<PAGE>
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-Q
QUARTERLY REPORT
UNDER
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE QUARTER ENDED JUNE 30, 1997
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
----------- -------------
COMMISSION FILE NUMBER 1-10321
THE ACKERLEY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1043807
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1301 FIFTH AVENUE,
SUITE 4000
SEATTLE, WA 98101
(206) 624-2888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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 NO X
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT AUGUST 1, 1997
- ------------------------------------ -----------------------------
COMMON STOCK, $.01 PAR VALUE 19,814,724 SHARES
CLASS B COMMON STOCK, $.01 PAR VALUE 11,353,570 SHARES
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996 . . . . . . . . . . 1
CONSOLIDATED STATEMENTS OF OPERATIONS THREE
AND SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996. . . 2
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996. . . . . 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . 5
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . 11
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1997 1996
----------- ------------
ASSETS (IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 5,535 $ 2,910
ACCOUNTS RECEIVABLE, NET 43,730 43,754
CURRENT PORTION OF BROADCAST RIGHTS 2,861 5,656
PREPAID CONTRACTS 4,783 7,080
OTHER CURRENT ASSETS 15,413 9,765
---------- ----------
TOTAL CURRENT ASSETS 72,322 69,165
PROPERTY AND EQUIPMENT, NET 93,135 88,136
INTANGIBLES, NET 41,730 41,856
OTHER ASSETS 24,737 25,755
---------- ----------
TOTAL ASSETS $ 231,924 $ 224,912
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 4,594 $ 5,019
ACCRUED INTEREST 4,186 3,959
OTHER ACCRUED LIABILITIES 18,917 16,160
DEFERRED REVENUE 12,014 20,050
CURRENT PORTION OF BROADCAST OBLIGATIONS 4,502 7,032
CURRENT PORTION OF LONG-TERM DEBT 5,724 5,791
---------- ----------
TOTAL CURRENT LIABILITIES 49,937 58,011
LONG-TERM DEBT - NONCURRENT PORTION 233,675 229,350
LITIGATION ACCRUAL 13,121 13,248
OTHER LONG-TERM LIABILITIES 5,991 8,142
---------- ----------
TOTAL LIABILITIES 302,724 308,751
STOCKHOLDERS' DEFICIENCY:
COMMON STOCK, $.01 PAR VALUE: AUTHORIZED 50,000,000 SHARES,
ISSUED 21,189,670 SHARES AT JUNE 30, 1997 AND 21,186,724
SHARES AT DECEMBER 31, 1996; AND OUTSTANDING 19,814,724
SHARES AT JUNE 30, 1997 AND 19,811,778 SHARES AT
DECEMBER 31, 1996. 212 212
CLASS B COMMON STOCK, $.01 PAR VALUE: AUTHORIZED 11,406,510
SHARES; AND ISSUED AND OUTSTANDING 11,353,570 SHARES AT
JUNE 30, 1997 AND 11,353,810 SHARES AT DECEMBER 31, 1996. 114 114
CAPITAL IN EXCESS OF PAR VALUE 3,195 3,195
DEFICIT (64,232) (77,271)
LESS COMMON STOCK IN TREASURY, AT COST (10,089) (10,089)
---------- ----------
TOTAL STOCKHOLDERS' DEFICIENCY (70,800) (83,839)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 231,924 $ 224,912
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
---------- --------- ---------- ----------
(IN THOUSANDS EXCEPT (IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUE $ 77,308 $ 76,971 $ 156,554 $ 146,823
LESS AGENCY COMMISSIONS
AND DISCOUNTS (9,101) (8,736) (16,893) (15,661)
---------- --------- ---------- ----------
NET REVENUE 68,207 68,235 139,661 131,162
EXPENSES AND OTHER INCOME:
OPERATING EXPENSES (49,141) (48,455) (108,289) (98,771)
DEPRECIATION AND AMORTIZATION (3,291) (3,776) (6,522) (7,307)
INTEREST EXPENSE (6,246) (6,333) (12,409) (12,220)
OTHER INCOME(EXPENSE), NET (348) 206 (442) 269
---------- --------- ---------- ----------
TOTAL EXPENSES AND
OTHER INCOME (59,026) (58,358) (127,662) (118,029)
---------- --------- ---------- ----------
INCOME BEFORE INCOME TAX 9,181 9,877 11,999 13,133
INCOME TAX BENEFIT (EXPENSE) 1,288 (730) 1,664 (863)
---------- --------- ---------- ----------
NET INCOME $ 10,469 $ 9,147 $ 13,663 $ 12,270
---------- --------- ---------- ----------
---------- --------- ---------- ----------
NET INCOME PER COMMON SHARE $ 0.33 $ 0.29 $ 0.43 $ 0.39
---------- --------- ---------- ----------
---------- --------- ---------- ----------
CASH DIVIDENDS PER COMMON SHARE $ 0.02 $ 0.02 $ 0.02 $ 0.02
---------- --------- ---------- ----------
---------- --------- ---------- ----------
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 31,767 31,793 31,767 31,793
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIODS ENDED
JUNE 30, JUNE 30,
1997 1996
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES: 10,346 11,974
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALE OF PROPERTY 134 14
CAPITAL EXPENDITURES (10,163) (4,633)
ACQUISITIONS:
PROPERTY AND EQUIPMENT 0 (3,389)
INTANGIBLE ASSETS 0 (4,482)
OTHER, NET (566) (8,188)
-------- --------
NET CASH USED BY INVESTING ACTIVITIES (10,595) (20,678)
CASH FLOWS FROM FINANCING ACTIVITIES:
BORROWINGS UNDER CREDIT AGREEMENTS 11,000 22,000
PAYMENTS UNDER CREDIT AGREEMENTS (6,458) (12,825)
DIVIDENDS PAID (623) (623)
OTHER, NET (1,045) (1,210)
-------- --------
NET CASH PROVIDED BY (USED BY) FINANCING
ACTIVITIES 2,874 7,342
-------- --------
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,625 (1,362)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,910 6,421
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,535 $ 5,059
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
BROADCAST RIGHTS ACQUIRED AND BROADCAST
OBLIGATIONS ASSUMED $ 891 $ 1,539
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The balance sheet at December 31, 1996 has
been derived from the audited financial statements at that date. The
accompanying financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal and recurring
adjustments necessary for a fair presentation of the financial position and
the results of operations for such periods have been included. These
financial statements should be read in conjunction with the financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
The results of operations for any interim period are not necessarily
indicative of anticipated results for the full year. 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.
Beginning 1997, the Company will present the Consolidated Statement of Cash
Flows using the indirect method instead of the direct method which was used
in prior years.
NOTE 2. INCOME TAXES
During the first six months of 1997, the Company reduced the valuation
allowance for deferred tax assets which resulted in the recording of a
deferred tax asset of $6,237,000. The recognized deferred tax asset is based
on the Company's expected utilization of net operating loss carryforwards and
reversal of certain temporary differences between financial statement
carrying amounts and the tax bases of existing assets and liabilities.
The Company has no significant income tax liabilities primarily as a result
of operating losses incurred in prior years. However, the Company will
continue to pay federal income taxes under the alternative minimum tax until
the operating loss carryforwards are substantially reduced. In addition, the
Company will incur state income tax expense in certain states in which it
operates.
NOTE 3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement 128 on the calculation of primary earnings per share and of fully
diluted earnings per share for these quarters is not expected to be material.
4
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $13.7 million for the first six months of
1997, a $1.4 million or 11.4% improvement over last year's first six months.
Net revenues for the six months increased over the same period last year by
$8.5 million or 6.5%, while the Company's Operating Cash Flow, as defined
below, decreased $1.7 million or 5.3%.
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, management believes that Operating
Cash Flow (defined as net revenue less operating expenses plus other income
before amortization, depreciation, and interest expense) is an appropriate
measure of the Company's financial performance. This measure excludes
expenses consisting of depreciation, amortization, and interest because these
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 an alternative to net income as an
indicator of the Company's operating performance or to cash flows as a
measure of the Company's liquidity.
On June 30, 1997, the Company entered into a local marketing agreement with
Utica Television Partners, L.L.C., owners of television station WUTR licensed
to the market of Utica, New York. The Company will provide programming and
sales services to WUTR. On July 28, 1997, the Company entered into a
Purchase and Sale Agreement with US Broadcast Group, L.L.C. and US Broadcast
Group Licensee, L.P.I to acquire television station WMGC licensed to the
market of Binghamton, New York. The acquisition, which will cost $9.0
million, is subject to the approval and consent of the Federal Communications
Commission. Currently, the Company is providing programming and sales
services at WMGC under a local marketing agreement with US Broadcast Group,
L.L.C. and US Broadcast Licensee L.P.I.
5
<PAGE>
RESULTS OF OPERATIONS
The following two tables set forth certain historical financial and operating
data of the Company for the three month and six month periods ended June 30,
1997 and 1996, respectively. Beginning 1997, the Company will present its
operations as four business segments instead of three. These are Out-Of-Home
Media, Broadcasting, Sports & Entertainment, and Corporate. Certain prior
years' data have been apportioned among the segments to conform to this
presentation.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------------- ---------------------------------------------
1997 1996 1997 1996
------------------- -------------------- --------------------- ---------------------
AS % AS % AS % AS %
OF NET OF NET OF NET OF NET
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
--------- ------- --------- ------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUE . . . . . . . . . . . . $ 68,207 $ 68,235 $ 139,661 $ 131,162
OPERATING EXPENSES AND
OTHER INCOME:
OPERATING EXPENSES. . . . . . . . (49,141) (72.0)% (48,455) (71.0)% (108,289) (77.5)% (98,771) (75.3)%
OTHER INCOME (EXPENSE),NET. . . . (348) (0.5) 206 0.3 (442) (0.3) 269 0.2
--------- --------- --------- ----------
TOTAL OPERATING EXPENSES
AND OTHER INCOME . . . . . . . (49,489) (72.5) (48,249) (70.7) (108,731) (77.8) (98,502) (75.1)
--------- --------- --------- ----------
OPERATING CASH FLOW . . . . . . . . 18,718 27.5 19,986 29.3 30,930 22.2 32,660 24.9
OTHER EXPENSES:
DEPRECIATION AND
AMORTIZATION . . . . . . . . . . (3,291) (4.8) (3,776) (5.5) (6,522) (4.7) (7,307) (5.6)
INTEREST EXPENSE. . . . . . . . . (6,246) (9.2) (6,335) (9.3) (12,409) (8.9) (12,220) (9.3)
--------- --------- --------- ----------
TOTAL OTHER EXPENSES. . . . . . (9,537) (14.0) (10,109) (14.8) (18,931) (13.6) (19,527) (14.9)
--------- --------- --------- ----------
INCOME BEFORE INCOME TAXES. . . . . 9,181 13.5 9,877 14.5 11,999 8.6 13,133 10.0
INCOME TAX BENEFIT (EXPENSE). . . . 1,288 1.9 (730) (1.1) 1,664 1.2 (863) (0.7)
--------- --------- --------- ----------
NET INCOME. . . . . . . . . . . . . $ 10,469 15.4 % $ 9,147 13.4 % $ 13,663 9.8 % $ 12,270 9.3 %
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
6
<PAGE>
OPERATING INFORMATION BY BUSINESS SEGMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
NET REVENUE:
OUT-OF-HOME MEDIA . . . . . . . . . . . . $ 29,029 $ 26,467 $ 53,933 $ 47,685
BROADCASTING. . . . . . . . . . . . . . . 22,659 21,150 45,401 41,316
SPORTS & ENTERTAINMENT. . . . . . . . . . 16,519 20,618 40,327 42,161
CORPORATE . . . . . . . . . . . . . . . . 0 0 0 0
----------- ----------- ----------- ----------
TOTAL NET REVENUE . . . . . . . . . . . $ 68,207 $ 68,235 $ 139,661 $ 131,162
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
OPER EXP AND OTHER INCOME:
OUT-OF-HOME MEDIA . . . . . . . . . . . . $ 17,660 $ 15,899 $ 34,968 $ 31,327
BROADCASTING. . . . . . . . . . . . . . . 15,033 13,323 28,414 24,852
SPORTS & ENTERTAINMENT. . . . . . . . . . 13,763 16,685 40,278 38,007
CORPORATE . . . . . . . . . . . . . . . . 3,033 2,342 5,071 4,316
----------- ----------- ----------- ----------
TOTAL OPER EXP AND OTHER INC. . . . . . $ 49,489 $ 48,249 $ 108,731 $ 98,502
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
OPERATING CASH FLOW:
OUT-OF-HOME MEDIA . . . . . . . . . . . . $ 11,369 $ 10,568 $ 18,965 $ 16,358
BROADCASTING. . . . . . . . . . . . . . . 7,626 7,827 16,987 16,464
SPORTS & ENTERTAINMENT. . . . . . . . . . 2,756 3,933 49 4,154
CORPORATE . . . . . . . . . . . . . . . . (3,033) (2,342) (5,071) (4,316)
----------- ----------- ----------- ----------
TOTAL OPERATING CASH FLOW . . . . . . . $ 18,718 $ 19,986 $ 30,930 $ 32,660
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
CHANGE IN NET REVENUE FROM
PRIOR PERIODS:
OUT-OF-HOME MEDIA . . . . . . . . . . . . 9.7 % 8.9 % 13.1 % 5.8 %
BROADCASTING. . . . . . . . . . . . . . . 7.1 23.4 9.9 15.4
SPORTS & ENTERTAINMENT. . . . . . . . . . (19.9) 158.8 (4.3) 66.5
CORPORATE . . . . . . . . . . . . . . . . NA NA NA NA
CHANGE IN TOTAL NET REVENUE . . . . . . 0.0 38.1 6.5 23.5
OPERATING DATA AS A PERCENT OF
NET REVENUE:
OPER EXP AND OTHER INCOME:
OUT-OF-HOME MEDIA . . . . . . . . . . . 60.8 % 60.1 % 64.8 % 65.7 %
BROADCASTING. . . . . . . . . . . . . . 66.3 63.0 62.6 60.2
SPORTS & ENTERTAINMENT. . . . . . . . . 83.3 80.9 99.9 90.1
CORPORATE . . . . . . . . . . . . . . . NA NA NA NA
TOTAL OPER EXP AND OTHER INC.. . . . 72.6 70.7 77.9 75.1
OPERATING CASH FLOW:
OUT-OF-HOME MEDIA . . . . . . . . . . . 39.2 % 39.9 % 35.2 % 34.3 %
BROADCASTING. . . . . . . . . . . . . . 33.7 37.0 37.4 39.8
SPORTS & ENTERTAINMENT. . . . . . . . . 16.7 19.1 0.1 9.9
CORPORATE . . . . . . . . . . . . . . . NA NA NA NA
TOTAL OPERATING CASH FLOW ..... . . . 27.4 29.3 22.1 24.9
</TABLE>
7
<PAGE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
NET REVENUE. Net revenue of $68.2 million for the quarter ended June 30,
1997 remained unchanged from the comparable quarter in 1996. The Company's
out-of-home media segment's net revenue increased $2.6 million or 9.7% mainly
due to increased national advertising sales. The net revenue of the
Company's broadcasting segment showed an increase of $1.5 million or 7.1%
resulting from increased rates and sales volumes. The Company's sports &
entertainment segment's net revenue decreased $4.1 million or 19.9% due to
the Sonics participating in 12 games of the 1997 NBA playoffs compared to 21
games in 1996.
OPERATING EXPENSES AND OTHER INCOME. Operating expenses and other income
increased $1.3 million or 2.6% to $49.5 million in 1997 compared to $48.2
million in 1996. In the Company's out-of-home media segment, operating
expenses and other income increased by $1.8 million or 11.1% to $17.7 million
from a combination of expenses related to increased sales and from the
effects of inflation on operating expenses. Operating expenses and other
income in the Company's broadcasting segment increased by $1.7 million or
12.8% to $15.0 million due to higher programming, promotion, and production
expenses. Operating expenses and other income from the Company's sports &
entertainment segment decreased $2.9 million or 17.5% to $13.8 million from
decreased basketball operating expenses related to the Sonics participating
in 12 games of the 1997 NBA playoffs compared to 21 games in 1996. In the
Company's corporate segment, operating expenses and other income increased by
$0.7 million or 29.5% to $3.0 million.
OPERATING CASH FLOW. As a result of the above, the Company's Operating Cash
Flow decreased $1.3 million or 6.3% for the three months ended June 30, 1997
from the same period in 1996. The $0.8 million increase in the out-of-home
segment's Operating Cash Flow was offset by a $0.2 million decrease in the
broadcast segment's Operating Cash Flow, a $1.2 million decrease in the
sports & entertainment segment's Operating Cash Flow, and a $0.7 million
decrease in the corporate segment's Operating Cash Flow for the quarter.
Operating Cash Flow as a percentage of net revenue decreased to 27.4% for the
three months ended June 30, 1997 from 29.3% for the comparable period in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
decreased $0.5 million or 12.9% to $3.3 million in 1997 as compared to $3.8
million in 1996.
INTEREST EXPENSE. Interest expense for the quarter ended June 30, 1997
remained unchanged from the comparable period in 1996.
INCOME TAX EXPENSE. For the second quarter 1997, the Company incurred a $1.3
income tax benefit compared to a income tax expense of $0.7 million for the
second quarter 1996. The benefit resulted from the recognition of a $4.6
million deferred tax asset during the quarter.
NET INCOME. Net income of $10.5 million for the three months ended June 30,
1997 increased $1.3 million or 14.5% from $9.2 million for the comparable
period in 1996.
8
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
NET REVENUE. Net revenue for the six months ended June 30, 1997 increased
$8.5 million or 6.5% to $139.7 million from $131.2 million for the comparable
quarter in 1996. The Company's out-of-home media segment's net revenue
increased $6.2 million or 13.1% mainly due to increased national advertising
sales. The net revenue of the Company's broadcasting segment increased $4.1
million or 9.9% resulting from the addition of television station KFTY, the
local management agreement with television station KION, and increased rates
and sales volumes. The Company's sports & entertainment segment's net revenue
decreased $1.8 million or 4.3% due to the Sonics participating in 12 games of
the 1997 NBA playoffs compared to 21 games in 1996.
OPERATING EXPENSES AND OTHER INCOME. Operating expenses and other income
increased $10.2 million or 10.4% to $108.7 million in 1997 compared to $98.5
million in 1996. In the Company's out-of-home media segment, operating
expenses and other income increased by $3.6 million or 11.6% to $35.0 million
from a combination of expenses related to increased sales and from the
effects of inflation on operating expenses. Operating expenses and other
income in the Company's broadcasting segment increased by $3.6 million or
14.3% to $28.4 million due to the addition of KFTY, the local management
agreement with KION, and higher programming, promotion, and production
expenses. Operating expenses and other income from the Company's sports &
entertainment segment increased $2.3 million or 6.0% to $40.3 million from
higher basketball operating expenses related to players' salaries and
transportation costs during the regular season offset by lower costs
associated with the Sonics participating in 12 games of the 1997 NBA playoffs
compared to 21 games in 1996. In the Company's corporate segment, operating
expenses and other income increased by $0.7 million or 17.5% to $5.1 million.
OPERATING CASH FLOW. As a result of the above, the Company's Operating Cash
Flow decreased $1.7 million or 5.3% for the six months ended June 30, 1997
from the same period in 1996. The $2.6 million increase in the out-of-home
segment's Operating Cash Flow and a $ 0.5 million increase in the
broadcasting segment's Operating Cash Flow was offset by a $4.1 million
decrease in the sports & entertainment segment's Operating Cash Flow and a
$0.7 million decrease in the corporate segment's Operating Cash Flow.
Operating Cash Flow as a percentage of net revenue decreased to 22.1% for the
six months ended June 30, 1997 from 24.9% for the comparable period in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
decreased $0.8 million or 10.7% to $6.5 million in 1997 as compared to $7.3
million in 1996.
INTEREST EXPENSE. Interest expense for the quarter ended June 30, 1997
increased slightly by $0.2 or 0.2% to $12.4 million from $12.2 million in
1996 mainly due to higher average debt balances during the period compared to
the same period in 1996.
INCOME TAX EXPENSE. For the first six months of 1997, the Company incurred a
$1.7 income tax benefit compared to a income tax expense of $0.9 million for
the comparable period in 1996. The benefit resulted from the recognition of
a $6.2 million deferred tax asset during the period.
NET INCOME. Net income of $13.7 million for the six months ended June 30,
1997 increased $1.4 million or 11.4% from $12.3 million for the comparable
period in 1996.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of August 1, 1997, the Company had approximately $14.0 million available
for borrowing under the revolving credit facility of the Credit Agreement.
The 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.
Presently, borrowings under the Credit Agreement bear annual interest at
either the prime rate plus 0.75% or LIBOR plus 2.00%. The Senior Notes bear
annual interest at 10.75%. The Subordinated Notes bear average annual
interest at 10.58%. The borrowings and the Notes are subject to the
Company's compliance with certain financial ratios and covenants set forth
in the Credit Agreement, Senior Note Indenture and Subordinated Note
Agreements. As of June 30, 1997, the Company was in compliance with all such
ratios and covenants. The borrowings under the Credit Agreement and the
Senior Notes are secured by the pledge of stock of the Company's subsidiaries.
The Company's working capital increased to $22.4 million at June 30, 1997
from $11.2 million at December 31, 1996. For the periods presented, the
Company financed its working capital needs from a combination of cash
provided by operating activities and borrowings under the Credit Agreement.
Historically, the Company's long-term liquidity needs for acquisitions have
been financed by additions to its long-term debt, principally through bank
borrowings or private placements of senior and 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 the first six months of 1997 decreased to $10.3
million from $12.0 million in the comparable period in 1996.
At June 30, 1997, the Company's capital resources consisted of $5.5 million
in cash and cash equivalents and approximately $14.0 million available under
the Credit Agreement.
Capital expenditures for new property and equipment of $10.2 million in the
first six months of 1997 were financed with a combination of cash provided by
operating activities and borrowings under the Credit Agreement. These
capital expenditures were primarily for advertising signs, displays,
vehicles, operating equipment, broadcasting equipment, and a new broadcast
facility for KGET TV in Bakersfield, California.
On July 28, 1997, the Company entered into a Purchase and Sale Agreement with
US Broadcast Group, L.L.C. and US Broadcast Group Licensee, L.P.I to acquire
television station WMGC licensed to the market of Binghamton, New York. The
acquisition, which will cost $9.0 million, is subject to the approval and
consent of the Federal Communications Commission. Currently, the Company is
providing programming and sales services at WMGC under a local marketing
agreement with US Broadcast Group, L.L.C. and US Broadcast Licensee L.P.I.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS OF VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held on
May 5, 1997.
(b) The following directors were elected at the above meeting:
Barry A. Ackerley, Gail A. Ackerley, Richard P. Cooley,
M. Ian G. Gilchrist, and Michel C. Thielen.
(c) The result of the vote for the directors was as follows:
DIRECTOR FOR AGAINST ABSTAINED NOT VOTED
-------- --- ------- --------- ---------
Barry A. Ackerley 131,245,545 0 187,610 1,917,947
Gail A. Ackerley 131,244,945 0 188,210 1,917,947
Richard P. Cooley 131,245,155 0 188,000 1,917,947
M. Ian G. Gilchrist 131,245,355 0 187,800 1,917,947
Michel C. Thielen 131,245,355 0 187,800 1,917,947
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
27. FINANCIAL DATA SCHEDULE
(b) REPORTS ON FORM 8-K:
NONE.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
THE ACKERLEY GROUP, INC.
DATED: AUGUST 12, 1997 BY
------------------------------------
DENIS M. CURLEY
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY
(PRINCIPAL FINANCIAL OFFICER)
11
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