omitted because the information is not applicable.
33
<PAGE>
(3) EXHIBITS:
Exhibit
No. Exhibit
- ------- -------
3.1 Third Restated Certificate of Incorporation(1)
3.2 Amendment dated May 11, 1994 to Third Restated Certificate of
Incorporation(1)
3.3 Amended and Restated Bylaws(2)
4.1 Indenture dated October 1, 1993 between the Company and First Bank
National Association, relating to the 10 3/4% Series A Senior Secured
Notes and the 10 3/4% Senior Secured Notes Due 2003(3)
4.2 Form of Specimen 10 3/4% Senior Secured Note Due 2003(3)
10.1 Credit Agreement dated as of February 17, 1995, by and among First
Union National Bank of North Carolina, Natwest Bank, N.A.,
Seattle-First National Bank, Union Bank and Long-Term Credit Bank of
Japan, Ltd.(1)
10.2 First Amendment to Credit Agreement dated as of March 20, 1996
10.3 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1988(2)
10.4 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1989(4)
10.5 Amendment No. 1 dated October 18, 1991 to Note Agreements dated
December 1, 1988 and December 1, 1989(5)
10.6 Agreements of Waiver and Amendment dated as of September 30, 1990,
relating to the Note Agreements(6)
10.7 Implementation and Waiver Agreement dated October 18, 1991(5)
10.8 Interest Rate Conversion Agreement dated June 20, 1989 and between the
Company and The Bank of California, N.A.(4)
10.9 ISDA Master Agreement dated June 20, 1994 between the Company and
National Westminster Bank USA(1)
10.10 The Company's Employee Stock Option Plan, as amended and restated on
March 4, 1996
10.11 Pledge Agreement dated as of October 1, 1993 between the Company and
First Trust of California, National Association(3)
10.12 Amended and Restated Limited Partnership Agreement of New Century
Seattle Partners, L.P. dated July 14, 1994(7)
10.13 Premises Use and Occupancy Agreement between The City of Seattle and
SSI Sports, Inc. dated March 2, 1994(1)
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
34
<PAGE>
24.1 Power of Attorney for each of Gail A. Ackerley, Richard D. Cooley, M.
Ian G. Gilchrist and Michel C. Thielen dated March 4, 1996.
27 Financial Data Schedule
- ----------
(1) Incorporated by reference to Exhibits 3.1, 3.2, 10.1, 10.8 and 10.22,
respectively, to the Company's 1994 Annual Report on Form 10-K
(2) Incorporated by reference to Exhibits 3.3 and 10.12, respectively, to the
Company's 1988 Annual Report on Form 10-K, File No. 0-16676
(3) Incorporated by reference to Exhibits 4.1, 4.2 and 10.21 of the Company's
Registration Agreement on Form S-1, File No. 33-70936
(4) Incorporated by reference to Exhibits 10.13 and 10.16, respectively, to
the Company's 1989 Annual Report on Form 10-K, File No. 1-10321
(5) Incorporated by reference to Exhibits 10.9, 10.10 and 10.16, respectively,
to the Company's 1991 Annual Report on Form 10-K, File No. 1-10321
(6) Incorporated by reference to Exhibit 10.20 to the Company's 1990 Annual
Report on Form 10-K, File No. 1-10321
(7) Incorporated by reference to Exhibit 10 to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994, File No. 1-10321
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter ending
December 31, 1994.
(c) Exhibits required by Item 601 of Regulation S-K are being filed herewith.
See Item 14(a)(3) above.
(d) Financial statements required by Regulation S-X are being filed herewith.
See Item 14(a)(1) and (2) above.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 25th day of
March, 1996.
ACKERLEY COMMUNICATIONS, INC.
By: /S/ BARRY A. ACKERLEY
-----------------------------------------
Barry A. Ackerley, Chairman of the Board
and Chief Executive Officer
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
Company and in the capacities and on the dates indicated, on the 25th day of
March, 1996.
A Majority of the Board of Directors: Principal Executive Officer:
/S/ BARRY A. ACKERLEY /S/ BARRY A. ACKERLEY
- --------------------------- -------------------------------------
Barry A. Ackerley, Chairman Barry A. Ackerley, Chairman of the
of the Board Board and Chief Executive Officer
/s/ GAIL A. ACKERLEY* Principal Financial Officer:
- ---------------------------
Gail A. Ackerley, Director
/s/ DENIS M. CURLEY
-------------------------------------
/s/ RICHARD P. COOLEY* Denis M. Curley, Executive Vice
- --------------------------- President and Chief Financial Officer,
Richard P. Cooley, Director Treasurer and Secretary
/s/ M. IAN G. GILCHRIST* Principal Accounting Officer:
- ---------------------------
M. Ian G. Gilchrist, Director
/s/ KEITH W. RITZMANN
/s/ MICHEL C. THIELEN* -------------------------------------
- --------------------------- Keith W. Ritzmann
Michel C. Thielen, Director Vice President and Controller
*By:/s/ BARRY A. ACKERLEY
-----------------------
Attorney-in-Fact
36
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Ackerley Communications, Inc.
We have audited the accompanying consolidated balance sheets of Ackerley
Communications, Inc. as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' deficiency, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Ackerley Communications, Inc. at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Seattle, Washington
March 1, 1996
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS (Note 8)
<TABLE>
<CAPTION>
December 31,
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,421 $ 2,288
Accounts receivable, net of allowance for doubtful
accounts of $1,163 in 1995 and $1,160 in 1994 43,590 42,553
Current portion of broadcast rights 5,779 4,266
Prepaid and other current assets 9,423 7,310
--------- ---------
Total current assets 65,213 56,417
Property and equipment, net 81,368 64,489
Intangibles 31,412 36,716
Other assets 11,889 13,161
--------- ---------
Total assets $ 189,882 $ 170,783
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 4,284 $ 5,788
Accrued interest 3,628 4,799
Other accrued liabilities 12,958 7,575
Deferred revenue 18,269 13,695
Current portion of long-term debt 10,964 7,777
--------- ---------
Total current liabilities 50,103 39,634
Long-term debt 218,797 227,057
Litigation accrual 14,200 --
Other long-term liabilites 5,875 50
--------- ---------
Total liabilities 288,975 266,741
Commitments and contingencies
Stockholders' deficiency:
Common stock, par value $.01 per share-authorized
50,000,000 shares, issued 11,075,979 at December 31,
1995, and 10,937,379 shares at December 31, 1994,
and outstanding 9,701,033 shares at December 31, 1995,
and 9,562,433 at December 31, 1994 111 109
Class B common stock, par value $.01 per share-
authorized 6,972,230 shares, issued and
outstanding 5,865,761 shares at December 31, 1995,
and 5,901,861 at December 31, 1994 59 59
Capital in excess of par value 3,248 3,007
Deficit (92,422) (89,044)
Less common stock in treasury, at cost (10,089) (10,089)
--------- ---------
Total stockholders' deficiency (99,093) (95,958)
--------- ---------
Total liabilities and stockholders' deficiency $ 189,882 $ 170,783
--------- ---------
</TABLE>
See accompanying notes. F-2
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1995 1994 1993
---- ---- ----
(In thousands, except
per share amounts)
<S> <C> <C> <C>
Revenue $ 235,820 $ 211,728 $ 192,958
Less agency commissions and discounts 28,423 25,626 22,341
--------- --------- ---------
Net revenue 207,397 186,102 170,617
Expenses and other income:
Operating expenses 156,399 143,469 132,774
Amortization 5,734 3,794 4,415
Depreciation 7,509 7,089 7,603
Interest expense 25,010 25,909 22,431
Other income (56) (657) (458)
Litigation expense 14,200 - -
Disposition of assets - (2,506) 759
--------- --------- ---------
Total expenses and other income 208,796 177,098 167,524
Income (loss) before income taxes
and extraordinary items (1,399) 9,004 3,093
Income taxes 1,515 73 133
--------- --------- ---------
Income (loss) before extraordinary items (2,914) 8,931 2,960
Extraordinary items: loss on debt
extinguishment in 1994 and 1993 - (2,099) (625)
--------- --------- ---------
Net income (loss) $ (2,914) $ 6,832 $ 2,335
--------- --------- ---------
Income (loss) per common share,
before extraordinary items $ (.18) $ .57 $ .19
Extraordinary items - (.13) (.04)
--------- --------- ---------
Net income (loss) per common share $ (.18) $ .44 $ .15
--------- --------- ---------
Weighted average number of shares 15,772 15,742 15,602
</TABLE>
See accompanying notes. F-3
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Capital Common
Class B in excess stock in
Common common of par treasury
(in thousands) stock stock value Deficit (at cost)
- ------------------------------ ------ ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 109 $ 59 $ 2,945 $ (98,211) $ (10,089)
Exercise of stock options - - 41 - -
Net income - - - 2,335 -
----- ---- ------- --------- ---------
Balance, December 31, 1993 109 59 2,945 (95,876) (10,089)
Exercise of stock options - - 62 - -
Net income - - - 6,832 -
----- ---- ------- --------- ---------
Balance, December 31, 1994 109 59 3,007 (89,044) (10,089)
Exercise of stock options 2 - 241 - -
Cash dividend, $0.03 per share - - - (464) -
Net income - - - (2,914) -
----- ---- ------- --------- ---------
Balance, December 31, 1995 $ 111 $ 59 $ 3,248 $ (92,422) $ (10,089)
----- ---- ------- --------- ---------
----- ---- ------- --------- ---------
</TABLE>
See accompanying notes. F-4
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 215,321 $ 178,524 $ 166,218
Cash paid to suppliers and employees (154,564) (144,073) (131,972)
Interest paid, net of amount capitalized (24,032) (22,784) (19,167)
---------- ---------- ----------
Net cash provided by operating activities 36,725 11,667 15,079
Cash flows from investing activities:
Proceeds from the sale of properties 478 13,306 -
Payment for acquisition - (17,397) -
Capital expenditures (15,098) (8,794) (3,478)
Proceeds from sale of note receivable - - 4,500
Other, net (457) (6,162) (6,499)
---------- ---------- ----------
Net cash used in investing activities (15,077) (19,047) (5,477)
Cash flows from financing activities:
Borrowings under Credit Agreements 64,379 30,126 71,875
Borrowings under senior notes - - 120,000
Payments under Credit Agreements (79,695) (27,180) (157,625)
Payments under subordinated notes - - (45,000)
Dividends paid (464) - -
Other, net (1,735) (10) 872
---------- ---------- ----------
Net cash provided by (used in) financing activities (17,515) 2,936 (9,878)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 4,133 (4,444) (276)
Cash and cash equivalents at beginning of period 2,288 6,732 7,008
---------- ---------- ----------
Cash and cash equivalents at end of period $ 6,421 $ 2,288 $ 6,732
---------- ---------- ----------
---------- ---------- ----------
Reconciliation of net income to net cash provided by
operating activities:
Net income (loss) applicable to common shares $ (2,914) $ 6,832 $ 2,335
Adjustments to reconcile net income to net cash
provided by operating activities:
Income taxes - - 133
Litigation expense 14,200 - -
Disposition of assets - (2,506) 759
Loss on debt extinguishment - 2,099 625
Depreciation and amortization 13,243 10,883 12,018
Gain on sale of property and equipment (50) (209) (722)
NBA expansion proceeds 5,165 - -
Changes in assets and liabilities, net of effects
from acquisitions:
Accounts receivable (1,037) (6,691) (5,478)
Other current assets 965 315 3,063
Accounts payable and accruals 818 (2,821) (683)
Accrued interest (1,171) 820 2,345
Deferred revenue 4,574 2,191 1,632
Other, net 2,932 754 (948)
---------- ---------- ----------
Net cash provided by operating activities $ 36,725 $ 11,667 $ 15,079
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of noncash transactions
- -- Broadcast rights acquired and broadcast obligations assumed $ 10,337 $ 6,020 $ 6,854
</TABLE>
See accompanying notes. F-5
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION - Ackerley Communications, Inc. and its subsidiaries (the
"Company") is a diversified communications company that engages in three
principal business: (i) out-of-home media, including outdoor and airport
advertising; (ii) television and radio broadcasting; and (iii) other businesses
consisting principally of professional basketball through ownership of the
Seattle SuperSonics, a franchise of the National Basketball Association, and
professional indoor soccer through ownership of the Seattle Sea Dogs, a
franchise of the Continental Indoor Soccer League. Outdoor advertising
operations are conducted principally in the Seattle, Portland, Boston, and
Florida markets, whereas airport advertising operations are conducted in
airports throughout the United States. The markets served by the Company's
television stations and their affiliations are as follows: Syracuse, New York
(ABC affiliate); Colorado Springs, Colorado (CBS affiliate); Bakersfield,
California (NBC affiliate); Salinas/Monterey, California (FOX affiliate); and
Bellingham, Washington/Vancouver, British Columbia (independent). Radio
broadcasting consists of one AM and two FM stations serving the Seattle/Tacoma
area.
(b) PRINCIPLES OF CONSOLIDATION - The accompanying financial statements
consolidate the accounts of Ackerley Communications, Inc. and its subsidiaries
(the "Company"), substantially all of which are wholly owned. Minority interest
is not material. All significant intercompany transactions have been eliminated
in consolidation.
(c) REVENUE RECOGNITION - Display advertising revenue is recognized
ratably on a monthly basis over the period in which advertisement displays are
posted on the advertising structures or in the display units. Broadcast revenue
is recognized in the period in which the advertisements are aired. Payments
from clients, which are received in excess of one month's advertising, are
recorded as deferred revenue. Ticket payments are recorded as deferred revenue
when received and recognized as revenue ratably as home basketball and soccer
games are played.
(d) BARTER TRANSACTIONS - The Company engages in nonmonetary transactions
in which it provides advertising in exchange for goods or services. Revenue is
recognized when the advertising is provided and assets or expenses are recorded
when assets are received or services used. Advertising provided for which goods
or services have not yet been received is recorded in
F-6
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
receivables. Goods and services received for which advertising has not yet been
provided are recorded in deferred revenue.
(e) PROPERTY AND EQUIPMENT - Property and equipment are carried on the
basis of cost. Maintenance, repairs, and renewals, which neither materially add
to the value of the property nor appreciably prolong its life, are charged to
expense as incurred. When operating property and equipment are retired or sold,
any funds received are credited to an asset pool with no gain or loss
recognized, unless all assets in the pool are fully depreciated. Depreciation
of property and equipment, including the cost of assets recorded under capital
lease agreements, is provided on the straight-line and accelerated methods over
the estimated useful lives of 5 to 40 years.
(f) INTANGIBLE ASSETS - Intangible assets are carried on the basis of cost
and are amortized principally on the straight-line method over estimated useful
lives, ranging from 1 to 40 years. Franchises are recorded at cost and
represent the acquisition cost of the rights to operate display units in
airports. Goodwill represents the cost of acquired businesses in excess of
amounts assigned to certain tangible and intangible assets at the dates of
acquisition.
(g) BROADCAST RIGHTS AND OBLIGATIONS - Television films and syndication
rights acquired under license agreements (broadcast rights) and the related
obligations incurred are recorded as assets and liabilities at the time the
rights are available for broadcasting based upon the gross amount of the
contract. The capitalized costs are amortized on an accelerated basis over the
contract period or the estimated number of showings, whichever results in the
greater aggregate monthly amortization. Broadcast rights are carried at the
lower of unamortized cost or net realizable value. The estimated cost of
broadcast rights to be amortized during the next year has been classified as a
current asset.
(h) DEFERRED COMPENSATION - Certain player and other personnel contracts
include deferred compensation provisions. The present value of such deferred
compensation is recorded as an obligation and charged to operating expenses
ratably over the contract period.
(i) STOCK BASED COMPENSATION - The Company grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant.
F-7
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees, and recognizes no compensation
expense for the stock option grants.
(j) INCOME PER COMMON SHARE - Income per common share is calculated by
dividing net income by the weighted average number of shares of common stock,
Class B common stock, and if dilutive, common stock equivalents outstanding
during the period.
(k) CASH EQUIVALENTS - The Company considers investments in highly liquid
debt instruments with a maturity of three months or less when purchased to be
cash equivalents.
(l) CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS - The Company
sells advertising to local and national companies throughout the United States.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral. The Company maintains an allowance for doubtful
accounts at a level which management believes is sufficient to cover potential
credit losses. The Company invests its excess cash in short-term investments
with major banks. The Company has not experienced any losses on these
investments. The carrying value of financial instruments, which include cash,
receivables, payables, and long-term debt, approximates market value at December
31, 1995.
The Company uses interest rate swap and cap agreements to modify the
interest rate characteristics of its long-term debt and attempts to effectively
maintain a portion of the debt with floating interest rates. These agreements
generally involve the exchange of fixed or floating rate payment obligations
without an exchange of the underlying principal amount. The differential to be
paid or received is accrued as interest rates change and is recognized as an
adjustment to interest expense related to the debt. The related amount payable
to or receivable from counterparties is included in other current liabilities or
assets. The fair values of the swap and cap agreements are not recognized in
the financial statements.
(m) USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-8
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
(n) NEW ACCOUNTING STANDARD - In March 1995 the FASB issued Statement
No.121, Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement No.121 in the fourth quarter of 1995. The effect of
adoption on the consolidated financial statements was not material.
(o) RECLASSIFICATIONS - Certain prior year amounts have been reclassified
to conform to the 1995 presentation.
2. DISPOSITIONS
On March 9, 1994, the Company sold radio station WAXY(FM) in Fort
Lauderdale, Florida to Clear Channel Radio, Inc. for approximately $14.0 million
in cash, of which $13 million was for the net assets of the radio station and
$1.0 million was for a prepaid outdoor advertising contract. The $2.5 million
gain on the sale is included in disposition of assets. The net book value of
WAXY(FM) at the date of the sale was approximately $10.5 million.
During 1993, the Company sold a long-term note receivable originally
obtained in connection with the sale of a broadcast operation. The difference
between the face amount of the note and the sales proceeds of approximately $0.5
million is reflected as a loss on disposition of assets in 1993.
3. PENDING ACQUISITION
On October 23, 1995, the Company entered into an agreement to purchase for
approximately $7.8 million the assets of television station KFTY, an independent
station licensed for the market of Santa Rosa, California. The transaction is
subject to the approval by the Federal Communications Commission. The Company
expects the transaction to close during the second quarter of 1996. The
acquisition will be funded through the Company's credit agreement and cash from
operations.
F-9
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
4. INVESTMENT IN RADIO PARTNERSHIP
The Company entered into an agreement with Century Management, Inc. which
resulted in the formation of New Century Seattle Partners, L.P. (the
"Partnership") for the purpose of operating the assets of KJR(AM), KJR-FM and
KUBE(FM). This venture was approved by the Federal Communications Commission
("FCC") and closed on July 14, 1994, at which time the Company contributed the
assets of KJR(AM) and KJR-FM, with a book value of $5.5 million, to the
Partnership. Also on July 14, 1994, the Partnership purchased the assets of
KUBE(FM) for approximately $17.7 million financed by bank borrowings.
Century Management, Inc. is the general partner of the Partnership and KJR
Radio, Inc., a wholly owned subsidiary of the Company, is a limited partner
holding approximately 98% of the equity interests in the Partnership after
payment of certain preferred distributions to the other limited partners over
the next three to four years.
The following table summarizes on an unaudited, pro forma basis the
consolidated results of operations of the Company for 1994 and 1993 giving pro
forma effect to the investment in New Century Seattle Partners, L.P. as if the
investment had been made at the beginning of the years presented. These pro
forma consolidated statements do not necessarily reflect the results of
operations which would have occurred had such investment taken place on the date
indicated. The result of the partnership's operations after the actual date of
investment are included in the Company's financial statements. Minority
interests are not material.
<TABLE>
<CAPTION>
(In thousands except per share amounts)
1994 1993
---- ----
<S> <C> <C>
Net revenue $ 188,945 $ 175,537
Operating expenses 182,762 174,670
Income before extraordinary items 8,282 1,492
Net income applicable to common shares 6,183 867
Net income per common share .39 .06
</TABLE>
F-10
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance at beginning of year $ 1,160 $ 941
Additions charged to operating expense 979 1,375
Write-offs of receivables, net of recoveries (976) (1,156)
----- ------
Balance at end of year $ 1,163 $ 1,160
----- ------
----- ------
</TABLE>
6. PROPERTY AND EQUIPMENT
At December 31, 1995 and 1994, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
Estimated
1995 1994 useful life
---- ---- -----------
(In thousands)
<S> <C> <C> <C>
Land $ 6,906 $ 6,920
Advertising structures 76,904 73,687 9-15 years
Broadcast equipment 49,635 48,121 10 years
Building and improvements 29,959 25,289 20-40 years
Office furniture and equipment 19,170 14,328 10 years
Transportation and other equipment 9,964 9,379 5-15 years
Equipment under capital leases 7,982 0 10 years
-------- --------
200,520 177,724
Less accumulated depreciation 119,152 113,235
-------- --------
$ 81,368 $ 64,489
-------- --------
-------- --------
</TABLE>
F-11
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. INTANGIBLES
At December 31, 1995 and 1994, intangibles consisted of the following:
<TABLE>
<CAPTION>
Estimated
1995 1994 useful life
---- ---- -----------
(In thousands)
<S> <C> <C> <C>
Goodwill $ 32,660 $ 32,572 15-40 years
Favorable leases and contracts 20,507 21,294 1-10 years
Broadcasting licenses and agreements 14,950 14,950 1-10 years
Employment contracts 14,524 14,054 1-7 years
Franchises 13,130 13,130 1-13 years
Advertising client base 8,005 8,005 5 years
Other 4,658 5,186 1-30 years
Music and film libraries 1,441 1,441 1-10 years
Noncompete agreements and other covenants 2,300 2,300 5 years
Program development 1,112 1,112 6-15 years
-------- --------
113,287 114,044
Less accumulated amortization 81,875 77,328
-------- --------
$ 31,412 $ 36,716
-------- --------
-------- --------
</TABLE>
The intangible assets described above were recorded as a result of various
acquisitions of businesses including $17.0 million of goodwill in 1994 related
to the acquisition of KUBE(FM) as disclosed in Note 4 to the Consolidated
Financial Statements. Cost represents the net assets' appraised value or
management's best estimate of the fair value at the dates of acquisition.
F-12
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. DEBT
Long-term debt at December 31, 1995 and 1994 reflected the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Credit Agreement $ 35,000 $ 49,070
Senior notes 120,000 120,000
Subordinated notes payable 35,000 35,000
Partnership debt 16,879 18,076
Capital lease obligation 7,982 -
Deferred employment compensation, net of
imputed interest discount of $955 in 1995
and $1,528 in 1994 4,137 4,872
Other 10,763 7,866
--------- ---------
229,761 234,884
Less amounts classified as current 10,964 7,777
--------- ---------
$ 218,797 $ 227,107
--------- ---------
--------- ---------
</TABLE>
Aggregate annual maturities of long-term debt during the next five years
are as follows (in thousands):
<TABLE>
<CAPTION>
Credit Agreement Deferred
and Subordinated compensation
Notes and other
------ ---------
<S> <C> <C>
1996 $ 3,126 $ 7,838
1997 5,117 2,676
1998 27,860 1,621
1999 28,032 1,089
2000 21,596 185
</TABLE>
F-13
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Future minimum payments under the capitalized lease obligation are as
follows:
<TABLE>
<CAPTION>
Capitalized
Lease
-----
<S> <C>
1996 $ 1,237
1997 1,237
1998 1,237
1999 1,237
2000 1,237
Later years 4,079
------
10,264
Less amount representing interest 2,282
------
Present value of lease payments 7,982
Less amount classified as current 714
------
Long-term capitalized lease obligation $ 7,268
------
------
</TABLE>
On February 17, 1995, the Company completed a refinancing of its senior
bank debt. The refinancing consisted of the repayment of outstanding
indebtedness of approximately $51.3 million under the 1993 Credit Agreement, and
the execution of the 1995 Credit Agreement and the initial borrowing thereunder
of $52.0 million. Losses related to the extinguishment of debt are reflected as
an extraordinary item in the 1994 statement of operations.
At December 31, 1995 the Credit Agreement provided for borrowings up to
$58.5 million from five banks, which includes the availability of up to $7.5
million of a letter of credit facility. Usage of the letter of credit facility
reduces total available borrowings. At December 31, 1995, $35.0 million of
borrowings were outstanding, and $3.1 million of the letter of credit facility
was utilized. Interest on borrowings is payable quarterly based on either the
prime rate or LIBOR, at the discretion of the Company, plus a margin determined
by the Company's total leverage ratio, as defined in the 1995 Credit Agreement.
At December 31, 1995, interest on borrowings was payable at LIBOR (5.8125% at
December 31, 1995) plus 2.00%. Interest on the letter of credit facility is
F-14
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
payable quarterly at a rate determined by the Company's total leverage ratio.
At December 31, 1995, interest on the letter of credit facility was payable at
2.00%. Based on the balance outstanding, principal payments are due quarterly
from June 30, 1995, through June 30, 2000. The 1995 Credit Agreement has
certain restrictive covenants which require, among other things, that the
Company maintain certain debt coverage ratios. In addition, the Company is
restricted as to borrowings, the amount of dividend payments on common stock,
stock repurchases, and sales of assets.
The Company has $120 million borrowed at December 31, 1995 under senior
secured notes, with an effective interest rate of 10.75%. Interest payments are
due semiannually in April and October. All principal is due in a single payment
of $120 million on October 1, 2003. The senior notes include certain
restrictive covenants similar to the 1995 Credit Agreement mentioned above.
All outstanding stock of the Company's subsidiaries is pledged as
collateral for the 1995 Credit Agreement and senior notes; accordingly,
substantially all of the Company's assets are effectively pledged as collateral.
The Company has $35 million borrowed at December 31, 1995 from several
insurance companies under various subordinated notes payable agreements, with
effective interest rates ranging from 10.48% to 11.2%. Interest payments are
due quarterly. Principal payments of $2.5 million, $12.5 million, $10 million,
and $10 million are due in 1997 through 2000, respectively. The subordinated
notes payable agreements include certain restrictive covenants similar to the
1995 Credit Agreement mentioned above.
Partnership debt is related to the Company's 98% interest in the New Century
Seattle Partners, L.P., and includes the following:
A senior term loan of $10,275,000 bearing interest at the election of the
Partnership of either prime plus 1.25% or the Eurodollar rate plus 2.5%.
Principal and interest is payable quarterly through September 30, 2000.
The loan requires additional payments from excess cash flow, and includes
certain penalties if repaid prior to July 15, 1997. A senior term loan of
$1,000,000 due December 31, 2000 bearing interest at the
F-15
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
election of the Partnership of either prime plus 3.75% or the Eurodollar
rate plus 5.0%. Substantially all of the Partnership's assets are pledged
as collateral for these senior term loans.
Subordinated notes payable of $5,604,423 bearing interest at 18.0% per
annum due July 7, 2001. The notes can be repaid without penalty after July
15, 1998.
Miscellaneous contracts payable of $299,169.
At December 31, 1995, the Company had outstanding four interest rate
contracts with various financial institutions having a notional principal amount
of $50.8 million. These contracts involve the exchange of floating for fixed
interest rates ranging from 7.8% to 8.93% on a notional principal amount of
$20.8 million, and the exchange of fixed for floating rate of LIBOR (5.55% at
December 31, 1995) on a notional principal amount of $30 million. The Company's
risk in these transactions is the cost of replacing, at current market rates,
these contracts in the event of default by the counterparty. At December 31,
1995, the fair value of these contracts, as quoted by the counterparties, was
$90,000. Management believes the risk of incurring such losses is remote as
these contracts are with major financial institutions.
9. INCOME TAXES
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $67.4 million that expire in the years 2002 through 2008 and
investment tax credit carryforwards of approximately $1.4 million that expire in
the years 1996 through 2000.
F-16
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
----- ------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 8,265 $ 8,846
------ -------
Total deferred tax liabilities 8,265 8,846
Deferred tax assets:
Net operating loss carryforwards 25,793 35,867
Book over tax amortization 1,990 1,795
Tax credit carryforwards 2,116 1,538
Deferred compensation agreements 1,582 1,672
Litigation accrual 5,432 -
Deferred NBA expansion revenue 3,166 -
Other 2,657 1,819
------ -------
Total deferred tax assets 42,736 42,691
Valuation allowance for deferred tax assets (34,471) (33,845)
------ -------
Net deferred tax assets 8,265 8,846
------ -------
Net deferred taxes $ 0 $ 0
------ -------
------ -------
</TABLE>
Significant components of the provision for income taxes attributable to
continuing operations are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 422 $ 68 $ 125
State 1,093 5 8
------ ---- -----
1,515 73 133
------ ---- -----
Deferred - - -
Provision for income taxes $ 1,515 $ 73 $ 133
------ ---- -----
------ ---- -----
</TABLE>
F-17
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The reconciliation of income taxes attributable to continuing operations
computed at the U.S. federal statutory tax rate to income tax expense is as
follows (amounts in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Tax at U.S. statutory rate (34%) $ (476) $ 2,348 $ 1,052
State income taxes and other 1,569 283 132
Net operating loss carryforwards - (2,626) (1,176)
Alternative minimum tax 422 68 125
------ ------ ------
Provision for income taxes $1,515 $ 73 $ 133
------ ------ ------
------ ------ ------
</TABLE>
The Company made income tax payments of $538,000, $1,302,000, and $546,000
in 1995, 1994, and 1993 respectively.
10. EMPLOYEE BENEFIT PLAN
The Company has a voluntary defined contribution 401(k) savings and
retirement plan for the benefit of its nonunion employees, who may contribute
from 2% to 15% of their compensation. This amount, plus a matching amount up to
4% provided by the Company, is contributed to the plan ($831,000 in 1995,
$700,000 in 1994, and $611,000 in 1993). The Company may also make an
additional voluntary contribution to the plan.
11. STOCKHOLDERS' DEFICIENCY
The Class B common stock has the same rights as common stock, except that
the Class B common stock has ten times the voting rights of common stock and is
restricted as to its transfer. The Class B common stock may be converted into
common stock at any time at the option of the stockholder.
F-18
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
Between January and June 1981, the Company agreed to sell shares of its
common stock and Class B common stock to key employees and officers at fair
market value at the time the agreements were executed. The stock is issued upon
payment to the Company of the agreed purchase price. At December 31, 1994,
rights to purchase 67,500 shares of common stock and Class B common stock were
outstanding at prices ranging from $1.83 to $4.00 per share (an aggregate of
$258,228). At December 31, 1995, rights to purchase 26,250 shares of common
stock and Class B common stock were outstanding at $4.00 per share (an aggregate
of $105,000). In 1995, rights to purchase 41,250 shares of common and 41,250
shares of Class B common were exercised at an average price of $1.8573 per
share.
The Company's Employee Stock Option Plan (the "Plan") was approved by the
Board of Directors and the stockholders of the Company in 1983. In 1994, the
Plan was amended to extend the term of the plan and to increase the amount of
common stock reserved for issuance to 500,000 shares. In connection with the
Class B common stock dividend in June 1987, the Company amended the Plan to
provide for the distribution of one share of Class B common stock for each share
of common stock subject to outstanding options under the Plan on such date,
which distribution occurs at the time an optionee exercises an option.
At December 31, 1995, options to purchase 345,000 shares of common stock
were outstanding under the Plan at prices ranging from $1.375 to $15.25 (an
aggregate of $2,050,975). Options to purchase 246,000 and 10,000 shares of
common stock and Class B common stock were exercisable at December 31, 1994.
Options to purchase 10,000 shares of common stock were exercisable at December
31, 1995. Options to purchase 10,000 shares of common stock and 10,000 shares of
Class B common stock were exercised in 1995 at a price of $4.50 per share. No
options were exercised in 1994.
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation with various municipalities and
regulatory agencies as the result of condemnation proceedings and licensing and
permit renewal disputes, which could result in the removal of advertising
structures. While it is not possible to forecast the outcome of the
F-19
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
various actions, it is management's opinion that such actions will not result in
any material adverse effect on the results of operations or financial condition
of the Company.
At December 31, 1995, the Company has identified various potential state
and local tax issues aggregating $0.8 million for which it has provided $0.4
million of reserves that it believes will be sufficient to resolve such issues.
Additionally, the Company is contesting a state income tax assessment and a
related potential assessment totaling $1.9 million. Such assessments involve a
single issue which, when resolved, should either eliminate the exposure or cause
the Company to record an expense. Although the Company believes it will be
successful in contesting this issue, it has reserved $0.4 million in the event
that settlement becomes an option to expedite resolution of the matter.
At December 31, 1994, the Company had recorded $3.7 million in other assets
representing other issues being contested with state and local tax
jurisdictions. During 1995, certain of these issues were resolved and, as a
result, the Company recorded expenses of $0.7 million and collected or will
collect a total of $2.0 million.
The Company incurred expenses of $290,000, $288,000, and $298,000 in 1995,
1994, and 1993, respectively, for legal services provided by a law firm, one of
whose partners is an officer of the Company. The Company has incurred
transportation costs of $2,057,000 and made advance payments of $97,000 at
December 31, 1995, to a company controlled by the Company's major stockholder.
The Company has employment contracts extending beyond December 31, 1995.
Most of these contracts require that payments continue to be made if the
individual should be unable to perform because of death or disability. Future
minimum obligations under these contracts are as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 21,848
1997 14,506
1998 10,598
1999 6,394
2000 3,600
Later years 21,470
-------
$ 78,416
-------
-------
</TABLE>
F-20
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The Company is required to make the following minimum operating lease
payments for equipment and facilities under noncancelable lease agreements which
expire in more than one year as follows (in thousands):
<TABLE>
<S> <C>
1996 $ 2,546
1997 2,276
1998 2,034
1999 1,697
2000 1,200
Later years 8,859
-------
$ 18,612
-------
-------
</TABLE>
Rent expense for operating leases for the years ended December 31, 1995, 1994,
and 1993 aggregated $3,167,000, $2,609,000, and $3,007,000, respectively.
Subsequent to December 31, 1995, the Company contracted to purchase capital
assets totaling $9.4 million.
The Company is required to make the following minimum guaranteed display
advertising franchise payments which expire in more than one year as follows (in
thousands):
<TABLE>
<S> <C>
1996 $ 12,505
1997 9,854
1998 6,316
1999 4,994
2000 1,951
2001 50
------
$ 35,670
------
------
</TABLE>
Franchise fee expense for the years ending December 31, 1995, 1994, and 1993
aggregated $17,236,000, $17,551,000, and $17,945,000, respectively.
13. LITIGATION ACCRUAL
The Company and two of its executive officers were defendants in a wrongful
termination suit brought by former employees. On February 29, 1996, a jury
issued a verdict awarding the plaintiffs compensatory and punitive damages of
approximately $13.0 million. The Company has recorded an accrual of $14.2
million related to the verdict which also included an estimate for additional
legal costs. The Company will appeal the verdict. Such appeal will likely
defer settlement of the liability beyond 1996, and therefore, it is classified
as non-current.
F-21
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
14. INDUSTRY SEGMENT INFORMATION
The Company is engaged in three business segments: out-of-home media,
broadcasting, and other. Selected financial information for these segments is
presented as follows (in thousands):
<TABLE>
<CAPTION>
Out-of-home Broad-
media casting Other Consolidated
----------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Net revenue $ 93,177 $ 94,108 $ 20,112 $207,397
-------- -------- -------- --------
-------- -------- -------- --------
Operating cash flow before gain (expenses) listed below: $ 31,978 $ 39,507 $(20,431) 51,054
Depreciation and amortization (5,226) (7,223) (794) (13,243)
-------- -------- -------- --------
Income (loss) before expenses listed below: $ 26,752 $ 32,284 $(21,225) 37,811
-------- -------- --------
-------- -------- --------
Litigation expense 14,200
Interest expense 25,010
--------
Income before taxes and extraordinary item $ (1,399)
--------
Identifiable assets $ 53,281 $112,430 $ 24,171 $189,882
-------- -------- -------- --------
-------- -------- -------- --------
Capital expenditures, net of retirements
and disposals $ 2,631 $ 19,098 $ 873 $ 22,602
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1994:
Net revenue $ 85,436 $ 83,463 $ 17,203 $186,102
-------- -------- -------- --------
-------- -------- -------- --------
Operating cash flow before gain (expenses) listed below: $ 27,028 $ 33,561 $(17,299) 43,290
Disposition of assets - 2,506 - 2,506
Depreciation and amortization (5,297) (4,954) (632) (10,883)
-------- -------- -------- --------
Income (loss) before interest, income taxes, and
extraordinary item $ 21,731 $ 31,113 $(17,931) 34,913
-------- -------- --------
-------- -------- --------
Interest expense 25,909
--------
Income before taxes and extraordinary item $ 9,004
--------
--------
Identifiable assets $ 54,291 $ 86,952 $ 29,540 $170,783
-------- -------- -------- --------
-------- -------- -------- --------
Capital expenditures, net of retirements and disposals $ 2,709 $ ,036 $ 3,990 $ 8,735
-------- -------- -------- --------
-------- -------- -------- --------
Year ended December 31, 1993:
Net revenue $ 74,876 $ 77,318 $ 18,423 $170,617
-------- -------- -------- --------
-------- -------- -------- --------
Operating cash flow before gain (expenses) listed below: $ 19,541 $ 31,343 $(12,583) $ 38,301
Disposition of assets - - (759) (759)
Depreciation and amortization (5,517) (5,962) (539) (12,018)
-------- -------- -------- --------
Income (loss) before interest, income taxes, and
extraordinary item $ 14,024 $ 25,381 $(13,881) 25,524
-------- -------- --------
-------- -------- --------
Interest expense (22,431)
--------
Income before taxes and extraordinary item $ 3,093
--------
--------
Identifiable assets $ 53,984 $ 74,233 $ 32,274 $160,491
-------- -------- -------- --------
-------- -------- -------- --------
Capital expenditures, net of retirements and disposals $ 856 $ 1,966 $ 656 $ 3,478
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
F-22
<PAGE>
ACKERLEY COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
The "Other" segment consists of basketball operations (other than the basketball
team's TV and radio operations which are included in the "Broadcasting"
segment), soccer operations, and the Corporate office in 1995, 1994, and 1993 as
well as an airport magazine in 1993. Net revenue for the "Other" segment
consists principally of revenues from the sports operations.
15. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's results of operations may vary from quarter to quarter due in
part to the timing of acquisitions and to seasonal variations in the operations
of the broadcasting segment. In particular, the Company's net revenue and
operating cash flow historically have been affected positively during the NBA
basketball season (the first, second, and fourth quarters) and by increased
advertising activity in the second and fourth quarters.
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1995 and 1994 (in thousands except
per share information):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995
- ----
Net revenue $ 56,791 $49,404 $40,548 $60,654
Operating cash flow before depreciation,
amortization, litigation, and interest expense 9,480 13,947 10,199 17,428
Net income 434 3,689 1,079 *(8,116)
Net income per share .03 .23 .07 (.51)
1994
- ----
Net revenue $ 48,095 $43,199 $37,982 $56,826
Operating cash flow before depreciation,
amortization, and interest expense 7,756 11,120 9,677 14,737
Net income before extraordinary item 1,565 2,292 543 4,531
Net income 1,565 2,292 543 2,432
Net income per share before
extraordinary item .10 .15 .03 .29
Net income per share .10 .15 .03 .16
</TABLE>
* Reflects litigation accrual discussed in Note 13.
F-23
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of March 20, 1996 (this
"Amendment"), is made by and between ACKERLEY COMMUNICATIONS, INC. (the
"Company"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Documentation Agent,
NATWEST BANK N.A. as Administrative Agent and the Banks party to the Credit
Agreement (as hereinafter defined).
This Amendment amends that certain Credit Agreement dated as of February
17, 1995 (as amended, modified, restated or supplemented from time to time, the
"Credit Agreement"), between the Company, the Managing Agents and the Banks. All
capitalized terms not otherwise defined in this Amendment shall have the
meanings assigned to them in the Credit Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Banks have made available to the
Company certain Loans and Facility Letters of Credit in the aggregate principal
amount of up to $65,000,000 evidenced by Promissory Notes of the Company in the
aggregate principal amount of $65,000,000.
B. The Company has requested that the Managing Agents and the Banks (i)
modify certain definitions and covenants to account for a $14.2 million judgment
against the Company and (ii) make certain other conforming modifications to the
Credit Agreement.
C. The Company, the Managing Agents and the Banks have agreed to amend
the Credit Agreement as set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of these premises, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company, the Managing Agents and the Banks hereby agree as
follows:
ARTICLE I
AMENDMENTS
The Credit Agreement is hereby amended as follows:
1.1. DEFINED TERMS. Article I of the Credit Agreement is hereby amended
deleting the definitions of "Indebtedness" and "Operating Cash Flow" in their
entirety and replacing them with the following:
<PAGE>
"Indebtedness" means the Company's and each Subsidiary's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property (other than accounts payable arising in connection with the purchase of
inventory on terms customary in the trade and Program Obligations), (iii)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by the
Company or any Subsidiary, (iv) obligations which are evidenced by notes,
acceptances or other instruments, (v) Capitalized Lease Obligations, (vi)
obligations arising under or in connection with Guaranties, and (vii)
obligations for the payment of damages awarded to the plaintiffs in a lawsuit
against the Company on February 29, 1996 in the amount of $13,000,000 PLUS
$1,200,000 reserved for possible awards and legal expenses related to the same
lawsuit, resulting in an aggregate amount of $14,200,000.
"Operating Cash Flow" means, for any period of calculation, (i) pre-tax income
or deficit, as the case may be (excluding 50% of any National Basketball
Association expansion fee income recognized by the Company or any of its
Subsidiaries in any such period; excluding $13,000,000 in damages awarded to the
plaintiffs in a lawsuit against the Company on February 29, 1996, and $1,200,000
reserved for possible awards and legal expenses related to the same lawsuit in
an aggregate amount not to exceed $14,200,000, recognized as an expense by the
Company in any such period; and excluding extraordinary gains or losses and any
gain (or loss) from any sale, lease, transfer or other disposition of any
property, asset or business and excluding any income from equity investments)
plus, to the extent deducted in calculating pre-tax income or deficit, (a) all
depreciation and amortization expense (including the amortization of Program
Obligations), and (b) interest expense (net of interest income), minus (ii)
Program Obligation Payments, all calculated for such period for the Company and
the Subsidiaries on a consolidated basis in accordance with Generally Accepted
Accounting Principles consistently applied. In the case of any Sale or
Acquisition by the Company or any Subsidiary during any period of calculation,
the definition of Operating Cash Flow shall, for purposes of determining Total
Leverage Ratio, Senior Leverage Ratio and Applicable Margin, be adjusted to give
effect to such Sale or Acquisition, as if such Sale or Acquisition occurred on
the first day of such period, (x) in the case of a Sale, by decreasing, if
positive, or increasing, if negative, Operating Cash Flow by the Operating Cash
Flow in respect of such Sale during such period or (y) in the case of an
Acquisition, by increasing, if positive, or decreasing, if negative, Operating
Cash Flow by the Operating Cash Flow in respect of such Acquisition during such
period.
-2-
<PAGE>
1.2. NEGATIVE COVENANTS. Effective as of December 31, 1995, Article VI of
the Credit Agreement is hereby amended as follows:
(a) Section 6.16 of the Credit Agreement is hereby amended by deleting the
last sentence of subsection (v) of such Section and replacing it with the
following:
"All such capital contributions to New Century shall be limited to an
aggregate amount of $1,200,000 per annum in addition to the capital
contribution required pursuant to Section 3(g)(i) of the Amended
Partnership Agreement, which required capital contribution shall not
exceed $600,000."
(b) Section 6.17 of the Credit Agreement is hereby amended by adding the
following subsection (iv) to the end of such Section:
(iv) Guaranties of obligations of other Persons up to an aggregate
amount for all such Guaranties of $6,000,000.
(c) Section 6.25 of the Credit Agreement is hereby amended by deleting
such Section in its entirety and replacing it with the following:
6.25. FIXED CHARGE COVERAGE RATIO. The Company will maintain, as at
the last day of each fiscal quarter, a Fixed Charge Coverage Ratio of
not less than the ratio set forth below opposite each such period:
Period Ratio
------ -----
The Closing through September 30, 1996 1.00 to 1.00
At all times thereafter 1.25 to 1.00
1.3. EXHIBITS AND SCHEDULES. The Schedules to the Credit Agreement are
hereby amended by adding to the appropriate Schedule the information contained
on the schedules attached hereto. The schedules attached hereto shall have the
same numbers as the corresponding Schedule to the Credit Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants that:
2.1. COMPLIANCE WITH CREDIT AGREEMENT. The Company is in compliance with
all terms and provisions set forth in the Credit Agreement to be observed or
performed, except where the Company's failure to comply has been waived in
writing by the Managing Agents or the Banks, as the case may be.
-3-
<PAGE>
2.2. REPRESENTATIONS IN CREDIT AGREEMENT. The representations and
warranties of the Company set forth in the Credit Agreement are true and
correct.
2.3. NO EVENT OF DEFAULT. No Default or Event of Default has occurred or
is continuing other than those, if any, waived in writing by the Managing
Agents or the Banks, as the case may be.
ARTICLE III
MODIFICATION OF LOAN DOCUMENTS AND CONDITIONS
3.1. OMNIBUS AMENDMENT. The other Loan Documents, as defined in the Credit
Agreement, are amended as follows:
In accordance with this Amendment, any references in any Loan Documents to
definitions or covenants in the Credit Agreement are hereby modified to
reflect the modifications set forth in this Amendment.
Any individual or collective reference to any of the Loan Documents in any
of the other Loan Documents shall mean, unless otherwise specifically
provided, such Loan Documents as amended by this Amendment, and as it is
further amended, restated, supplemented or modified from time to time and
any substitute or replacement therefor or renewals thereof. Without
limiting the foregoing, all references to the Credit Agreement shall mean
the Credit Agreement as amended hereby and as further amended from time to
time. All Loan Documents, as amended hereby, are in full force and effect
and are enforceable against the Company in accordance with their terms.
3.2. CONDITIONS PRECEDENT. This Amendment shall become effective upon
the satisfaction of the following conditions precedent:
(a) CERTIFICATE OF COMPANY. The Managing Agents shall have received from
the Company a Certificate of Company, in a form satisfactory to the Managing
Agents, certifying (i) that the articles of incorporation of the Company have
not been amended since the Closing Date, (ii) that the bylaws of the Company
have not been amended since the Closing Date, (iv) that attached thereto is a
true and correct copy of the resolutions adopted by the Board of Directors of
the Company authorizing the execution and delivery by the Company of this
Amendment and all of the documents executed in connection therewith, and (v) as
to the incumbency and genuineness of the signatures of each officer of the
Company executing on behalf of the Company, any documents relating to the
transactions contemplated in this Amendment.
-4-
<PAGE>
(b) OTHER DOCUMENTS. The Managing Agents and the Banks shall receive from
the Company such other documents, opinions of counsel and certificates as they
shall reasonably deem necessary and request in connection with the execution of
this Amendment and the closing of the transactions contemplated herein.
(c) FEES AND EXPENSES. The Company agrees to pay all out-of-pocket
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, all reasonable
attorneys' fees.
ARTICLE IV
GENERAL
4.1. FULL FORCE AND EFFECT. As expressly amended hereby, the Credit
Agreement and the other Loan Documents shall continue in full force and effect
in accordance with the provisions thereof. As used in the Credit Agreement and
the Loan Documents, "hereinafter," "hereto," "hereof," and words of similar
import shall, unless the context otherwise requires, mean the Credit Agreement
as amended by this Amendment.
4.2. APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the internal laws and judicial decisions of the State of North
Carolina.
4.3. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
4.4. FURTHER ASSURANCE. The Company shall execute and deliver to the
Managing Agents and the Banks such documents, certificates and opinions as the
Managing Agents may reasonably request to effect the amendment contemplated by
this Amendment.
4.5. HEADINGS. The headings of this Amendment are for the purposes of
reference only and shall not affect the construction of this Amendment.
4.6. VALID AMENDMENT. The parties acknowledge that this Amendment
complies in all respects with Section 8.2 of the Credit Agreement, which sets
forth the requirements for amendments thereto.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers all as of the date
first above written.
ACKERLEY COMMUNICATIONS, INC.
By: /s/ Denis M. Curley
-----------------------------------
Denis M. Curley,
Senior Vice President and Chief
Financial officer
800 Fifth Avenue
Suite 3770
Seattle, WA 98104
Telephone: (206) 624-2888
Facsimile: (206) 623-7853
Attn: Mr. Denis M. Curley
Senior Vice President and
Chief Financial Officer
-6-
<PAGE>
NATWEST BANK N.A.,
Individually and as Administrative
Agent
By: /s/ Roselyn Ried
-------------------------------------
Title: Vice President
----------------------------------
175 Water Street
New York, NY 10038
Telephone: (212) 602-2576
Facsimile: (212) 602-2663
Attn: Mr. Alexander Sade
Media Division
-7-
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, Individually and as
Documentation Agent
By: /s/ Jim Redman
-------------------------------------
Title: SVP
----------------------------------
One First Union Center
301 South College Street
Charlotte, N.C. 28288
Telephone: (704) 374-3242
Facsimile: (704) 383-4092
Attn: Mr. James W. Wood
Capital Markets Group
-8-
<PAGE>
SEATTLE-FIRST NATIONAL BANK
By:
-------------------------------------
Title:
----------------------------------
Columbia SeaFirst Center
12th Floor
701 5th Avenue
Seattle, WA 98104
Telephone: (206) 358-8003
Facsimile: (206) 358-3113
Attn: Mr. Stan Diddams
Northwest National
Division
-9-
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., Los Angeles Agency
By:
-------------------------------------
Title:
----------------------------------
444 South Flower Street
Suite 3700
Los Angeles, CA 90071
Telephone: (213) 689-6385
Facsimile: (213) 622-6908
Attn: Mr. Edward Vassallo
-10-
<PAGE>
UNION BANK
By: /s/ Steven D. Olson
-------------------------------------
STEVEN D. OLSON
Title: VICE PRESIDENT
----------------------------------
445 South Figueroa Street
Los Angeles, CA 90051
Telephone: (213) 236-6903
Facsimile: (213) 236-5747
Attn: STEVEN D. OLSON
VICE PRESIDENT
Communications/Media Group
-11-
<PAGE>
EXHIBIT 10.10
ACKERLEY COMMUNICATIONS, INC.
AMENDED AND RESTATED
EMPLOYEES STOCK OPTION PLAN
(AS OF MARCH 4, 1996)
1. PURPOSE. This Plan (the "Plan") is intended as an incentive for, and
to encourage stock ownership by, key employees of Ackerley Incorporated or its
subsidiaries (the "Company") in order to provide such employees with a
proprietary interest or to increase their proprietary interest in the Company's
success.
The word "Company" when used in the Plan with reference to
employment shall include subsidiaries of the Company. The word "subsidiary"
when used herein shall mean any corporation, 50% or more of the voting stock of
which is owned or controlled, directly or indirectly, by the Company. The term
"incentive stock option" shall mean an option described in Section 422(b) of the
Internal Revenue Code of 1986, as amended. Both incentive and non-incentive
stock options may be granted under this Plan, and the relevant stock option
agreement will specify the type of option granted.
2. ADMINISTRATION. The Company's Board of Directors (the "Board")
shall administer the Plan and perform such other functions as may be reasonable
or necessary under the Plan. The Board is authorized, subject to the provisions
of the Plan, from time to time to establish such rules and regulations as it may
deem appropriate for the proper administration of the Plan, and to make such
determinations under, and such interpretations of, and to take such steps in
connection with, the Plan or the options granted thereunder as it may deem
necessary or advisable.
3. STOCK. The stock to be optioned under the Plan shall be shares of
the Company's common stock, $0.01 par value per share ("Stock"), and may be
either authorized and unissued or held in the treasury of the Company. The
total amount of Stock on which options may be granted under the Plan shall not
exceed 500,000 shares. Such number of shares is subject to adjustment in
accordance with the provisions of Article 10 hereof. The shares involved in the
unexercised portion of any terminated or expired options under the Plan may
again be subjected to options under the Plan.
4. AWARD OF OPTIONS.
a. OPTION AWARD. The Board, at any time and from time to time
prior to May 1, 2003, may authorize the granting of options to such employees of
the Company as it may select and for such numbers of shares as it shall
designate subject to the
- 1 -
<PAGE>
provisions of Article 4(b) hereof and Article 3 hereof; and subject to
adjustment in accordance with the provisions of Article 10 hereof. The date on
which an option shall be granted shall be the date of the Board's authorization
of such grant.
b. STOCK OPTION AGREEMENT. Each option shall be evidenced by a
stock option agreement in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Board from time to time
shall approve. Among the provisions which the Board may, at its option, include
in the terms of a stock option agreement is a provision affecting incentive
stock options granted prior to January 1, 1987 that prohibits the exercise of
any such option while there is outstanding any incentive stock option granted
before the granting of the new incentive stock option to the employee. Each
stock option agreement shall state whether the option is an incentive stock
option or a nonincentive stock option and the number of shares subject to
option. Any number of options may be granted to a single eligible employee at
any time and from time to time, except that, in the case of incentive stock
options, the aggregate fair market value (determined as of the time each option
is granted) of all shares of stock with respect to which incentive stock options
become exercisable for the first time by such employee in any one calendar year
(under all incentive stock option plans of the Company, and all of its
affiliated companies taken together) shall not exceed $100,000.
5. OPTION PRICE.
a. INCENTIVE STOCK OPTIONS. The purchase price of shares subject
to options qualifying as incentive stock options awarded to qualified Company
employees shall not be less than 100% of the fair market value of such shares at
the time of grant of the options; provided, however, that such price shall not
be less than 110% of the fair market value of the shares subject to the options
for any incentive stock options granted to any individual who, at the time such
an option is granted, owns shares possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company.
b. NONINCENTIVE STOCK OPTIONS. The purchase price of shares
subject to options not qualifying as incentive stock options shall be determined
by the Board in its sole discretion.
c. IN GENERAL. The Board shall determine the fair market value of
shares on the date of grant of any option, and, subject to the restrictions
contained in this Article 5, the Board shall determine the purchase price of the
shares covered by each option. The purchase price specified in each option will
remain constant during the term of such option, subject to adjustment pursuant
to Article 10.
- 2 -
<PAGE>
6. TERM OF OPTIONS. Each option granted under the Plan shall be
exercisable on such date or dates and during such periods and for such numbers
of shares as shall be determined pursuant to the provisions of the stock option
agreement with respect to such option; provided, however, that no option granted
under the Plan shall be exercised beyond 10 years from the date of grant of the
option; provided, further, that no option qualifying as an incentive stock
option shall be exercised beyond five years from the date of grant if the
optionee at the time the option is granted owns shares possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company.
7. NONTRANSFERABILITY OF OPTION RIGHTS. No option shall be
transferable by an optionee otherwise than by will or the laws of descent and
distribution. During the lifetime of an optionee the option shall be
exercisable only by the optionee.
8. EFFECT OF TERMINATION OF EMPLOYMENT.
a. EMPLOYMENT TERMINATION. Except as provided in subsections b.
or c. of this Section of the Plan, if, prior to the date that any option shall
be exercised, the optionee shall cease for any reason to be an employee of the
Company, the optionee's right to exercise such option shall terminate and all
rights thereunder shall cease, except that any stock option agreement may
provide that any funds placed in escrow by an optionee towards payment of the
option price shall be returned to the optionee in the event the optionee ceases
to be an employee of the Company.
b. RETIREMENT OF EMPLOYEE. If an optionee's status as an employee
is terminated at any time during the option period by reason of retirement of
such employee at age 57 years or older, and if said optionee had been an
employee at all times between the date of grant of the option and the
termination of his or her status as an employee, the employee's incentive stock
option shall terminate on the earlier of (i) one year after the date of
termination of his or her status as an employee, or (ii) the expiration date
otherwise provided in the employee's stock option agreement.
c. DISABILITY OF EMPLOYEE. If an optionee's status as an employee
is terminated at any time during the option period by reason of a disability
(within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986,
as amended) and if said optionee had been an employee at all times between the
date of grant of the option and the termination of his or her status as an
employee, the employee's incentive stock option shall terminate on the earlier
of (i) one year after the date of termination of his or her status as an
employee, or (ii) the
- 3 -
<PAGE>
expiration date otherwise provided in the employee's stock option agreement.
d. DEATH OF EMPLOYEE. If an optionee shall die while an employee
of the Company, the executor or administrator of the estate of the deceased
optionee or the person or persons to whom an option shall have validly
transferred by the executor or the administrator pursuant to will or the laws of
descent and distribution, shall have the right, within one year from the date of
the optionee's death, to exercise the option to the extent that it is then
exercisable, but not exercised, at the date of death, subject to the other
limitation on the exercise of the option in effect at the date of exercise.
Such one-year period shall not extend the time during which the option can be
exercised.
9. PAYMENT FOR SHARES. In the discretion of the Board of Directors,
the stock option agreement with respect to any option granted under the Plan may
require that the option price be paid in cash or check, or may give the optionee
the choice of paying in cash, check, in Stock of the Company, or a combination
thereof. The option price must be paid to the Company in full on or before the
exercise of any option under this Plan. Shares of Stock of an option shall be
valued at the mean of the highest and lowest quoted selling price for the Stock
on the date of exercise, or, if such price is unavailable, the mean of the bid
and asked prices for the Stock on the date of exercise, or, if such price is
also unavailable, the fair value of the Stock as determined by the Board of
Directors, including, without limitation, as determined by a formula provided in
the relevant stock option agreement.
10. STOCK DIVIDEND, RECLASSIFICATION, MERGER, CONSOLIDATION, ETC. The
total amount of Stock on which options may be granted under the plan, and option
rights (both as to the number of shares of Stock and the option price) shall be
appropriately adjusted for any increase or decrease in the number of outstanding
shares of Stock resulting from a subdivision or combination of shares of Stock,
or a reclassification of Stock.
In the event of a merger or consolidation involving the Company, or an
acquisition of the Company, the Board of Directors of the Company in its sole
discretion, and upon reasonable notice to the optionee, shall be entitled: (a)
(i) to permit any optionee, even as to any option not then exercisable by its
terms, to exercise such option and (ii) notwithstanding the terms of the
relevant stock option agreement, to require such optionee to complete the
exercise of any option by the effective date of such merger, consolidation or
acquisition, on which date all rights of the optionee as 'to any unexercised
portion of any option shall cease; (b) to provide for the assumption by the
- 4 -
<PAGE>
surviving or acquiring entity of any or all of the outstanding options of the
Company upon such terms as the Board of Directors of the Company shall decide;
or (c) to take such other action as the Board may decide.
The foregoing adjustments or other actions and the manner of application of
the foregoing provisions shall be determined by the Board in its sole
discretion. Any such adjustment or other actions may provide for the
elimination of any fractional share which might otherwise become subject to an
option.
11. RIGHTS AS A STOCKHOLDER. An optionee or a transferee of an option
shall have no rights as a stockholder with respect to any share covered by
option until the optionee shall have become the holder of record of such share,
and no adjustments shall be made for dividends (ordinary or extraordinary,
whether in cash, securities, or other property) or distributions or other rights
in respect of such share for which the record date is prior to the date on which
the optionee shall have become the holder of record thereof; except that the
holders of options as of June 24, 1987 became entitled to participate with
shareholders of record in the Class B Common Stock dividend as declared and paid
and further, that the holders of such options have been and shall be entitled to
receive such Class B Common Stock dividend upon the exercise of such options and
becoming shareholders of record with respect to the option shares.
12. AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The Board may
at any time terminate, and at any time and from time to time, and in any
respect, may amend or modify the Plan or options issued thereunder; provided,
however, that no such action of the Board without approval of the stockholders
may (a) increase the total amount of Stock on which options may be granted under
the Plan, except as contemplated in Article 10, or (b) change the criteria for
determining the option price; and provided, further, that no amendment,
modification or termination of the Plan shall in any manner affect any option
theretofore granted under the Plan without the consent of the optionee or the
transferee of the option. The Board may amend or modify options issued under
the Plan provided that no incentive stock option shall be adjusted by the Board
pursuant to this Section 12 in a manner which causes the option to fail to
continue to qualify as an incentive stock option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended; and provided, further,
that no amendment or modification of an option shall grant the optionee
additional benefits under the option such that the optionee will be deemed to
have received a grant of a new option, without the consent of the optionee or
the transferee of the option.
13. CONDITIONS TO EXERCISE OF OPTIONS. The Board may, in
- 5 -
<PAGE>
its discretion, provide that: (a) options hereunder shall not be exercisable
unless their exercise and the issuance and delivery of shares thereunder shall,
in the opinion of counsel for the Company, comply with all relevant provisions
of law, including, without limitation, any applicable state or federal
securities laws and regulations; and (b) in the event that the Company is unable
without unreasonable expense to obtain the necessary authority form all
regulatory bodies having jurisdiction, the Company shall not have any liability
to any optionee for the failure to issue shares.
The Board may, in its discretion, require as a condition to the exercise of
options and the issuance of shares thereunder that the optionee (i) shall have
represented, warranted and agreed in form and substance satisfactory to the
Company, at the time of exercising the option that the optionee is acquiring the
shares for the optionee's own account, for investment and not with a view to or
in connection with any distribution thereof, (ii) shall have agreed to
restrictions on transfer in form and substance satisfactory to the Company, and
(iii) shall have agreed to an endorsement which makes appropriate reference to
such representations, warranties, agreements and restrictions on the
certificates representing the shares.
14. FINALITY OF DETERMINATIONS. Each determination, interpretation or
other action made or taken pursuant to the provisions of the Plan by the Board
shall be final and shall be binding and conclusive for all purposes and upon all
persons, including but without limitation thereto the Company, the stockholders
and the directors, officers and employees of the Company and its subsidiaries,
the optionees and their respective successors in interest.
15. LAW GOVERNING. This Plan shall be governed by and construed in
accordance with the laws of the State of Washington.
Plan Approved by the Board
of Directors: December 17, 1993
Plan Approved by Shareholders: April 15, 1994
- 6 -
<PAGE>
EXHIBIT 21.1
ACKERLEY COMMUNICATIONS, INC.
SUBSIDIARIES
AS OF MARCH 18, 1996
Ackerley Airport Advertising, Inc.
Ackerley Communications Group, Inc.
KJR Radio, Inc.
SSI, Inc.
TC Aviation, Inc.
WIXT TV, Inc.
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statements (Forms S-8, Nos. 33-22545 and 33-88020) pertaining to
the Employee Stock Option Plan of Ackerley Communications, Inc.,
and in the Registration Statement (Form S-8, No. 33-61163)
pertaining to the William N. Barkell Stock Purchase Agreement,
Donald E. Carter Stock Purchase Agreements, and Eric M. Rubin Stock
Purchase Agreement of our report dated March 1, 1996 with respect
to the consolidated financial statements of Ackerley
Communications, Inc., included in the Annual Report (Form 10-K) for
the year ended December 31, 1995.
/s/ Ernst & Young
March 15, 1996
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned Director of Ackerley Communications, Inc. (the "Company")
hereby appoints each of Barry A. Ackerley and Denis M. Curley her true and
lawful attorney and agent, in name and on behalf of the undersigned, to do any
and all acts and things and execute any and all instruments which the attorney
and agent may deem necessary or advisable to cause the 1995 Annual Report on
Form 10-K to be filed with the Securities and Exchange Commission, and likewise
to sign any and all amendments (the signing of any such instrument to be
conclusive evidence that the attorney considers such instrument necessary or
desirable), without the other and with full power of substitution and
revocation, and hereby ratifying all that any such attorney or his substitute
may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 4th day of March, 1996.
/s/ Gail A. Ackerley
------------------------------
Gail A. Ackerley
Director
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned Director of Ackerley Communications, Inc. (the "Company")
hereby appoints each of Barry A. Ackerley and Denis M. Curley his true and
lawful attorney and agent, in name and on behalf of the undersigned, to do any
and all acts and things and execute any and all instruments which the attorney
and agent may deem necessary or advisable to cause the 1995 Annual Report on
Form 10-K to be filed with the Securities and Exchange Commission, and likewise
to sign any and all amendments (the signing of any such instrument to be
conclusive evidence that the attorney considers such instrument necessary or
desirable), without the other and with full power of substitution and
revocation, and hereby ratifying all that any such attorney or his substitute
may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 4th day of March, 1996.
/s/ Richard P. Cooley
------------------------------
Richard P. Cooley
Director
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned Director of Ackerley Communications, Inc. (the "Company")
hereby appoints each of Barry A. Ackerley and Denis M. Curley his true and
lawful attorney and agent, in name and on behalf of the undersigned, to do any
and all acts and things and execute any and all instruments which the attorney
and agent may deem necessary or advisable to cause the 1995 Annual Report on
Form 10-K to be filed with the Securities and Exchange Commission, and likewise
to sign any and all amendments (the signing of any such instrument to be
conclusive evidence that the attorney considers such instrument necessary or
desirable), without the other and with full power of substitution and
revocation, and hereby ratifying all that any such attorney or his substitute
may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 4th day of March, 1996.
/s/ M. Ian G. Gilchrist
------------------------------
M. Ian G. Gilchrist
Director
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned Director of Ackerley Communications, Inc. (the "Company")
hereby appoints each of Barry A. Ackerley and Denis M. Curley his true and
lawful attorney and agent, in name and on behalf of the undersigned, to do any
and all acts and things and execute any and all instruments which the attorney
and agent may deem necessary or advisable to cause the 1995 Annual Report on
Form 10-K to be filed with the Securities and Exchange Commission, and likewise
to sign any and all amendments (the signing of any such instrument to be
conclusive evidence that the attorney considers such instrument necessary or
desirable), without the other and with full power of substitution and
revocation, and hereby ratifying all that any such attorney or his substitute
may do by virtue hereby.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 4th day of March, 1996.
/s/ Michel C. Thielen
------------------------------
Michel C. Thielen
Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,421
<SECURITIES> 0
<RECEIVABLES> 44,753
<ALLOWANCES> 1,163
<INVENTORY> 0
<CURRENT-ASSETS> 65,213
<PP&E> 200,520
<DEPRECIATION> 119,152
<TOTAL-ASSETS> 189,882
<CURRENT-LIABILITIES> 50,103
<BONDS> 0
0
0
<COMMON> 170
<OTHER-SE> (99,263)
<TOTAL-LIABILITY-AND-EQUITY> 189,882
<SALES> 0
<TOTAL-REVENUES> 207,397
<CGS> 0
<TOTAL-COSTS> 170,543
<OTHER-EXPENSES> 38,253
<LOSS-PROVISION> 979
<INTEREST-EXPENSE> 25,010
<INCOME-PRETAX> (1,399)
<INCOME-TAX> 1,515
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,914)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
