<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
/XX/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from _____________ to _____________________________
Commission File Number 1-10321
THE ACKERLEY GROUP, 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.)
1301 Fifth Avenue, Suite 4000
Seattle, Washington 98101
------------------------------- -----------------
(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 14, 1997: $120,030,253.
Number of shares of common stock, $.01 par value, outstanding as of March 14,
1997: 19,813,002 Common Stock and 11,353,810 Class B Common Stock.
Documents incorporated by reference and parts of Form 10-K into which
incorporated: Registrant's Definitive Proxy Statement for May 5, 1997 Annual
Meeting--Part III
<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, 1996
and 1995............................................................... F-2
Consolidated statements of operations for the
years ended December 31, 1996, 1995 and 1994........................... F-3
Consolidated statements of stockholders' deficiency
for the years ended December 31, 1996, 1995 and 1994................... F-4
Consolidated statements of cash flows for the years
ended December 31, 1996, 1995 and 1994................................. F-5
Notes to consolidated financial statements............................... F-6
Schedules 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.
35
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized, on the 17th
day of April, 1997.
THE ACKERLEY GROUP, INC.
By: /s/ Keith W. Ritzmann
-------------------------
Keith W. Ritzmann
Vice President and Controller
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
The Ackerley Group, Inc.
We have audited the accompanying consolidated balance sheets of The Ackerley
Group, Inc. as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' deficiency, and cash flows for each
of the three years in the period ended December 31, 1996. 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 The Ackerley Group, Inc. at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
----------------------------------------
Seattle, Washington
February 28, 1997
F-1
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
-----------
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
1996 1995
------ ------
(In thousands)
Current assets:
Cash and cash equivalents $ 2,910 $ 6,421
Accounts receivable, net 43,754 43,590
Current portion of broadcast rights 5,656 5,779
Prepaid and other current assets 16,845 9,423
----------- -----------
Total current assets 69,165 65,213
Property and equipment, net 88,136 81,368
Intangibles 41,856 31,412
Other assets 25,755 11,889
----------- -----------
Total assets $ 224,912 $ 189,882
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 5,019 $ 4,284
Accrued interest 3,959 3,628
Other accrued liabilities 16,160 12,958
Deferred revenue 20,050 18,269
Current portion of broadcasting obligations 7,032 6,145
Current portion of long-term debt 5,791 4,819
----------- -----------
Total current liabilities 58,011 50,103
Long-term debt 229,350 215,328
Litigation accrual 13,248 14,200
Other long-term liabilities 8,142 9,344
----------- -----------
Total liabilities 308,751 288,975
Stockholders' deficiency:
Common stock, par value $.01 per share-authorized 50,000,000 shares;
issued 21,186,724 and 20,777,012 shares at December 31, 1996 and 1995
respectively; and outstanding 19,811,778 and 19,402,066 shares
at December 31, 1996 and 1995 respectively 212 208
Class B common stock, par value $.01 per share-authorized 11,406,510
shares;issued and outstanding 11,353,810 and 11,731,522 shares at
December 31, 1996 and 1995 respectively 114 117
Capital in excess of par value 3,195 3,093
Deficit (77,271) (92,422)
Less common stock in treasury, at cost (10,089) (10,089)
----------- -----------
Total stockholders' deficiency (83,839) (99,093)
----------- -----------
Total liabilities and stockholders' deficiency $ 224,912 $ 189,882
----------- -----------
----------- -----------
</TABLE>
See accompanying notes
F-2
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
(In thousands, except
per share amounts)
Revenue $ 279,662 $ 235,820 $ 211,728
Less Agency commissions and discounts 32,364 28,423 25,626
----------- ----------- -----------
Net Revenue 247,298 207,397 186,102
Expenses and other income:
Operating expenses 186,846 156,399 143,469
Amortization 6,404 5,734 3,794
Depreciation 10,592 7,509 7,089
Interest expense 24,461 25,010 25,909
Other (income) expense 108 (56) (657)
Litigation expense --- 14,200 ---
Disposition of assets --- --- (2,506)
----------- ----------- -----------
Total expenses and other income 228,411 208,796 177,098
Income (loss) before income taxes
and extraordinary items 18,887 (1,399) 9,004
Income taxes 2,758 1,515 73
----------- ----------- -----------
Income (loss) before extraordinary items 16,129 (2,914) 8,931
Extraordinary items: loss on debt
extinguishment in 1996 and 1994 (355) --- (2,099)
----------- ----------- -----------
Net income (loss) $ 15,774 $ (2,914) $ 6,832
----------- ----------- -----------
----------- ----------- -----------
Income (loss) per common share,
before extraordinary items $ .51 $ (.09) $ .28
Extraordinary items (.01) --- (.06)
----------- ----------- -----------
Net income (loss) per common share $ .50 $ (.09) $ .22
----------- ----------- -----------
----------- ----------- -----------
Weighted average number of shares 31,760 31,545 31,483
</TABLE>
See accompanying notes
F-3
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Common
Class B Capital in stock in
Common common excess of par treasury
stock stock value Deficit (at cost)
-------------------------------------------------------------------
Balance, January 1, 1994 $ 204 $ 118 $ 2,789 $ (95,876) $ (10,089)
Exercise of stock options and
stock conversions 1 --- 62 --- ---
Net income --- --- --- 6,832 ---
-------- ------- --------- ------------- -----------
Balance, December 31, 1994 205 118 2,851 (89,044) (10,089)
Exercise of stock options and
stock conversions 3 (1) 242 --- ---
Cash dividend, $0.015 per share --- --- --- (464) ---
Net income --- --- --- (2,914) ---
-------- ------- --------- ------------- -----------
Balance, December 31, 1995 208 117 3,093 (92,422) (10,089)
Exercise of stock options and
stock conversions 4 (3) 102 --- ---
Cash dividend, $0.02 per share --- --- --- (623) ---
Net income --- --- --- 15,774 ---
-------- ------- --------- ------------- -----------
Balance, December 31, 1996 $ 212 $ 114 $ 3,195 $ (77,271) $ (10,089)
-------- ------- --------- ------------- -----------
-------- ------- --------- ------------- -----------
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended December 31,
-------------------------------------------
1996 1995 1994
------ ----- ------
(In thousands)
Cash flows from operating activities:
Cash received from customers $ 238,209 $ 215,321 $ 178,524
Cash paid to suppliers and employees (193,518) (154,564) (144,073)
Interest paid, net of amount capitalized (21,524) (24,032) (22,784)
------------ ------------ ------------
Net cash provided by operating activities 23,167 36,725 11,667
Cash flows from investing activities:
Proceeds from the sale of properties 1,474 478 13,306
Payments from acquisitions (20,445) --- (17,397)
Capital expenditures (13,124) (15,098) (8,794)
Other, net (7,524) (457) (6,162)
------------ ------------ ------------
Net cash used in investing activities (39,619) (15,077) (19,047)
Cash flows from financing activities:
Borrowings from Credit Agreements 38,000 64,379 30,126
Payments under Credit Agreements (21,907) (79,695) (27,180)
Dividends paid (623) (464) ---
Other, net (2,529) (1,735) (10)
------------ ------------ ------------
Net cash provided (used in) financing activities 12,941 (17,515) 2,936
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (3,511) 4,133 (4,444)
Cash and cash equivalents at beginning of period 6,421 2,288 6,732
------------ ------------ ------------
Cash and cash equivalents at end of period $ 2,910 $ 6,421 $ 2,288
------------ ------------ ------------
------------ ------------ ------------
Reconciliation of net income to net cash provided by
operating activities:
Net income (loss) applicable to common shares $ 15,774 $ (2,914) $ 6,832
Adjustment to reconcile net income to net cash
provided by operating activities:
Litigation expense --- 14,200 ---
Disposition of assets --- --- (2,506)
Loss on debt extinguishment 355 --- 2,099
Depreciation and amortization 16,996 13,243 10,883
Gain on sale of property and equipment (423) (50) (209)
NBA expansion proceeds (3,132) 5,165 ---
Changes in assets and liabilities, net (6,403) 7,081 (5,432)
------------ ------------ ------------
Net cash provided by operating activities $ 23,167 $ 36,725 $ 11,667
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of noncash transactions:
Broadcast rights acquired and broadcast obligations
assumed 9,165 $ 10,337 $ 6,020
Assets acquired through barter transactions 1,342 1,065 479
Capitalized leases --- 7,982 ---
</TABLE>
See accompanying notes
F-5
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies
(a) Organization - The Ackerley Group, Inc. (formerly know as 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, Miami, Ft.
Lauderdale, and West Palm Beach 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); Santa Rosa, California (independent), Bakersfield,
California (NBC affiliate); Salinas/Monterey, California (FOX affiliate and
CBS affiliate through a local management agreement); 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 The Ackerley Group, Inc. and its subsidiaries,
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. The barter transactions are recorded at the estimated fair value
of the asset or service received in accordance with Financial Standards Board
Statement No. 29, "Accounting for Nonmonetary Transactions." 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 prepaid and
other current assets. Goods and services received for which advertising has
not yet been provided are recorded in other accrued liabilities.
F-6
<PAGE>
(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 the assets or lease
terms.
(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. The Company has elected to account
for stock option grants in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and related Interpretations, and recognizes no
compensation expense for the stock option grants. In management's opinion,
the alternative fair value accounting method provided for under FASB No. 123,
"Accounting for Stock-Based Compensation," does not necessarily provide a
reliable single measure of the fair value of its employee stock options. The
effect of valuing the stock option grants using FASB No. 123's method results
in net income and earnings per share amounts that are not materially
different from the reported amounts.
(j) Stock split - In October, 1996, the Company declared a two-for-one
stock split. All share, per share, and exercise price information has been
restated to reflect the increase in stock shares and decrease in exercise
price caused by the split.
F-7
<PAGE>
(k) 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.
(l) 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.
(m) 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, 1996.
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.
(n) 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.
(o) Reclassifications - Certain prior years' amounts have been
reclassified to conform to the 1996 presentation.
2. 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 owning and operating the assets of this
radio stations in the Seattle market. Upon the venture's approval by the
Federal Communications Commission ("FCC") on July 14, 1994, the Company
contributed the assets of two stations, with a book value of $5.5 million, to
the Partnership. Also in July 1994, the Partnership purchased the assets of a
third station for approximately $17.7 million financed by bank borrowings.
F-8
<PAGE>
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 in the Partnership.
The following table summarizes on an unaudited, pro forma basis the
consolidated results of operations of the Company for 1994 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. (In thousands except per share
amounts):
1994
------
Net revenue $ 188,945
Operating expenses 182,762
Income before extraordinary items 8,282
Net income applicable to common shares 6,183
Net income per common share .20
3. Allowance for Doubtful Accounts
The allowance for doubtful accounts is summarized as follows (in thousands):
1996 1995 1994
------ ------ ------
Balance at beginning of year $ 1,163 $ 1,160 $ 941
Additions charged to operating expense 1,386 979 1,375
Write-offs of receivables, net of recoveries (1,123) (976) (1,156)
---------- ---------- ----------
Balance at end of year $ 1,426 $ 1,163 $ 1,160
---------- ---------- ----------
---------- ---------- ----------
4. Current Assets and Current Liabilities
At December 31, 1996 and 1995, prepaid and other current assets consist
of the following (in thousands):
1996 1995
------- ------
Prepaid assets $ 13,336 $ 7,421
Other current assets 3,509 2,002
---------- ---------
$ 16,845 $ 9,423
---------- ---------
---------- ---------
F-9
<PAGE>
At December 31, 1996 and 1995, other accrued liabilities consist of the
following (in thousands):
1996 1995
------ ------
Accrued wages $ 3,969 $ 1,861
Other accrued liabilities 12,191 11,097
----------- ----------
$ 16,160 $ 12,958
----------- ----------
----------- ----------
5. Property and equipment
At December 31, 1996 and 1995, property and equipment consisted of the
following (in thousands):
Estimated
1996 1995 useful life
-------- -------- ------------
Land $ 6,976 $ 6,906
Advertising structures 82,325 76,904 9-15 years
Broadcast equipment 52,712 49,635 10 years
Building and improvements 33,264 29,959 20-40 years
Office furniture and equipment 22,738 19,170 10 years
Transportation and other equipment 9,238 9,964 5-15 years
Equipment under capital leases 7,982 7,982 10 years
-------- --------
215,235 200,520
Less accumulated depreciation 127,099 119,152
-------- --------
$ 88,136 $ 81,368
-------- --------
-------- --------
6. Intangibles
At December 31, 1996 and 1995, intangibles consisted of the following (in
thousands):
Estimated
1996 1995 useful life
-------- -------- -----------
Goodwill $ 48,923 $ 32,660 3-40 years
Favorable leases and contracts 15,294 15,294 1-10 years
Broadcasting licenses and agreements 7,083 7,083 1-10 years
Other 4,250 4,302 1-30 years
------- --------
75,550 59,339
Less accumulated amortization 33,694 27,927
------- --------
$ 41,856 $ 31,412
------- --------
------- --------
F-10
<PAGE>
Cost represents the net assets' appraised value or management's best
estimate of the fair value at the dates of acquisition.
During 1996, the majority of the additions to Intangible Assets came from
two acquisitions: $4,482,000 from the Santa Rosa, California television
station, and $11,274,000 from billboards and three land parcels in the Boston
area. The Company does not consider the acquisitions' operating results to
have a material impact on the Company's consolidated results.
7. Debt
Long-term debt at December 31, 1996 and 1995 reflected the following
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
------------- ------------
Credit Agreement $ 55,000 $ 35,000
Senior notes 120,000 120,000
Subordinated notes payable 35,000 35,000
Partnership debt 13,903 16,879
Capital lease obligation 7,268 7,982
Deferred employment compensation, net of
imputed interest discount of $1,395 in 1996
and $955 in 1995 3,378 4,137
Other 592 1,149
------------- ------------
235,141 220,147
Less amounts classified as current 5,791 4,819
------------- ------------
$ 229,350 $ 215,328
------------- ------------
------------- ------------
</TABLE>
Aggregate annual payments of long-term debt during the next five years
are as follows (in thousands):
Credit Agreement Deferred
And Subordinated Compensation
Notes And Other
---------------- ----------------
1997 $ 5,125 $ 740
1998 15,610 520
1999 29,406 963
2000 29,149 271
2001 19,414 594
F-11
<PAGE>
Future minimum payments under the capitalized lease obligation are as
follows (in thousands):
Capitalized
Lease
-----------------
1997 $ 1,237
1998 1,237
1999 1,237
2000 1,237
2001 1,237
Later years 2,937
-----------------
9,122
Less amount representing interest 1,854
-----------------
Present value of lease payments 7,268
Less amount classified as current 750
-----------------
Long-term capitalized lease obligation $ 6,518
-----------------
-----------------
On September 30, 1996, the Company entered into an Amended and Restated
Credit Agreement (the "Credit Agreement") with the senior bank lenders
increasing the aggregate principal amount under the lending facility from
$65.0 million to $77.5 million. Losses of $355,000 related to the amendment
of Credit Agreement are reflected as an extraordinary item in the 1996
statement of operations. Losses of $2,099,000 related to refinancing the
Company's senior bank debt in 1994 are reflected as an extraordinary item in
1994.
At December 31, 1996, the Credit Agreement provided for borrowings up to
$77.5 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, 1996, $55.0
million of borrowings were outstanding, and $1.5 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 Credit Agreement. At December 31, 1996, interest on borrowings was
payable at LIBOR (5.6875% at December 31, 1996) plus 2.00%. The fee on the
letter of credit facility is payable quarterly at a rate determined by the
Company's total leverage ratio. At December 31, 1996, the fee on the letter
of credit facility was payable at 2.00%. Based on the balance outstanding,
principal payments are due quarterly from March 31, 1998, through March 31,
2002. The 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, 1996 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 Credit Agreement mentioned above.
All outstanding stock of the Company's subsidiaries is pledged as
collateral for the Credit Agreement and senior notes. In addition, the
F-12
<PAGE>
Company and its subsidiaries are subject to restrictions on the transfer of
assets by the Company's senior debt covenants.
The Company has $35 million borrowed at December 31, 1996 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 Credit Agreement mentioned above.
Partnership debt is related to the Company's interest in the New Century
Seattle Partners, L.P., and includes the following:
A senior term loan of $7,300,000 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
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 $5,602,847 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 $333,274.
At December 31, 1996, the Company had outstanding an interest rate
contract with a financial institution which involves the exchange of fixed
for floating rate of LIBOR (5.625% at December 27, 1996) on a notional
principal amount of $30 million. The Company's risk in this transaction is
the cost of replacing, at current market rates, the contract in the event of
default by the counterparty. At December 31, 1996, the fair value of the
contract, as quoted by the counterparty, was $110,000. Management believes
the risk of incurring a loss as a result of non-performance by the
counterparty is remote as the contract is with a major financial institution.
F-13
<PAGE>
8. Income taxes
At December 31, 1996, the Company has net operating loss carryforwards
of approximately $59.5 million that expire in the years 2002 through 2007 and
investment tax credit carryforwards of approximately $1.3 million that expire
in the years 1997 through 2000.
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.
At December 31, 1996 and 1995 significant components of the Company's
deferred tax liabilities and assets are as follows (in thousands):
1996 1995
------ ------
Deferred tax liabilities:
Tax over book depreciation $ 8,701 $ 8,265
Prepaid player compensation 4,457 0
--------- ---------
Total deferred tax liabilities 13,158 8,265
Deferred tax assets:
Net operating loss carryforwards 22,752 25,793
Book over tax amortization 5,210 1,990
Tax credit carryforwards 951 2,116
Deferred compensation agreements 1,293 1,582
Litigation accrual 5,067 5,432
Deferred NBA expansion revenue 1,958 3,166
Other 3,129 2,657
---------- ----------
Total deferred tax assets 40,360 42,736
Valuation allowance for deferred tax assets (27,202) (34,471)
---------- ----------
Net deferred tax assets 13,158 8,265
---------- ----------
Net deferred taxes $ 0 $ 0
---------- ----------
---------- ----------
Significant components of the provision for income taxes attributable to
continuing operations are as follows (in thousands):
1996 1995 1994
---- ---- ----
Current:
Federal $ 1,561 $ 422 $ 68
State 1,197 1,093 5
------- ------ -----
Provision for income taxes $ 2,758 $1,515 $ 73
------- ------ -----
------- ------ -----
At December 31, 1996, 1995, and 1994 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 (in thousands):
F-14
<PAGE>
1996 1995 1994
---- ---- ----
Tax at U.S. statutory rate (34%) $ 6,422 $ (476) $ 2,348
State income taxes and other 1,732 1,569 283
Net operating loss carryforwards (7,004) --- (2,626)
Alternative minimum tax 1,608 422 68
--------- --------- ---------
Provision for income taxes $ 2,758 $ 1,515 $ 73
--------- --------- ---------
--------- --------- ---------
The Company made income tax payments of $2,157,000 in 1996, $538,000 in
1995, and $1,302,000 in 1994.
9. 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 ($1,058,000 in
1996, $831,000 in 1995, and $700,000 in 1994). The Company may also make an
additional voluntary contribution to the plan.
10. Stockholders' deficiency
On September 19, 1996, the Board of Directors declared an increase of all
classes of its common stock which the Company is authorized to issue from
56,972,230 shares to 61,406,510 shares. In conjunction with this increase,
the Board also declared a two-for-one stock split effective October 15 for
stockholders of record on October 4. The stock split resulted in the
issuance of 15,582,794 additional shares.
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. Giving
effect to the stock split in 1996, the amount of authorized shares of Class B
on December 31, 1995 was 11,784,222 shares.
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,
1995 and 1996, rights to purchase 52,500 shares of common stock and Class B
common stock were outstanding at $2.00 per share (an aggregate of $105,000).
In 1995, rights to purchase 82,500 shares of common and 82,500 shares of
Class B common were exercised at an average price of $0.9287 per share. No
rights were exercised in 1996.
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
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<PAGE>
Plan was amended to extend the term of the plan and to increase the amount of
common stock reserved for issuance to 1,000,000 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, 1996, options to purchase 658,000 shares of common stock
were outstanding under the Plan at prices ranging from $0.688 to $7.625 (an
aggregate of $1,947,725). Options to purchase 690,000 of common stock were
outstanding at December 31, 1995. Options to purchase 20,000 shares of
common stock were exercisable at December 31, 1995. No options were
exercisable at December 31, 1996. Options to purchase 32,000 shares of
common stock were exercised in 1996 at an average price of $3.22 per share.
Options to purchase 20,000 shares of common stock and 20,000 shares of Class
B common stock were exercised in 1995 at a price of $2.25 per share.
11. Commitments and contingencies
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 Company incurred expenses of $457,000 in 1996, $290,000 in 1995, and
$288,000 in 1994, 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 $2,041,000 and made advance payments of $38,000 at
December 31, 1996, to a company controlled by the Company's major stockholder.
The Company has employment contracts extending beyond December 31, 1996.
Most of these contracts require that payments continue to be made if the
F-16
<PAGE>
individual should be unable to perform because of death or disability.
Future minimum obligations under these contracts are as follows (in
thousands):
1997 $ 29,121
1998 32,015
1999 23,418
2000 22,726
2001 22,487
Later years 44,350
-------------
$ 174,117
-------------
-------------
The Company is required to make the following minimum operating lease
payments for equipment and facilities under non-cancelable lease agreements,
guaranteed display advertising franchises, and broadcasting obligations which
expire in more than one year as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Equipment/Facilities Franchises Broadcast Obligations
--------------------- ----------- ----------------------
1997 $ 4,675 $ 11,937 $ 5,363
1998 4,297 7,325 2,384
1999 3,819 5,087 1,105
2000 3,133 4,252 285
2001 2,876 2,624 133
Later years 13,864 704 0
---------- --------- ---------
$ 32,664 $ 31,929 $ 9,270
---------- --------- ---------
---------- --------- ---------
</TABLE>
Rent expense for operating leases aggregated $4,513,000 in 1996,
$3,167,000 in 1995, and $2,609,000 in 1994. Franchise fee expense aggregated
$16,116,000 in 1996, $17,236,000 in 1995, and $17,551,000 in 1994.
Broadcasting film and programming expense aggregated $8,205,000 in 1996,
$6,679,000 in 1995, and $7,507,000 in 1994.
At December 31, 1996, in conjunction with a time brokerage agreement with
a FCC licensee, the Company has guaranteed a bank loan obligation of the
licensee which had an aggregate principal amount of $4,825,000 maturing in
April 1999. The Company began making payment under this guarantee in January
1997. No revenue is being recognized as part of this guarantee agreement.
12. 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 recorded an accrual of
$14.2 million related to the verdict which also included an estimate for
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<PAGE>
additional legal costs. The verdict is currently under appeal. The appeal
will likely defer settlement of the liability beyond 1997, and therefore, it
is classified as non-current.
13. Supplement Cash Flow Information
The following table summarizes the change in operating assets and liabilities
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Accounts receivable $ (164) $ (1,037) $ (6,691)
Other current assets (7,422) 965 315
Accounts payable and accruals 3,937 818 (2,821)
Accrued interest 331 (1,171) 820
Deferred revenue 1,781 4,574 2,191
Other, net (4,866) 2,932 754
----------- ---------- ------------
Changes in operating assets and liabilities, net $ (6,403) $ 7,081 $ (5,432)
----------- ---------- ------------
----------- ---------- ------------
</TABLE>
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
for the years ended December 31, 1996, 1995 and 1994 is presented as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Out-of-home Broad-
media casting Other Consolidated
----------- ------------- ----------- -------------
1996
- ----
Net revenue $ 99,833 $ 118,171 $ 29,294 $ 247,298
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Operating cash flow before expenses listed below: $ 35,909 $ 48,880 $ (24,445) 60,344
Depreciation and amortization (5,615) (10,273) (1,108) (16,996)
----------- ------------- ----------- -------------
Income (loss) before expenses listed below: $ 30,294 $ 38,607 $ (25,553) 43,348
----------- ------------- -----------
----------- ------------- -----------
Interest expenses 24,461
-------------
Income before taxes and extraordinary item $ 18,887
-------------
-------------
Identifiable assets $ 67,918 $ 124,656 $ 32,238 $ 224,912
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Capital expenditures, net of proceeds from
retirements and disposals $ 4,590 $ 5,214 $ 1,846 $ 11,650
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
1995
- ----
Net revenue $ 93,177 $ 94,108 $ 20,112 $ 207,397
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Operating cash flow before 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 expenses 25,010
-------------
Income before taxes and extraordinary item $ (1,399)
-------------
-------------
Identifiable assets $ 53,281 $ 112,430 $ 24,171 $ 189,882
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Capital expenditures, net of proceeds from
retirements and disposals $ 2,631 $ 19,098 $ 873 $ 22,602
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Out-of-home Broad-
media casting Other Consolidated
----------- ------------- ----------- -------------
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 expenses listed below: $ 21,731 $ 31,113 $ (17,931) 34,913
----------- ------------- -----------
----------- ------------- -----------
Interest expenses 25,909
-------------
Income before taxes and extraordinary item $ 9,004
-------------
-------------
Identifiable assets $ 54,291 $ 86,952 $ 29,540 $ 170,783
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Capital expenditures, net of proceeds from
retirements and disposals $ 2,709 $ 2,036 $ 3,990 $ 8,735
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
The Other segment consists of basketball operations (other than the
basketball team's TV, radio, and related operations which are included in
the "Broadcasting" segment), soccer operations, and the Corporate office in
1996, 1995, and 1994. Net revenue for the Other segment consists
principally of revenues from the sports ticket sales.
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, 1996 and 1995 (in thousands,
except per share information):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- ---- ---------- ---------- ----------- -----------
Net revenue $62,927 $68,235 $45,842 $70,294
Operating cash flow before depreciation,
amortization, and interest expense 12,674 19,986 11,255 16,428
Income before extraordinary item 3,123 9,147 379 3,480
Extraordinary loss --- --- --- 355
Net income
Net income per share before extraordinary item 3,123 9,147 379 3,125
Net income per share .10 .29 .01 .11
.10 .29 .01 .10
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
<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 (loss) 434 3,689 1,079 *(8,116)
Net income (loss) per share .01 .12 .03 (.25)
___________
* Reflects litigation accrual discussed in Note 12.
</TABLE>
F-20
