<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
THE ACKERLEY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
7310
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
DELAWARE 91-1043807
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF 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)
DENIS M. CURLEY
THE ACKERLEY GROUP, INC.
CO-PRESIDENT AND CHIEF FINANCIAL OFFICER
1301 FIFTH AVENUE
SUITE 4000
SEATTLE, WA 98101
(206) 624-2888
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
CARMEN L. SMITH ERIC S. HAUETER
GRAHAM & DUNN PC BROWN & WOOD LLP
1420 FIFTH AVENUE, 33RD FLOOR 555 CALIFORNIA STREET
SEATTLE, WA 98101 SAN FRANCISCO, CA 94104
(206) 340-9642 (415) 772-1200
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 2,300,000 shares $20.6875 $47,581,250 $14,036.47
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Includes 300,000 shares that may be purchased by the Underwriters to cover
over-allotments, if any.
(2) Estimated solely for purposes of computing the registration fee pursuant
to Rule 457 (a) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
FILES A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THIS REGISTRATION STATEMENT BECOMES EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 9, 1998
PROSPECTUS
2,000,000 SHARES
[LOGO OF THE ACKERLEY GROUP, INC.]
THE ACKERLEY GROUP, INC.
COMMON STOCK
--------
Of the 2,000,000 shares offered hereby, 1,500,000 shares are being sold by
the Company and 500,000 shares are being sold by certain selling stockholders
(the "Selling Stockholders"). See "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders.
The Company's Common Stock is traded on the New York Stock Exchange under the
symbol "AK." The last reported sale price of the Company's Common Stock on the
New York Stock Exchange on April 7, 1998 was $20 11/16 per share.
--------
SEE "RISK FACTORS" COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- --------------------------------------------------------------------------------
Total(3) $ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to 300,000 additional shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
and Proceeds to Company will be $ , $ , and $ , respectively.
--------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1998 at the office of Smith Barney Inc., 333 West 34th Street, New York,
New York 10001.
--------
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission ("Commission"). Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549; 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Such material may also be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.
Since December 15, 1997, the Company's common stock, par value $.01 per
share (the "Common Stock"), has been listed on the New York Stock Exchange
("NYSE") and such reports, proxy statements, and other information filed with
the Commission since that date may also be inspected at the office of the NYSE
at 20 Broad Street, New York, New York 10005. Prior to December 15, 1997, the
Common Stock was listed on the American Stock Exchange ("AMEX") and such
reports, proxy statements, and other information filed with the Commission
before that date may also be inspected at the office of the AMEX located at 86
Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, supplements, and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this Prospectus constitutes a part. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which were omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement and to the schedules
and exhibits filed therewith or incorporated by reference therein. Any
statements contained herein concerning the provisions of any document filed or
incorporated by reference as an exhibit to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of
such document so filed or incorporated by reference. Each such statement is
qualified in its entirety by such reference.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Company's consolidated financial statements and related notes included
herein beginning on page F-1 (the "Consolidated Financial Statements"). Except
as otherwise noted, all information in this Prospectus (i) assumes no exercise
of the Underwriters' over-allotment option, and (ii) reflects an adjustment for
all stock splits to the date of this Prospectus. Unless otherwise expressly
stated or the context otherwise requires, all references to the "Company" mean
The Ackerley Group, Inc., a Delaware corporation, and its subsidiaries on a
consolidated basis. In addition, references to the "DMA" ranking of markets
refer to their Designated Market Area rank, a measure of market size in the
United States based on population as reported by the Nielsen Rating Service and
a standard market measure used by the media industry; and references to "rating
points" for television programs refer to the ratio of the total number of
viewers of the program to the total number of television viewers in the
geographic market.
THE COMPANY
The Company is a diversified media and entertainment company which, through
its operating subsidiaries, engages in three principal businesses:
. Out-of-Home Media. Through the Company's out-of-home media segment, the
Company engages in outdoor advertising in Florida, Massachusetts, and the
Pacific Northwest. The Company believes that it has leading positions in
outdoor advertising in its selected markets located in Washington,
Oregon, Massachusetts, and Florida, based upon the number of outdoor
advertising displays in those markets. The Company also engages in
airport advertising in approximately 80 airports throughout the United
States.
. Broadcasting. The Company engages in television and radio broadcasting in
California, Colorado, New York, and Washington. The Company owns six
television stations, operates three additional television stations under
time brokerage agreements, owns one radio station, and has interests,
through a limited partnership, in three additional radio stations.
. Sports & Entertainment. The Company's sports & entertainment segment
includes ownership of the National Basketball Association's (the "NBA")
1997 Pacific Division Champions, the Seattle SuperSonics. In addition,
the Company engages in sports marketing and promotion of the SuperSonics
through its Full House Sports & Entertainment division.
The Company's out-of-home media assets are organized into divisions that
comprise the Ackerley Media Group. At December 31, 1997, the Company had 8,838
outdoor display faces in the markets of Miami/Fort Lauderdale and West Palm
Beach, Florida; Boston/Worcester, Massachusetts; Seattle/Tacoma, Washington;
and Portland, Oregon. Broadcasting assets are primarily organized under the
Ackerley Broadcast Group. The markets served by the Company's television
stations (including television stations operated under time brokerage
agreements) and their network affiliations are as follows: Syracuse, New York
(ABC affiliate); Utica, New York (ABC affiliate through a time brokerage
agreement); Binghamton, New York (ABC affiliate through a time brokerage
agreement); Colorado Springs/Pueblo, Colorado (CBS affiliate); Santa Rosa,
California (independent); Bakersfield, California (NBC affiliate);
Salinas/Monterey, California (FOX affiliate and, through a time brokerage
agreement, CBS affiliate); and Bellingham, Washington/Vancouver, British
Columbia (independent). The Company owns an AM radio station and is a limited
partner in New Century Seattle Partners, L.P., a Delaware limited partnership
(the "Partnership") that owns two FM stations and one AM station. All of these
radio stations are located in the Seattle/Tacoma market. The AM stations employ
a sports talk format, while the two FM stations employ Classic Hits and
Contemporary Hit Radio formats. The Company's Ackerley Entertainment Group
consists of the Seattle SuperSonics franchise and its Full House Sports &
Entertainment division.
3
<PAGE>
The Company has its principal executive offices at 1301 Fifth Avenue, Suite
4000, Seattle, Washington 98101 (telephone (206) 624-2888).
STRATEGY
The Company's primary strategy is to develop and acquire media assets which
enable it to offer advertisers a choice of media outlets for distributing their
marketing messages. To this end, the Company has assembled a diverse portfolio
of media assets for use in its out-of-home media, broadcasting, and sports &
entertainment segments. The Company believes its businesses are linked by a
common goal of increasing the number of advertising impressions made,
regardless of whether the impression is made via radio, television, or out-of-
home media display. Further, the Company seeks to exploit the operating
synergies which it believes exist from its ownership of both distribution (the
broadcasting and out-of-home segments) and content (the sports & entertainment
segment) assets.
The Company seeks to grow by investing in the expansion of its existing
operations through additions and upgrades to its facilities and programming. It
also looks to grow through opportunistic acquisitions in its existing business
lines and by exploring new synergistic business ventures. The Company targets
markets where it sees an opportunity to improve market share, take advantage of
regional efficiencies, and develop its television stations into local news
franchises.
The Company believes the following elements of its strategy provide it
certain competitive advantages:
Leading Market Position in Outdoor Markets Served. Although there are a few
outdoor advertising companies that are substantially larger than the Company's
outdoor advertising operations on a national level, the Company believes that
it leases or owns the most outdoor advertising structures in each of the five
geographic markets in which it operates, based on the Traffic Audit Bureau's
most recent Summary of Audited Markets, issued in May 1996. The Company's five
outdoor advertising markets are Seattle/Tacoma, Washington; Portland, Oregon;
Boston/Worcester, Massachusetts; Miami/Fort Lauderdale, Florida; and West Palm
Beach, Florida.
Focus on Local News Leadership as Driver of Broadcast Revenue. The Company
believes local news leadership is an important contributor to audience and
revenue growth for its television stations, and seeks to be the market leader
in terms of local news ratings points delivered in the geographic markets
served by its television stations. The Company favors investing in the
production of its own local news programming over the purchase of syndicated
programming because the Company believes it has a greater ability to improve
the ratings of local news programming. For example, both KGET in Bakersfield,
California and WIXT in Syracuse, New York improved to be the first-ranked
stations in their respective markets, in terms of local news ratings points
delivered according to the November 1997 Nielsen Station Index, following their
acquisition by the Company. Of the four network-affiliated television stations
owned by the Company, three ranked number one in local news ratings points
delivered, according to the November 1997 Nielsen Station Index. Over the last
three years, the Company has increased local news programming at eight of the
television stations it owns or operates by one to three and a half hours per
weekday. The Company believes that these actions have contributed to the
improved financial performance of its owned stations, and it continues to
invest in its local news programming.
Diversified Portfolio of Television Stations. The Company's television
station portfolio is diversified across networks, including stations affiliated
with all four major networks, and across geographic regions. The Company
believes such diversification is beneficial, as it reduces the Company's
reliance upon any one network's programming, and mitigates its exposure to the
economic cycles of any one geographic market.
Strength in Seattle/Tacoma Radio Market. The Company has developed a strong
presence in the Seattle/Tacoma radio market through its direct and indirect
interests in four radio stations in the area, including KUBE-FM, the leading FM
station in the market in terms of audience share, according to the Fall 1997
Arbitron
4
<PAGE>
Radio Market Report. The Company also seeks to use its ownership of the Seattle
SuperSonics as a means of leveraging its interests in these radio stations in
the Seattle/Tacoma market, as discussed in the paragraph below.
Ownership of the Seattle SuperSonics. The Seattle SuperSonics have the second
best aggregate regular season win/loss record of any NBA team over the past
five seasons (including the 1997-98 season). The Company believes that its
ownership of the Seattle SuperSonics enhances the effectiveness of the
Company's media operations by providing regionally significant programming,
generating listener loyalty for its radio stations, and furthering its
objective to increase the number of individuals exposed to the advertising
provided by the Company. The Company seeks to extract additional value from its
ownership of the Seattle SuperSonics through the sale of team sponsorships,
which includes sales of advertising on signs in Seattle's Key Arena and on
radio and television broadcasts of SuperSonics games. The Company also receives
revenue from its interest in activities coordinated by the NBA, such as
advertising on nationally televised games and other licensing arrangements. As
a result of its ownership of different media outlets, the Company's sports &
entertainment segment can offer advertisers greater choice than a single outlet
entity, which the Company believes helps its advertisers to more effectively
reach their target audiences.
Low Reliance Upon Tobacco Advertisers. Over the past several years, the U.S.
Food and Drug Administration ("FDA") and other governmental entities have
become more active in their regulation and scrutiny of tobacco, including its
advertising. The Company expects that such increased scrutiny will continue,
and may lead to additional restrictions or prohibition of outdoor advertising
of tobacco products. The Company is proactively seeking to reduce its reliance
upon tobacco advertising. For instance, the Company voluntarily agreed with the
King County (Washington) government to eliminate all tobacco advertising on its
billboards in King County effective January 1, 1998. The Company's outdoor
business in Florida has also eliminated tobacco advertising in response to an
agreement between the State of Florida and the tobacco industry. In 1997,
outdoor tobacco advertising represented approximately 5% of the Company's
consolidated net revenue.
Leadership of Company Founder; Experienced Corporate Management. Barry A.
Ackerley, one of the founders of the Company and its current Chairman and Chief
Executive Officer, has been actively involved with the Company since its
inception in 1975. Early in the Company's history, Mr. Ackerley recognized the
synergies that could be achieved through ownership of outdoor advertising,
broadcasting, and sports & entertainment assets. With this vision, Mr. Ackerley
led the Company's expansion from outdoor advertising into broadcasting and
sports and entertainment well before the current trend toward consolidation
among these industries. While Mr. Ackerley remains significantly involved in
Company operations, and is the single largest stockholder in the Company, he
has developed an experienced corporate management team to help the Company
achieve the desired synergies among its business units. The Company's five
executive officers have worked together for eight years, and collectively have
an aggregate of 110 years of experience in the various industries in which the
Company is involved.
Decentralized Management Structure; Experienced Management. The Company has
granted the management of its operating units the authority and autonomy
necessary to run each unit as a business and to respond effectively to changes
in each market environment. Experienced local managers enhance the Company's
ability to respond to local market changes rapidly and effectively. The average
experience of the Company's division managers (14 persons) in their respective
industries is more than 20 years. The Company aims to continue improving its
operating performance through its team of experienced local managers and
corporate staff. The Company combines this strong local leadership with solid
corporate support and guidance.
5
<PAGE>
THE OFFERING
Common Stock offered by the Company....... 1,500,000 shares
Common Stock offered by the Selling
Stockholders............................. 500,000 shares
Common Stock to be outstanding after the
offering................................. 22,072,213 shares(2)(3)
Class B Common Stock to be outstanding
after the offering....................... 11,053,270 shares (2)(3)
Use of Proceeds........................... For repayment of borrowings under
the Credit Agreement (as defined
below) and other general corporate
purposes, which may include funding
capital expenditures and funding
future acquisitions. See "Use of
Proceeds."
New York Stock Exchange Symbol............ AK
- --------
(1) Includes 150,000 shares to be sold by Barry A. Ackerley and 350,000 shares
to be sold by The Ginger and Barry Ackerley Foundation. See "Principal and
Selling Stockholders."
(2) Based on shares outstanding at March 13, 1998. Does not include 490,250
shares of Common Stock reserved for issuance under the Company's Employee
Stock Option Plan; 37,500 shares of Common Stock and 37,500 shares of the
Company's Class B Common Stock, par value $.01 per share (the "Class B
Common Stock"), reserved for issuance under certain stock purchase
agreements; and 95,290 shares of Common Stock reserved for issuance under
the Company's Nonemployee-Directors' Equity Compensation Plan. See
"Management."
(3) Each share of Class B Common Stock is convertible at any time, at the
option of the holder, into one share of Common Stock. See "Description of
Capital Stock."
6
<PAGE>
SUMMARY FINANCIAL DATA
The following consolidated statement of operations data and consolidated
financial data for each of the three years in the period ended December 31,
1997, and the consolidated balance sheet data at December 31, 1997 and 1996 are
derived from the Consolidated Financial Statements included herein that have
been audited by Ernst & Young LLP, independent auditors, and are qualified by
reference to such Consolidated Financial Statements. The consolidated statement
of operations data and consolidated financial data for the years ended December
31, 1994 and 1993 and the consolidated balance sheet data at December 31, 1995,
1994, and 1993 are derived from audited financial statements of the Company not
included in this Prospectus. The following data should be read in conjunction
with the Consolidated Financial Statements, "Management's Discussion and
Analysis of Financial Conditions and Results of Operations," and other
financial information included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenue................. $306,169 $279,662 $235,820 $211,728 $ 192,958
Less agency commissions
and discounts......... (34,994) (32,364) (28,423) (25,626) (22,341)
-------- -------- -------- -------- ---------
Net revenue............. 271,175 247,298 207,397 186,102 170,617
Expenses
Operating expenses..... 210,752 186,954 156,343 142,812 132,316
Disposition of assets.. -- -- -- (2,506) 759
Depreciation and
amortization.......... 16,103 16,996 13,243 10,883 12,018
Interest expense....... 26,219 24,461 25,010 25,909 22,431
Litigation expense
(credit).............. (5,000)(1) -- 14,200 (1) -- --
Stock compensation
expense............... 9,344 (2) -- -- -- --
-------- -------- -------- -------- ---------
Total expenses......... 257,418 228,411 208,796 177,098 167,524
-------- -------- -------- -------- ---------
Income (loss) before
income taxes and
extraordinary item..... 13,757 18,887 (1,399) 9,004 3,093
Income tax (benefit)
expense................ (19,172)(3) 2,758 1,515 73 133
-------- -------- -------- -------- ---------
Income (loss) before
extraordinary item..... 32,929 16,129 (2,914) 8,931 2,960
Extraordinary item--loss
on extinguishment of
debt in 1996, 1994
and 1993............... -- (355) -- (2,099) (625)
-------- -------- -------- -------- ---------
Net income (loss)
applicable to common
shares................. $ 32,929 $ 15,774 $ (2,914) $ 6,832 $ 2,335
======== ======== ======== ======== =========
Per common share(4)(5):
Income (loss) before
extraordinary item.... $ 1.05 $ .52 $ (.09) $ .29 $ .10
Extraordinary item..... -- (.01) -- (.07) (.02)
-------- -------- -------- -------- ---------
Net income (loss)...... $ 1.05 $ .51 $ (.09) $ .22 $ .08
======== ======== ======== ======== =========
Common shares used in
per share
computation........... 31,345 31,166 31,052 30,929 30,855
Per common share--
assuming
dilution(4)(5):
Income (loss) before
extraordinary item.... $ 1.04 $ .51 $ (.09) $ .28 $ .09
Extraordinary item..... -- (.01) -- (.06) (.02)
-------- -------- -------- -------- ---------
Net income (loss)...... $ 1.04 $ .50 $ (.09) $ .22 $ .07
======== ======== ======== ======== =========
Common shares used in
per share
computation--
assuming dilution..... 31,652 31,760 31,052 31,483 31,204
Dividends per common
share(4)............... $ .02 $ .02 $ .015 $ -- $ --
CONSOLIDATED FINANCIAL
DATA:
Operating Cash Flow(6).. $ 60,423 $ 60,344 $ 51,054 $ 43,290 $ 38,301
Capital Expenditures.... $ 17,593 $ 13,124 $ 15,098 $ 8,794 $ 3,478
CONSOLIDATED BALANCE
SHEET DATA (AT END OF
PERIOD):
Working capital......... $ 12,019 $ 11,154 $ 15,110 $ 16,783 $ 7,970
Total assets............ 266,385 224,912 189,882 170,783 160,491
Total long-term
debt(7)................ 213,294 229,350 215,328 225,613 213,165
Total debt(7)........... 229,424 235,141 220,147 228,646 224,080
Stockholders'
deficiency............. (44,909) (83,839) (99,093) (95,958) (102,852)
</TABLE>
7
<PAGE>
- --------
(1) See Note 13 to the Consolidated Financial Statements.
(2) See Note 11 to the Consolidated Financial Statements.
(3) See Note 8 to the Consolidated Financial Statements.
(4) The shares of Common Stock and Class B Common Stock are entitled to share
ratably in such dividends as may be declared by the Board of Directors of
the Company from time to time and in assets available for distribution to
stockholders in the event of a liquidation, dissolution, or winding up of
the Company. See "Description of Capital Stock." Accordingly, data set
forth on a per common share basis is calculated by aggregating the Common
Stock and Class B Common Stock.
(5) Data for 1994 and 1993 have been restated to conform with Financial
Accounting Standards Board Statement No. 128. See Note 2 to the
Consolidated Financial Statements.
(6) Operating Cash Flow is defined as net revenue less operating expenses
before amortization, depreciation, interest, litigation, and stock
compensation expenses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
(7) Data as of December 31, 1995, 1994, and 1993 have been restated to conform
to the current presentation.
8
<PAGE>
RISK FACTORS
This Prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Any
such forward-looking statements contained herein are subject to a number of
risks and uncertainties and should not be relied upon as predictions of future
events. Certain such forward-looking statements can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "estimates," or
"anticipates" or the negative thereof or other variations thereof or
comparable terminology, or by discussions of strategy, plans or intentions.
Such forward-looking statements are necessarily dependent on assumptions, data
or methods that may be incorrect or imprecise and they may be incapable of
being realized. Actual results could differ materially from those projected in
such forward-looking statements as a result of certain of the risk factors set
forth below and certain matters discussed elsewhere in this Prospectus. As a
result of the foregoing, no assurance can be given as to the Company's future
results of operations or financial condition. The Company undertakes no
obligation to publicly release the results of any revisions to these forward-
looking statements that may be made to reflect any future events or
circumstances.
Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including the risk factors set forth
below and the matters discussed under "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
VOTING CONTROL BY PRINCIPAL STOCKHOLDER
Each share of Common Stock has one vote per share and each share of Class B
Common Stock has ten votes per share. After the sale of the Common Stock
offered hereby, Barry A. Ackerley, the Chairman of the Board and Chief
Executive Officer of the Company, will beneficially own approximately 45% of
the outstanding shares of Common Stock and approximately 99% of the
outstanding shares of Class B Common Stock, giving him approximately 90% of
the combined voting power of the Company's voting securities. See "Principal
and Selling Stockholders."
As a director, the Chairman and Chief Executive Officer, and the majority
stockholder of the Company, Mr. Ackerley has certain fiduciary duties to
minority stockholders under applicable law. However, so long as Mr. Ackerley
continues to own or control stock having a majority of the combined voting
power of the Company's voting securities, he will have the power to elect all
of the Company's directors and effect fundamental corporate transactions, such
as mergers, asset sales, and "going private" transactions, without the
approval of any other stockholders. Moreover, Mr. Ackerley's voting control
would effectively prevent any other person or entity from acquiring or taking
control of the Company without his approval. See "Description of Capital
Stock--Common Stock and Class B Common Stock--Voting Rights."
OUT-OF-HOME MEDIA
Regulation of Outdoor Advertising. Outdoor advertising displays are subject
to governmental regulation at the federal, state, and local levels. These
regulations, in some cases, limit the height, size, location, and operation of
outdoor displays and, in some circumstances, regulate the content of the
advertising copy displayed on outdoor displays. As described below, certain
jurisdictions have recently proposed or enacted regulations restricting or
banning outdoor advertising of tobacco or liquor. Likewise, regulations in
certain jurisdictions prohibit the construction of new outdoor displays or the
replacement, relocation, enlargement, or upgrading of existing structures. As
a result, no assurance can be given that existing or future laws or
regulations relating to outdoor advertising will not have a material adverse
effect on the Company. See "Business--Out-of-Home Media--Outdoor Advertising--
Regulation."
The Company's outdoor advertising operations are significantly affected by
local zoning regulations. Some jurisdictions impose a limitation on the number
of outdoor advertising structures permitted within the city limits. In
addition, local zoning ordinances can restrict or prohibit outdoor advertising
displays in specific areas. Most
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of the Company's outdoor advertising structures are located in commercial and
industrial zones subject to such regulations.
Federal and corresponding state outdoor advertising statutes require payment
of compensation for removal of existing structures by governmental order in
some circumstances. Some jurisdictions have adopted ordinances which have
sought the removal of existing structures without compensation. Ordinances
requiring the removal of a billboard without compensation have been challenged
in various state and federal courts on both statutory and constitutional
grounds, with differing results.
Although the Company has been successful in the past in challenging
circumstances in which its displays have been subject to removal, there can be
no assurance that the Company will be successful in the future and what
effect, if any, such regulations may have on the Company's operations. In
addition, the Company is unable to predict what additional regulations may be
imposed on outdoor advertising in the future. Legislation regulating the
content of billboard advertisements, including the legislation described in
the next paragraph, has been introduced in the U.S. Congress from time to time
in the past. Changes in laws and regulations affecting outdoor advertising at
any level of government may have a material adverse effect on the Company.
Tobacco Advertising. Approximately 5% of the Company's consolidated net
revenue in 1997 came from the tobacco products industry. Manufacturers of
tobacco products, principally cigarettes, historically have been major users
of outdoor advertising displays. Tobacco advertising is currently subject to
regulation and legislation has been introduced from time to time in the U.S.
Congress that would further regulate and in certain instances prohibit
advertising of tobacco products. Recently, the U.S. Senate Commerce Committee
released a draft bill that includes a ban on outdoor tobacco advertising. In
addition, the FDA recently proposed regulations which would prohibit the use
of pictures and color in tobacco advertising and restrict the proximity of
outdoor tobacco advertising to schools and playgrounds. While such legislation
has not been enacted and such regulations have not been adopted, there can be
no assurance that national or local legislation or regulations restricting
tobacco advertising will not be adopted in the future or as to the effect any
such legislation or regulations or the voluntary curtailment of advertising by
tobacco companies would have on the Company. As a result of these and other
factors, it is likely that the Company's advertising revenue from tobacco
companies will decrease. In addition, the Company has voluntarily and
proactively limited its receipt of tobacco revenue. For instance, in 1997 the
Company voluntarily agreed with King County (Washington) to eliminate tobacco
advertising on the Company's displays located in King County effective January
1, 1998. Recently, the State of Florida entered into a settlement agreement
with the tobacco industry that eliminated tobacco advertising on billboards
throughout the state. While the Company aims to replace tobacco industry
advertising revenue with revenue from other advertisers, there is no assurance
when or to what extent it will be able to do so.
BROADCASTING
Government Regulation of Broadcasting Industry. Pursuant to the
Communication Act of 1934 (the "Communications Act"), the domestic
broadcasting industry is subject to extensive federal regulation which, among
other things, requires approval by the U.S. Federal Communications Commission
(the "FCC") for the issuance, renewal, transfer, and assignment of
broadcasting station operating licenses, and limits, among other things, the
number of broadcasting properties the Company may acquire in any market. In
addition, the Company's television station, KVOS, which is located in
Bellingham, Washington and broadcasts into Vancouver, British Columbia, is
regulated and affected by Canadian law. The restrictions and obligations
imposed by these laws and regulations, including their amendment,
interpretation, or enforcement, could have a material adverse effect on the
Company.
Renewal of Broadcasting Licenses. The Company's business will continue to be
dependent upon acquiring and maintaining broadcasting licenses issued by the
FCC, which, in accordance with the Telecommunications Act of 1996, are
currently issued for a term of eight years. In that regard, the Company owns
six television stations, operates an additional three television stations
under time brokerage agreements, owns one radio station
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and, through the Partnership, has an interest in three additional radio
stations. The broadcasting licenses for all nine of these television stations
and one of these radio stations have expired or will expire in 1998 and 1999,
and one television station and one of the radio stations have currently
pending renewal applications for their broadcasting licenses. As a result, the
renewal of these licenses is crucial to the Company's broadcasting operations.
In considering whether to renew a license, the FCC considers several factors,
including the licensee's compliance with the FCC's children's television
rules, the FCC's equal employment opportunity rules, and the FCC's radio
frequency rules. The FCC also considers the Communications Act's limitations
on license ownership by foreign individuals and foreign companies, and rules
limiting common ownership of broadcast, cable, and newspaper properties. The
FCC also considers the licensee's general character, including the character
of the persons holding interests in the licensee. In addition, third parties
may challenge renewal applications or file competing applications to acquire
the licenses that are subject to renewal. Accordingly, there can be no
assurance that pending or future applications to acquire or renew broadcasting
licenses will be approved, or will not include conditions or qualifications
adversely affecting the Company's operations, any of which could have a
material adverse effect on the Company. See "Business--Broadcasting--
Broadcasting Regulation--Renewal of Broadcasting Licenses." Moreover,
governmental regulations and policies may change over time and there can be no
assurance that such changes would not have a material adverse impact upon the
Company.
The Company is seeking FCC approval to acquire the broadcasting license for
one television station that it operates under a time brokerage agreement, and
will be required to obtain FCC approval to acquire additional broadcasting
licenses in the future. In connection with the application to acquire a
broadcasting license, the FCC considers factors generally similar to those
discussed in the preceding paragraph. As a result, there can be no assurance
that the FCC will approve the Company's application for the broadcasting
licenses it is seeking or in the future may seek to acquire, which could
adversely affect the Company.
Time Brokerage Agreements. Currently, the FCC's Duopoly Rule prevents the
common ownership of more than one television station in a market. The FCC does
however, permit a television station owner to program significant amounts of
the broadcast time of another station in the same market under a time
brokerage agreement, as long as the licensee of that other station maintains
ultimate control and responsibility for the programming and operations of the
station and compliance with applicable FCC rules and policies. The FCC is
considering whether to eliminate or amend the Duopoly Rule and whether to
treat the programming of more than 15% of another station's weekly broadcast
time under a time brokerage agreement as outright ownership of that station in
counting the number of stations the programmer owns. The FCC has indicated
that if it ultimately decides to treat time brokerage agreements as equivalent
to ownership, it will either grandfather time brokerage agreements entered
into before a specific date or provide a period of time for station owners to
comply with the new rules by disposing of their interests in television
stations and/or time brokerage agreements for television stations operating in
the same markets.
Currently, the only areas in which the Company both owns a television
station and operates a television station under a time brokerage agreement are
the Syracuse/Utica, New York area and the Monterey/Salinas, California area.
Thus, if the FCC were to treat time brokerage agreements as equivalent to
outright station ownership without eliminating the Duopoly Rule or
grandfathering the time brokerage agreements, the Company would be required to
dispose of its interests in one of the stations in the Syracuse/Utica area and
one of the stations in the Monterey/Salinas area, which could have a material
adverse effect on the Company.
New Technologies. The FCC is considering ways to introduce new technologies
to the public, including digital television ("DTV"). The Telecommunications
Act of 1996 requires the FCC to oversee the transition from current analog
television broadcasting to DTV broadcasting. During the transition period, the
FCC will issue one digital broadcast license to each existing television
licensee which files a license application. The FCC has ordered network
affiliates in larger broadcast markets to begin DTV broadcasts during 1999.
The Company's stations are required to begin construction of their digital
transmission facilities by May 1, 2002. The stations will then be allowed to
broadcast two signals using two channels, one digital and one analog, during
the transition period which will extend until 2006. At the end of the
transition period, broadcasters will be required to choose whether they will
continue broadcasting on the digital or the analog channel, and to return the
other channel to the FCC.
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The Company is unable to predict the effect any such new technology will
have on the Company. However, DTV will impose additional costs on the
Company's television broadcasting operations, due to increased equipment and
operating costs. In addition, conversion to DTV may reduce the geographical
coverage area of the Company's television stations. The increased costs of DTV
for the Company and its potential limitations on geographical coverage may
have a material adverse effect on the Company. See "Business--Broadcasting--
Broadcasting Regulation--Digital Television."
SPORTS & ENTERTAINMENT
Labor Relations in Professional Sports. Players in the NBA are covered by
the terms of a collective bargaining agreement, which was originally scheduled
to expire on June 30, 2001. On March 23, 1998, the Board of Governors of the
NBA voted to exercise their option to reopen the NBA's collective bargaining
agreement with the National Basketball Players Association. As a result, the
current agreement will expire on June 30, 1998. While the Company believes
that it is the desire of the Board of Governors to reach a new agreement
before the June 30, 1998 expiration date, there is no assurance that the
parties will do so. If the parties fail to reach a new agreement before the
start of the 1998-99 season, there is a risk that all or a portion of that
season could be canceled, which could have a material adverse effect on the
Company. In 1995, the NBA experienced labor relations difficulties in the form
of player lock-outs and disputes over its collective bargaining agreement,
which were resolved before the start of the 1995-96 NBA season. There can be
no assurance that the NBA or the Seattle SuperSonics will not experience other
labor relations difficulties in the future which could have a material adverse
effect on the Company.
Dependence on Competitive Success. The financial results of the Company and
its sports & entertainment operations depend, to a large extent, on the
performance of the Seattle SuperSonics and its ranking relative to other NBA
teams in its division. By qualifying for the NBA playoffs, for example, the
Company can receive significant additional revenue from gate receipts for home
playoff games and from selling advertising on broadcasts of playoff games. In
that regard, the Seattle SuperSonics qualified for the NBA playoffs in both
their 1995-96 and 1996-97 seasons, which substantially increased the Company's
net revenue and Operating Cash Flow, as well as the net revenue and Operating
Cash Flow for its sports & entertainment segment, for fiscal years 1996 and
1997. Although the Seattle SuperSonics have qualified for the NBA playoffs for
the 1997-98 season, there can be no assurance that they will perform well or
qualify for the playoffs in subsequent seasons or as to the number of playoff
games in which they will participate. Results of operations for the Company
and its sports & entertainment segment would likely be adversely affected by
poor performance by the Seattle SuperSonics, and there can be no assurance
that the Seattle SuperSonics will perform well or qualify for the playoffs in
the future.
League Membership Risks. Because the NBA is a joint venture, the Seattle
SuperSonics and other members of the NBA are generally jointly and severally
liable for the debts and obligations of the NBA. Any failure of other members
of the NBA to pay their pro rata share of any such obligations could adversely
affect the Company. The success of the NBA and its member teams depends in
part on the competitiveness of other NBA teams and their ability to maintain
fiscally sound franchises. Certain NBA teams have at times encountered
financial difficulties, and there can be no assurance that the NBA and its
members will continue to be able to operate on a fiscally stable and effective
basis. In addition, the Seattle SuperSonics and its personnel are bound by a
number of rules, regulations, and agreements, including the constitution and
by-laws of the NBA, national television contracts, and collective bargaining
agreements. Any changes to these rules, regulations, and agreements adopted by
the NBA will be binding upon the Seattle SuperSonics and its personnel
regardless of whether the Seattle SuperSonics agree or disagree with them, and
it is possible that any such changes could adversely affect the Company.
The Commissioner of the NBA has the exclusive power to interpret the
constitution, by-laws, rules, and regulations of the NBA, and such
interpretations are final and binding on the Company, the Seattle SuperSonics,
and its personnel. In addition, member clubs of the NBA may not resort to the
courts to enforce or maintain
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rights or claims against other member clubs, or to seek resolution of any
dispute or controversy between member clubs, but instead all such matters must
be submitted for final and binding determination to the Commissioner of the
NBA without any right of appeal to the courts or otherwise.
Dependence on Talented Players; Risks Related to Player Salaries. The
success of the Seattle SuperSonics will depend upon the team's continued
ability to retain and attract talented players. The Seattle SuperSonics
compete with other United States and foreign basketball teams for available
players. There can be no assurance that the Seattle SuperSonics will be able
to retain players upon expiration of their contracts or identify and obtain
new players of comparable talent to replace players who retire or are injured,
traded, or released. Even if the Seattle SuperSonics are able to retain or
obtain players who have had successful college or professional careers, there
can be no assurance that their performance for the Seattle SuperSonics in
subsequent years will be at the same level as their prior performance.
Players' salaries in the NBA have increased significantly in recent years.
Significant further increases in players' salaries could occur and could have
a material adverse effect on the Company. See Note 12 to the Consolidated
Financial Statements.
NBA player contracts generally provide that a player is entitled to receive
his salary even if he is unable to play as a result of injuries sustained from
basketball-related activities during the course of his employment. These
salaries represent significant financial commitments of the Seattle
SuperSonics. Disability insurance for NBA players (which in certain instances
provides up to 80% of salary reimbursement after 41 consecutive games are
missed) is costly to maintain, and, as required by NBA rules, the Seattle
SuperSonics carry such insurance for its six most highly compensated players.
In the event an injured player is not insured or insurance does not cover the
entire amount of the injured player's salary, the Company would be obligated
to pay all or a portion, as the case may be, of the injured player's salary.
In addition, if the Company acquires a new player to replace the injured
player, the Company would also be required to pay the salary of the
replacement player. To the extent that financial results of the Company are
dependent on the Seattle SuperSonics' competitive success (as discussed
above), the likelihood of achieving such success is substantially reduced by
serious injuries to key players. There can be no assurance that key players
for the Seattle SuperSonics will not sustain serious injuries during any given
season. As a result, injuries to players could have a material adverse effect
on the Company.
COMPETITION
The Company's three business segments are in highly competitive industries.
The Company's broadcasting and out-of-home media businesses compete for
audiences and advertising revenue with other broadcasting stations and out-of-
home media advertising companies, as well as with other media forms, such as
newspapers, magazines, transit advertising, yellow page directories, direct
mail, local cable systems, and satellite broadcasting systems. Audience
ratings and market shares are subject to change and any adverse change in a
particular market could have a material adverse effect on the Company.
Audience ratings and market share are subject to many variables which could
have an adverse effect upon the Company, including economic conditions, both
general and local; shifts in population and other demographics; the level of
competition for advertising dollars; a station's market rank, broadcasting
power, assigned frequency, network affiliation, and audience identification;
fluctuations in operating costs; technological changes and innovations;
changes in labor conditions; and changes in governmental regulations and
policies and actions of federal regulatory bodies. There can be no assurance
that the Company will be able to maintain or increase its current audience
ratings and advertising revenue. Additional factors affecting competition in
the out-of-home and broadcasting industries are described under "Business--
Out-of-Home Media--Outdoor Advertising--Competition," "Business--Out-of-Home
Media--Airport Advertising-- Competition," "Business--Broadcasting--
Television--Competition," and "Business--Broadcasting--Radio--Competition."
The Seattle SuperSonics compete directly with other professional and amateur
sporting franchises and events, both in the Seattle/Tacoma market area and
nationally via sports broadcasting. During portions of their season, the
Seattle SuperSonics experience competition from professional football (the
Seattle Seahawks) and
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professional baseball (the Seattle Mariners). In addition, the colleges and
universities in the region, as well as public and private secondary schools,
offer a full schedule of athletic events throughout the year. The Seattle
SuperSonics also compete for attendance and advertising revenue with a wide
range of other entertainment and recreational activities available in the
region, including television, radio, newspapers, movies, live performances,
and other events.
FINANCIAL CONDITION
Financial Leverage. As of December 31, 1997, the Company had an aggregate of
$229.4 million of outstanding consolidated indebtedness and a consolidated
stockholders' deficit of $44.9 million. See "Capitalization." This
stockholders' deficit resulted primarily from net losses that were incurred
during the fiscal years 1982 through 1991 caused primarily by high levels of
interest expense and depreciation and amortization of fixed assets and
acquired intangibles related to acquisitions. The stockholders' deficit
declined by approximately $38.9 million in fiscal year 1997, primarily as a
result of net earnings. While the Company expects that this trend will
continue, there can be no assurance that it will. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In addition, the Company intends to continue to seek to acquire
additional out-of-home media and broadcasting businesses. To the extent the
Company assumes the indebtedness of businesses that it acquires or makes
acquisitions or capital expenditures that are financed with the proceeds from
borrowings, the Company's outstanding indebtedness and interest expense will
increase, perhaps substantially. Likewise, further acquisitions will likely
increase the Company's depreciation and amortization expenses, perhaps
substantially.
The Company's degree of leverage could have important consequences to
investors, including the following: (i) possible impairment of the Company's
future ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate purposes, or other purposes;
(ii) reduction of Operating Cash Flow (defined as net revenue less operating
expenses before amortization, depreciation, interest, litigation, and stock
compensation expenses) available to the Company for purposes other than
payment of principal and interest on its indebtedness; (iii) exposure of the
Company to the risk of increased interest rates since a substantial portion of
the Company's borrowings, including borrowings under the Credit Agreement (as
defined below), bear interest at floating rates; (iv) possible competitive
disadvantage against competitors that are less leveraged than the Company; (v)
possible limitation on the Company's ability to adjust to changing market
conditions; (vi) possible reduction in the Company's ability to withstand
competitive pressures; and (vii) possible increase in the Company's
vulnerability to a downturn in general economic conditions or its business.
The Company's ability to make scheduled payments on or to refinance its
indebtedness will depend on its financial and operating performance, which in
turn will be subject to economic conditions and to financial, business, and
other factors beyond its control. If the Company's Operating Cash Flow and
capital resources are insufficient to fund its debt service and other
obligations, the Company may be forced to reduce or delay planned expansion
and capital expenditures, sell assets, obtain additional equity capital, or
restructure its debt. Although the Company's economic performance since 1992
has improved, there can be no assurance that the Company's operating results,
Operating Cash Flow, and capital resources will be sufficient for future
payments of its indebtedness. The Company will be required to make principal
payments on its outstanding indebtedness beginning in December 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," and Note 7 to the Consolidated
Financial Statements.
Restrictions Imposed by Debt Instruments; Pledge of Collateral. The Company
is subject to a number of significant covenants that are set forth in a Credit
Agreement dated as of January 28, 1998 among the Company and certain financial
institutions (the "Credit Agreement"), an indenture (the "Indenture") pursuant
to which the Company has outstanding $120.0 million aggregate principal amount
of its 10 3/4% Senior Secured Notes due 2003 (the "Senior Notes"), and certain
Note Agreements (the "Subordinated Note Agreements") pursuant to which the
Company has outstanding $2.5 million aggregate principal amount of its 11.20%
Senior Subordinated Notes, Series B, due December 15, 1998, and $30.0 million
aggregate principal amount of its 10.48% Senior Subordinated Notes due
December 15, 2000 (collectively, the "Subordinated Notes"). The covenants
contained
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in the Credit Agreement, the Indenture, and the Subordinated Note Agreements
restrict the Company's operations, including, but not limited to, its ability
to assume or issue new debt, declare and pay dividends, repurchase shares of
Common Stock and Class B Common Stock, and dispose of assets. In addition, the
Company is required to maintain specified financial ratios, including a
maximum leverage ratio, minimum interest coverage ratio, and minimum fixed
charge coverage ratio. The ability of the Company to comply with such
covenants and financial ratios may be affected by events beyond the Company's
control. The Credit Agreement also requires, subject to certain exceptions,
that the Company apply 50% of the net cash proceeds (as defined therein)
received by the Company from the sale of its capital stock, 100% of the net
cash proceeds received by the Company from the sale of its debt securities and
from certain asset dispositions, and, under certain circumstances, 50% of its
excess cash flow (as defined therein) to repay borrowings thereunder. It
further provides that the amount of borrowings available under the Credit
Agreement will be permanently reduced by the amount of such repayments. The
Credit Agreement also provides that it is an event of default thereunder if
the Ackerley Family (as defined therein) owns less than 51% of the outstanding
voting stock of the Company. In addition, upon the occurrence of a change of
control (as defined in the Indenture and the Subordinated Note Agreements, as
applicable), the holders of the Senior Notes and Subordinated Notes have the
right to require the Company to repurchase the Senior Notes and the
Subordinated Notes, respectively. The Partnership also is subject to similar
covenants under a $35.0 million credit agreement dated February 17, 1998 (the
"Partnership Credit Agreement").
On a number of different occasions the Company has had to obtain
modifications to certain financial covenants in predecessor credit agreements.
On each such occasion, the Company either received a waiver of compliance or
an amendment modifying the applicable covenant. Although the Company believes
it can satisfy the covenants contained in the current Credit Agreement,
Indenture, and Subordinated Note Agreements, and that the Partnership can
satisfy those contained in the Partnership Credit Agreement, there can be no
assurance that the Company or the Partnership will, in fact, be able to do so.
The breach by the Company of any of those covenants would result in a
default under either one or all of the Credit Agreement, the Indenture, or the
Subordinated Note Agreements; and a breach by the Partnership would result in
a default under the Partnership Credit Agreement. In the event of any such
default, the bank lenders under the Credit Agreement or the Partnership Credit
Agreement, or the holders of the Senior Notes or the Subordinated Notes, as
the case may be, could elect to declare all amounts outstanding under the
Credit Agreement, the Partnership Credit Agreement, the Senior Notes, or the
Subordinated Notes, as the case may be, together with accrued interest, to be
due and payable. Likewise, because of cross-default provisions in the
Company's debt instruments, a default under the Credit Agreement, the
Indenture, or the Subordinated Notes could result in acceleration of
indebtedness outstanding under other debt instruments.
In addition, the Company has pledged the stock of all of its corporate
subsidiaries to secure its obligations under the Credit Agreement and the
Indenture, and the Partnership (which owns three radio stations) has pledged
all of its assets to secure borrowings under the Partnership Credit Agreement.
If the Company were unable to repay any amounts due under the Credit Agreement
or the Indenture when due (whether upon acceleration or otherwise), the bank
lenders or the holders of the Senior Notes, as the case may be, would be
entitled to proceed against the collateral. Likewise, if the Partnership were
unable to pay any amounts due under the Partnership Credit Agreement when due
(whether upon acceleration or otherwise), the lenders thereunder would be
entitled to proceed against the collateral.
As a result of the foregoing, default by the Company under the Credit
Agreement, the Indenture, or any of the Subordinated Note Agreements, or
default by the Partnership under the Partnership Credit Agreement, could
have a material adverse effect on the Company. If the indebtedness under any
of these debt instruments were accelerated, there can be no assurance that the
Company or the Partnership, as the case may be, would be able to repay such
indebtedness.
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DEPENDENCE ON MANAGEMENT
Certain of the executive officers and divisional managers of the Company,
including Mr. Barry A. Ackerley, are especially important to the direction and
management of the Company. The loss of the services of such persons could have
a material adverse effect on the Company, and there can be no assurance that
the Company would be able to find replacements for such persons with
equivalent business experience. See "Management."
TRADING MARKET AND POSSIBLE PRICE VOLATILITY
The market price of Common Stock may be subject to wide fluctuations and
possible rapid increases or declines in a short period of time. These
fluctuations may be due to factors specific to the Company such as variations
in annual and quarterly operating results and may also be due to factors
affecting the economy and the securities markets generally. Investors in the
Common Stock should be willing to incur the risk of such fluctuations.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 13, 1997, 10,207,116 shares of Common Stock and 10,990,807
shares of Class B Common Stock were held by affiliates of the Company. As
noted above, each share of Class B Common Stock is convertible by the holder
at any time into one share of Common Stock. Affiliates of the Company may sell
these shares in the public market subject to the volume and other limitations
(other than the holding period limitations, which have been satisfied) of Rule
144 of the Securities Act. The Company, its executive officers and directors,
certain employees of the Company, and the Selling Stockholders have agreed
that, for a period of 90 days after the date hereof, they will not sell or
otherwise dispose of any shares of Common Stock or Class B Common Stock
without the prior written consent of Smith Barney Inc., except for the shares
of Common Stock offered hereby. However, no prediction can be made as to the
effect, if any, that future sales of shares, or the availability of shares for
future sale, will have on the market price of the Common Stock from time to
time. Sales of substantial amounts of Common Stock in the public market
(including Common Stock issued upon conversion of Class B Common Stock), or
the perception that such sales could occur, could have a material adverse
effect on prevailing market prices for the Common Stock. See "Underwriting."
YEAR 2000
Many computer systems will experience problems handling dates beyond the
year 1999. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. The Company
believes that it has adequately addressed the risks associated with Year 2000
compliance with respect to its accounting and financial reporting systems. In
many instances, the Company has been informed by its software vendors that the
software that the Company is using is Year 2000 compliant. In other instances,
the Company intends to address the issue as it deems necessary, which it
expects to handle through software upgrades. The Company anticipates that the
cost associated with becoming Year 2000 compliant will not be significant.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with, the implementation of any required changes,
and the Company's inability to implement such changes expeditiously could have
an adverse effect on the Company.
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USE OF PROCEEDS
The net proceeds to the Company from the offering made hereby, after
deducting underwriting discounts and commissions and estimated offering
expenses, are estimated to be $ (approximately $ if the Underwriters'
over-allotment option is exercised in full), based on an assumed public
offering price of $ per share. The Company will not receive any proceeds
from the sale of shares of Common Stock by the Selling Stockholders.
The net proceeds to the Company from the offering made hereby will be used
to repay borrowings under the Credit Agreement and for other general corporate
purposes, which may include funding capital expenditures and funding possible
acquisitions. The Credit Agreement requires the Company to apply 50% of the
net cash proceeds (as defined therein) from the sale of its capital stock to
repay borrowings under the Credit Agreement, which will permanently reduce the
amount of borrowings available to the Company under the Credit Agreement by
the amount of such repayment. Accordingly, the Company will apply 50% of the
net proceeds it receives from the sale of the Common Stock offered hereby to
repay borrowings thereunder. The Company may, however, elect to apply more
than 50% of such net proceeds to repay borrowings under the Credit Agreement.
For a description of the provisions of, and borrowings under, the Credit
Agreement, including interest rates and maturity dates, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business--Restrictions on the Company's
Operations." Pending application for the foregoing purposes, the net proceeds
from this offering may be invested in short term investments.
PRICE RANGE OF COMMON STOCK
COMMON STOCK
On December 15, 1997, the Company's Common Stock became listed and began
trading on the NYSE under the symbol "AK." The Common Stock previously traded
on the AMEX under the same symbol.
The table below sets forth the high and low sales prices (adjusted for the
Company's October 1996 stock split) of the Common Stock for the periods shown
according to the AMEX until December 15, 1997, and from and after such date
according to the NYSE.
<TABLE>
<CAPTION>
1996 HIGH LOW
---- --------- -------
<S> <C> <C>
First Quarter......................... $10 1/4 $ 7 5/8
Second Quarter........................ $13 15/16 $ 9 7/8
Third Quarter......................... $16 15/16 $10 1/2
Fourth Quarter........................ $16 15/16 $10 7/8
<CAPTION>
1997
----
<S> <C> <C>
First Quarter......................... $13 3/4 $10 5/8
Second Quarter........................ $13 7/8 $10
Third Quarter......................... $18 1/2 $11
Fourth Quarter........................ $18 1/8 $14
<CAPTION>
1998
----
<S> <C> <C>
First Quarter......................... $24 3/8 $14 5/8
Second Quarter (through April 7,
1998)................................ $21 3/4 $20 1/4
</TABLE>
The last reported sale price of the Common Stock on the NYSE as of a recent
date is set forth on the cover page of this Prospectus.
CLASS B COMMON STOCK
The Class B Common Stock, initially issued in June 1987, is not publicly
traded. Persons owning shares of Class B Common Stock may trade such shares
only as permitted by the Company's Certificate of Incorporation, which imposes
restrictions on such transfer. Thus, there is no trading market for shares of
Class B Common Stock. See "Description of Capital Stock."
17
<PAGE>
DIVIDEND POLICY
The Company's Board of Directors first declared a cash dividend of $.015 per
share on its Common Stock and Class B Common Stock in 1995. In each of 1996
and 1997, the Board of Directors declared a cash dividend of $.02 per share.
Recently, the Board of Directors declared a cash dividend of $.02 per share
payable on April 15, 1998 to shareholders of record on March 25, 1998. Payment
of any future dividends is at the discretion of the Board of Directors and
depends on a number of factors. Among other things, dividend payments depend
upon the Company's results of operations and financial condition, capital
requirements and general economic conditions. In addition, the Credit
Agreement, the Subordinated Note Agreements, and the Indenture impose certain
limits upon the Company's ability to pay dividends and make other
distributions. In addition, the Company is subject to the Delaware General
Corporation Law ("DGCL"), which restricts its ability to pay dividends in
certain circumstances.
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1997, the consolidated
capitalization of the Company on an actual basis and as adjusted to give
effect to the sale of Common Stock offered by the Company at an assumed public
offering price of $ per share and the application of 50% of the estimated
net cash proceeds to be received by the Company from the sale of such Common
Stock to repay borrowings under the Credit Agreement. The Company may,
however, elect to apply more than 50% of such net cash proceeds to repay
borrowings under the Credit Agreement. See "Use of Proceeds." This table
should be read in conjunction with the Consolidated Financial Statements
included herein.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Credit Agreement(1)................................... $ 59,000 $ (2)
11.20% Senior Subordinated Notes, Series B, due 1998.. 2,500 2,500
10.48% Senior Subordinated Notes due 2000............. 30,000 30,000
10 3/4% Senior Secured Notes due 2003................. 120,000 120,000
Other................................................. 17,924 17,924
Less current maturities............................... 16,130 16,130
-------- -------
Total long-term debt.............................. 213,294
Stockholders' deficiency:
Common stock, $.01 par value per share; 50,000,000
shares authorized, 21,855,398 shares issued,
20,480,452 shares outstanding and 23,355,398 shares
issued as adjusted, and 21,980,452 shares outstanding
as adjusted(3)....................................... 218
Class B common stock, $.01 par value per share;
11,406,510 shares authorized, 11,053,510 shares
issued(3)............................................ 111 111
Capital in excess of par value........................ 9,816
Deficit............................................... (44,965) (44,965)
Less common stock in treasury, at cost (1,374,946
shares).............................................. (10,089) (10,089)
-------- -------
Total stockholders' deficiency.................... (44,909)
-------- -------
Total capitalization............................ $168,385 $
======== =======
</TABLE>
- --------
(1) As of March 13, 1998, borrowings of $70.0 million were outstanding under
the Credit Agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(2) Under the terms of the Credit Agreement, 50% of the net proceeds to the
Company from the sale of the shares of Common Stock offered hereby must
be applied to repay outstanding indebtedness under the Credit Agreement,
which will permanently reduce borrowing availability to the Company under
the Credit Agreement by the amount of such repayment. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(3) For information as to shares outstanding as of March 13, 1998, see
"Description of Capital Stock." Does not include 490,250 shares of Common
Stock reserved for issuance under the Company's Employee Stock Option
Plan; 37,500 shares of Common Stock and 37,500 shares of Class B Common
Stock reserved for issuance under certain stock purchase agreements; and
95,290 shares of Common Stock reserved for issuance under the Company's
Nonemployee-Directors' Equity Compensation Plan. See "Management."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following consolidated statement of operations data and consolidated
financial data for each of the three years in the period ended December 31,
1997, and the consolidated balance sheet data at December 31, 1997 and 1996
are derived from the Consolidated Financial Statements included herein that
have been audited by Ernst & Young LLP, independent auditors, and are
qualified by reference to such Consolidated Financial Statements. The
consolidated statement of operations data and consolidated financial data for
the years ended December 31, 1994 and 1993 and the consolidated balance sheet
data at December 31, 1995, 1994, and 1993 are derived from audited financial
statements of the Company not included in this Prospectus. The following data
should be read in conjunction with the Consolidated Financial Statements,
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations," and other financial information included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue....................................... $306,169 $279,662 $235,820 $211,728 $ 192,958
Less agency commissions and discounts........ (34,994) (32,364) (28,423) (25,626) (22,341)
-------- -------- -------- -------- ---------
Net revenue................................... 271,175 247,298 207,397 186,102 170,617
Expenses
Operating expenses........................... 210,752 186,954 156,343 142,812 132,316
Disposition of assets........................ -- -- -- (2,506) 759
Depreciation and amortization................ 16,103 16,996 13,243 10,883 12,018
Interest expense............................. 26,219 24,461 25,010 25,909 22,431
Litigation expense (credit).................. (5,000)(1) -- 14,200 (1) -- --
Stock compensation expense................... 9,344 (2) -- -- -- --
-------- -------- -------- -------- ---------
Total expenses............................... 257,418 228,411 208,796 177,098 167,524
-------- -------- -------- -------- ---------
Income (loss) before income taxes and
extraordinary item........................... 13,757 18,887 (1,399) 9,004 3,093
Income tax (benefit) expense.................. (19,172)(3) 2,758 1,515 73 133
-------- -------- -------- -------- ---------
Income (loss) before extraordinary item....... 32,929 16,129 (2,914) 8,931 2,960
Extraordinary item--loss on extinguishment of
debt in 1996, 1994 and 1993.................. -- (355) -- (2,099) (625)
-------- -------- -------- -------- ---------
Net income (loss) applicable to common
shares....................................... $ 32,929 $ 15,774 $ (2,914) $ 6,832 $ 2,335
======== ======== ======== ======== =========
Per common share(4)(5):
Income (loss) before extraordinary item...... $ 1.05 $ .52 $ (.09) $ .29 $ .10
Extraordinary item........................... -- (.01) -- (.07) (.02)
-------- -------- -------- -------- ---------
Net income (loss)............................ $ 1.05 $ .51 $ (.09) $ .22 $ .08
======== ======== ======== ======== =========
Common shares used in per share computation.. 31,345 31,166 31,052 30,929 30,855
Per common share--assuming dilution(4)(5):
Income (loss) before extraordinary item...... $ 1.04 $ .51 $ (.09) $ .28 $ .09
Extraordinary item........................... -- (.01) -- (.06) (.02)
-------- -------- -------- -------- ---------
Net income (loss)............................ $ 1.04 $ .50 $ (.09) $ .22 $ .07
======== ======== ======== ======== =========
Common shares used in per share computation--
assuming dilution........................... 31,652 31,760 31,052 31,483 31,204
Dividends per common share(4)................. $ .02 $ .02 $ .015 $ -- $ --
CONSOLIDATED FINANCIAL DATA:
Operating Cash Flow(6)........................ $ 60,423 $ 60,344 $ 51,054 $ 43,290 $ 38,301
Capital Expenditures.......................... $ 17,593 $ 13,124 $ 15,098 $ 8,794 $ 3,478
CONSOLIDATED BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............................... $ 12,019 $ 11,154 $ 15,110 $ 16,783 $ 7,970
Total assets.................................. 266,385 224,912 189,882 170,783 160,491
Total long-term debt(7)....................... 213,294 229,350 215,328 225,613 213,165
Total debt(7)................................. 229,424 235,141 220,147 228,646 224,080
Stockholders' deficiency...................... (44,909) (83,839) (99,093) (95,958) (102,852)
</TABLE>
- -------
(1) See Note 13 to the Consolidated Financial Statements.
(2) See Note 11 to the Consolidated Financial Statements.
20
<PAGE>
(3) See Note 8 to the Consolidated Financial Statements.
(4) The shares of Common Stock and Class B Common Stock are entitled to share
ratably in such dividends as may be declared by the Board of Directors of
the Company from time to time and in assets available for distribution to
stockholders in the event of a liquidation, dissolution, or winding up of
the Company. See "Description of Capital Stock." Accordingly, data set
forth on a per common share basis is calculated by aggregating the Common
Stock and Class B Common Stock.
(5) Data for 1994 and 1993 have been restated to conform with Financial
Accounting Standards Board Statement No. 128. See Note 2 to the
Consolidated Financial Statements.
(6) Operating Cash Flow is defined as net revenue less operating expenses
before amortization, depreciation, interest, litigation, and stock
compensation expenses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."
(7) Data as of December 31, 1995, 1994, and 1993 have been restated to
conform to the current presentation.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements appearing in this section, Management's Discussion and Analysis
of Financial Condition and Results of Operations, which are not historical in
nature (including the discussions of the effects of recent acquisitions,
business transactions and similar information), are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
The Company cautions potential investors that any forward-looking statements
or projections set forth in this section are subject to risks and
uncertainties which may cause actual results to differ materially from those
projected. The Company is under no obligation to update any forward-looking
statement contained herein.
Important factors that could cause actual results to differ materially from
those expressed in this section include the matters discussed above under
"Risk Factors" and the following: (i) material adverse changes in general
economic conditions, including changes in inflation and interest rates; (ii)
changes in laws and regulations affecting the outdoor advertising and
television and radio broadcasting businesses, including changes in the FCC's
treatment of time brokerage agreements and related matters, and the possible
inability to obtain FCC consent to proposed or pending acquisitions of
broadcasting stations; (iii) competitive factors in the outdoor advertising,
television and radio broadcasting, and sports and entertainment businesses;
(iv) material changes to accounting standards; (v) expiration or non-renewal
of airport franchise agreements, broadcasting licenses, and time brokerage
agreements; (vi) labor matters, including changes in labor costs,
renegotiation of labor contracts, and risk of work stoppages or strikes; (vii)
matters relating to the Company's level of indebtedness, including
restrictions imposed by financial covenants and the need to refinance a
substantial portion of that indebtedness over the next several years; (viii)
the win-loss record of the Seattle SuperSonics, which has a substantial
influence on attendance, and whether the team participates in the NBA
playoffs; and (ix) recessionary influences in the regional markets that the
Company serves.
OVERVIEW
The Company reported net income of $32.9 million in 1997, compared to $15.8
million in 1996. This increase in net income in part reflects increased
Operating Cash Flow (as defined below) of out-of-home advertising and
broadcasting operations. In addition, a component of the Company's strategy is
to expand its businesses through acquisitions. As a result, the Company's
results of operations reflect depreciation and amortization expense and
interest expense on long-term debt, which are in part attributable to past
acquisitions. In addition, the increase in net income in 1997 from 1996
reflects a $19.2 million income tax benefit primarily due to the recognition
of a deferred tax asset and a $5.0 million reduction in an accrual for
litigation expense, offset in part by a $9.3 million charge for stock
compensation expense. Disregarding the impact of this reduction in the accrual
for litigation expense and stock compensation expense, income before income
taxes and extraordinary items would have been $18.1 million for 1997 compared
to $18.9 million for 1996. Operating Cash Flow for 1997 was $60.4 million,
compared to $60.3 million for 1996.
Refinancing. In January 1998, the Company replaced its 1996 credit agreement
with its Credit Agreement. The Credit Agreement currently permits borrowings
of up to $77.5 million due to restrictions related to the Senior Notes. The
Credit Agreement requires the Company to apply 50% of the net cash proceeds
(as defined therein) received by the Company from the sale of the Common Stock
offered hereby to repay borrowings under the Credit Agreement, and provides
that the amount of borrowings available under the Credit Agreement will be
permanently reduced by the amount of such repayment. However, the Credit
Agreement further provides that if the Company redeems its Senior Notes prior
to December 15, 1998, the maximum permissible borrowings under the Credit
Agreement will be increased by $187.5 million. In addition, if the Company
redeems the Senior Notes prior to December 15, 1998, the Company plans to
request that the banks increase the amount of borrowings available under the
Credit Agreement by up to an additional $35.0 million, which the Company plans
to use to refinance borrowings under the Partnership Credit Agreement. See "--
Liquidity and Capital Resources."
22
<PAGE>
As of December 31, 1997, $120.0 million aggregate principal amount of Senior
Notes were outstanding. The Company currently intends to redeem the Senior
Notes in the fourth quarter of 1998, which would result in non-recurring
charges for the write-off of deferred financing costs and redemption premium.
Accordingly, if the Senior Notes are redeemed as planned, the Company expects
to incur, in the fourth quarter of 1998, a non-recurring charge of
approximately $6.8 million at the time of such redemption. The Company intends
to redeem the Senior Notes with the proceeds from the borrowings under the
Credit Agreement.
Acquisitions and Time Brokerage Agreements. On June 30, 1997, the Company
entered into a time brokerage agreement to operate television station WUTR
licensed to Utica, New York. See "Business--Broadcasting--Acquisition and Time
Brokerage Agreements."
On July 28, 1997, the Company entered into a purchase agreement to acquire
television station WIVT (formerly WMGC) licensed to Binghamton, New York for
$9.0 million. The Company is operating the station pending closing of the
purchase under a time brokerage agreement. The Company expects the purchase to
close in 1998, subject to FCC approval, which has been requested. The Company
anticipates using cash flow and borrowings under the Credit Agreement to fund
the acquisition. However, the Company cannot guarantee that the FCC will
approve the transaction within this time frame or at all. See "Business--
Broadcasting--Acquisition and Time Brokerage Agreements."
The Company owns a limited partnership interest in the Partnership, which
owns and operates three radio stations in the Seattle/Tacoma market. In
February 1998, the Partnership redeemed the limited partnership interests of
two former limited partners and satisfied certain other obligations for $18.0
million, leaving the Company as the sole limited partner in the Partnership.
In February 1998, the Company joined in an agreement that provides for the
Partnership to redeem the general partner's interest for approximately $17.7
million. The redemption requires approval of the FCC, which the Company has
requested. The Company currently anticipates receiving the FCC's consent and
closing this transaction in 1998, following which the Company will be the sole
owner of the stations.
In addition, the Company acquired the assets of a small billboard company in
South Florida in November 1997 and the assets of KHHO(AM), a radio station in
Tacoma, Washington, in March 1998, in each case for a purchase price of
approximately $2.5 million.
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 before amortization,
depreciation, interest, litigation, and stock compensation expenses) is an
appropriate measure of the Company's financial performance. Similarly,
management believes that Segment Operating Cash Flow (defined as Operating
Cash Flow before corporate overhead) is an appropriate measure of the
financial performance of the Company's segments. These measures exclude
certain expenses that management does not consider to be costs of ongoing
operations. The Company's Operating Cash Flow is used to pay interest and
principal on the Company's long-term debt as well as to finance capital
expenditures. Operating Cash Flow and Segment Operating Cash Flow, however,
are not to be considered as alternatives to net income (loss) as an indicator
of operating performance or to cash flows as a measure of liquidity.
23
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth certain historical financial data for the
three-year period ended December 31, 1997, including net revenue, operating
expenses, and Operating Cash Flow information by segment:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
AS % OF NET AS % OF NET AS % OF NET
AMOUNT REVENUE AMOUNT REVENUE AMOUNT REVENUE
-------- ----------- -------- ----------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $271,175 100.0% $247,298 100.0% $207,397 100.0%
Segment operating
expenses............... 200,739 74.0 178,721 72.3 148,826 71.8
Corporate overhead...... 10,013 3.7 8,233 3.3 7,517 3.6
-------- -------- --------
Total operating
expenses............. 210,752 77.7 186,954 75.6 156,343 75.4
-------- -------- --------
Operating Cash Flow..... 60,423 22.3 60,344 24.4 51,054 24.6
Other expenses:
Depreciation and
amortization.......... 16,103 5.9 16,996 6.9 13,243 6.4
Interest expense....... 26,219 9.7 24,461 9.9 25,010 12.1
Litigation expense
(credit).............. (5,000) (1.8) -- -- 14,200 6.8
Stock compensation
expense............... 9,344 3.4 -- -- -- --
-------- -------- --------
Total other expenses.. 46,666 17.2 41,457 16.8 52,453 25.3
Income (loss) before
income taxes and
extraordinary item..... 13,757 5.1 18,887 7.6 (1,399) (0.7)
Income tax (benefit)
expense................ (19,172) (7.1) 2,758 1.1 1,515 0.7
-------- -------- --------
Income (loss) before
extraordinary item..... 32,929 12.1 16,129 6.5 (2,914) (1.4)
Extraordinary item...... -- -- (355) (0.1) -- --
-------- -------- --------
Net income (loss)....... $ 32,929 12.1 $ 15,774 6.4 $ (2,914) (1.4)
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net revenue:
Out-of-home media............................... $113,162 $ 99,833 $ 93,177
Broadcasting.................................... 96,533 85,927 72,429
Sports & entertainment.......................... 61,480 61,538 41,791
-------- -------- --------
Total net revenue........................... $271,175 $247,298 $207,397
======== ======== ========
Segment operating expenses:
Out-of-home media............................... $ 72,159 $ 63,924 $ 61,199
Broadcasting.................................... 60,049 53,096 42,447
Sports & entertainment.......................... 68,531 61,701 45,180
-------- -------- --------
Total segment operating expenses:........... $200,739 $178,721 $148,826
======== ======== ========
Operating Cash Flow:
Out-of-home media............................... $ 41,003 $ 35,909 $ 31,978
Broadcasting.................................... 36,484 32,831 29,982
Sports & entertainment.......................... (7,051) (163) (3,389)
-------- -------- --------
Total Segment Operating Cash Flow........... 70,436 68,577 58,571
Corporate overhead.............................. (10,013) (8,233) (7,517)
-------- -------- --------
Operating Cash Flow......................... $ 60,423 $ 60,344 $ 51,054
======== ======== ========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Change in net revenue from prior year:
Out-of-home media................................. 13.4% 7.1% 9.1%
Broadcasting...................................... 12.3 18.6 7.0
Sports & entertainment............................ (0.1) 47.3 26.7
Change in total net revenue................... 9.7 19.2 11.4
Segment operating expenses as a % of segment net
revenue:
Out-of-home media................................. 63.8% 64.0% 65.7%
Broadcasting...................................... 62.2 61.8 58.6
Sports & entertainment............................ 111.5 100.3 108.1
Total segment operating expenses as a % of
total net revenue............................ 74.0 72.3 71.8
Operating Cash Flow as a % of segment net revenue:
Out-of-home media................................. 36.2% 36.0% 34.3%
Broadcasting...................................... 37.8 38.2 41.4
Sports & entertainment............................ (11.5) (0.3) (8.1)
Total Operating Cash Flow as a % of total net
revenue...................................... 22.3 24.4 24.6
</TABLE>
1997 COMPARED WITH 1996
Net Revenue. 1997 net revenue was $271.2 million. This represents an
increase of $23.9 million, or 10%, from net revenue of $247.3 million in 1996.
Changes in net revenue were as follows:
. Out-of-Home Media. 1997 net revenue from outdoor advertising and airport
advertising operations increased by $13.3 million, or 13%, from 1996.
This increase was mainly due to an increase in both national and local
advertising sales.
. Broadcasting. 1997 net revenue from television and radio broadcasting
operations increased by $10.6 million, or 12%, from 1996. This increase
was mainly due to the effects of increased rates and sales volumes, the
addition of time brokerage agreements with television stations WUTR and
WIVT in June 1997 and July 1997, respectively, and the completion of a
full 12 months of operations at KFTY and KION.
. Sports & Entertainment. 1997 net revenue from sports & entertainment
operations remained unchanged, at $61.5 million, from 1996. The net
revenue remained unchanged primarily due to the combination of increased
ticket sales and the addition of a Seattle SuperSonics retail store,
offset primarily by decreased revenue due to the SuperSonics
participating in 12 games of the 1997 NBA playoffs compared to 21 games
in the 1996 playoffs.
Segment Operating Expenses (Excluding Corporate Overhead). 1997 segment
operating expenses were $200.7 million. This represents an increase of $22.0
million, or 12%, from $178.7 million in 1996. Changes in segment operating
expenses (excluding corporate overhead) were as follows:
. Out-of-Home Media. 1997 operating expenses from outdoor advertising and
airport advertising operations increased by $8.2 million from 1996, or
13%, to $72.2 million. This increase was primarily due to expenses
related to increased sales activity.
. Broadcasting. 1997 operating expenses from television and radio
broadcasting operations increased by $7.0 million from 1996, or 13%, to
$60.0 million. This increase was primarily due to the effects of higher
programming, promotion, and production expenses primarily reflecting the
development and expansion of local news programming. The addition of time
brokerage agreements with the television stations WUTR and WIVT in June
1997 and July 1997, respectively, and a full 12 months of operations at
KFTY and KION, also contributed to the increase in operating expenses.
. Sports & Entertainment. 1997 operating expenses from sports &
entertainment operations increased by $6.8 million from 1996, or 11%, to
$68.5 million. This increase was primarily due to the combination of
25
<PAGE>
expenses related to increased player compensation costs and the addition
of a Seattle SuperSonics retail store, offset in part by lower costs
associated with the SuperSonics participating in 12 games of the 1997 NBA
playoffs instead of 21 games in the 1996 NBA playoffs.
Corporate Overhead. Corporate overhead expenses were $10.0 million in 1997.
This represents an increase of $1.8 million, or 22%, from 1996. This increase
was mainly due to increased utilization of outside services, primarily for
public relations and insurance costs.
Operating Cash Flow. Operating Cash Flow increased slightly from $60.3
million in 1996 to $60.4 million in 1997. The increase in Operating Cash Flow
in the out-of-home and broadcasting segments offset the increased deficiency
in the sports & entertainment segment's Operating Cash Flow and the increase
in corporate overhead expenses. Operating Cash Flow as a percentage of net
revenue decreased to 22% in 1997 from 24% in 1996.
Depreciation and Amortization Expense. Depreciation and amortization
expenses were $16.1 million in 1997. This represents a decrease of $0.9
million, or 5%, from $17.0 million in 1996. This decrease is mainly due to
certain intangible assets becoming fully amortized in 1997.
Interest Expense. Interest expenses were $26.2 million in 1997. This
represents an increase of $1.7 million, or 7%, from interest expenses of $24.5
million in 1996. This increase is primarily due to higher average debt
balances during 1997.
Litigation Expense. In 1997, the Company reduced an accrual for litigation
expense by $5.0 million to reflect a reduction in the amount of a judgment
rendered against the Company and certain of its officers as described under
"Business--Legal Proceedings." No such adjustment was made in 1996.
Stock Compensation Expense. In 1997, the Company recognized $9.3 million of
stock compensation expense, which was primarily due to the conversion of
incentive stock options into nonqualified stock options as described in Note
11 to the Consolidated Financial Statements. The Company did not recognize any
stock compensation expense in 1996.
Income Tax Expense. In 1997, the Company incurred a $19.2 million income tax
benefit, compared to an income tax expense of $2.8 million in 1996. This
benefit primarily resulted from the recognition of a deferred tax asset in
1997, offset in part by alternative minimum taxes and state income taxes.
Recognition of this deferred tax asset in 1997 occurred as a result of a $27.2
million decrease in the Company's valuation allowance, primarily through
utilization of net operating loss carryforwards and the reversal of the
remaining valuation allowance. See Note 8 to the Consolidated Financial
Statements. Management expects to recognize income tax expense at
approximately statutory rates in 1998. This forward-looking statement is,
however, subject to the qualifications set forth under "--Forward-Looking
Statements."
Extraordinary Item. There were no extraordinary items in 1997. In 1996, as a
result of entering into a credit agreement, the Company wrote off deferred
costs of $0.4 million related to the previous credit agreement.
Net Income. Net income was $32.9 million in 1997. This represents an
increase of $17.2 million, or 109%, from 1996. The increase was mainly due to
the combination of the recognition of a deferred tax asset and the adjustment
to the litigation accrual, offset in part by the recognition of stock
compensation expense. Net income as a percentage of net revenue increased to
12% in 1997 from 6% in 1996.
1996 COMPARED WITH 1995
Net Revenue. In 1996, net revenue was $247.3 million. This represents an
increase of $39.9 million, or 19%, from $207.4 million in 1995. Changes in net
revenue were as follows:
. Out-of-Home Media. 1996 net revenue from outdoor advertising and airport
advertising operations increased by $6.7 million, or 7%, from 1995. This
increase was primarily due to increased sales volume reflecting a
strengthening market for national advertising.
26
<PAGE>
. Broadcasting. 1996 net revenue from television and radio broadcasting
operations increased by $13.5 million, or 19%, from 1995. This increase
was due primarily to improved local broadcast revenue related to sports
operations, the acquisition of television station KFTY in April 1996, the
commencement of the time brokerage agreement for television station KION
in April 1996, and increased rates and sale volumes.
. Sports & Entertainment. 1996 net revenue from sports & entertainment
operations increased by $19.7 million, or 47%, from 1995. This was mainly
due to the SuperSonics participating in 21 games of the 1996 NBA playoffs
compared to 4 games in the 1995 NBA playoffs.
Segment Operating Expenses (Excluding Corporate Overhead). 1996 segment
operating expenses were $178.7 million. This represents an increase of $29.9
million, or 20%, from $148.8 million in 1995. Changes in segment operating
expenses (excluding corporate overhead) were as follows:
. Out-of-Home Media. 1996 operating expenses from outdoor advertising and
airport advertising operations increased $2.7 million, or 4%, from 1995
to $63.9 million. This increase was primarily due to expenses related to
increased sales activity.
. Broadcasting. 1996 operating expenses from television and radio
broadcasting operations were $53.1 million. This represents an increase
of $10.6 million, or 25%, from 1995. The increase was primarily due to
the acquisition of television station KFTY in April 1996, the
commencement of the time brokerage agreement for the television station
KION in April 1996, and higher programming, promotion, and production
expenses.
. Sports & Entertainment. 1996 operating expenses from sports &
entertainment operations were $61.7 million. This represents an increase
of $16.5 million, or 37%, from 1995. The increase was primarily due to
increased basketball operating expenses related to the Seattle
SuperSonics participating in 21 games of the 1996 NBA playoffs compared
to 4 games in the 1995 NBA playoffs.
Corporate Overhead. 1996 corporate overhead expenses were $8.2 million. This
represents an increase of $0.7 million, or 9%, from $7.5 million in 1995. This
increase was mainly due to expenses associated with the Company's name change
in 1996 and relocation expenses related to moving the Company's corporate
offices in 1996.
Operating Cash Flow. Operating Cash Flow in 1996 increased by $9.3 million,
or 18%, from Operating Cash Flow in 1995. The increase in Operating Cash Flow
in the out-of-home media and broadcasting segments, in conjunction with a
lower deficiency in Operating Cash Flow for the sports & entertainment
segment, more than offset the increase in corporate overhead expenses.
Operating Cash Flow as a percentage of net revenue slightly decreased to 24%
in 1996 from 25% in 1995.
Depreciation and Amortization Expense. Depreciation and amortization
expenses were $17.0 million in 1996. This represents an increase of $3.8
million, or 29%, from 1995 depreciation and amortization expenses of $13.2
million. The increase is mainly the result of depreciation expenses related to
the leasehold improvements for the Key Arena, a newly-constructed facility
which the SuperSonics first used in the 1995-1996 season, and the acquisition
of KFTY in 1996.
Interest Expense. Interest expense was $24.5 million in 1996. This
represents a decrease of $0.5 million, or 2%, from 1995 interest expense of
$25.0 million. This decrease was mainly due to a combination of lower average
debt balances in 1996 and to favorable interest rate contracts in 1996.
Litigation Expense. In 1995, the Company recorded an accrual for a
litigation expense of $14.2 million. See "Business--Legal Proceedings." The
Company recorded no such accrual in 1996.
Income Tax Expense. In 1996, the Company incurred $2.8 million of income tax
expense. The majority of that expense was for state income taxes ($1.2
million), related to a pending settlement of certain prior year tax returns,
and for the federal alternative minimum tax ($1.6 million). Income tax expense
was below the applicable statutory rate primarily due to the utilization of
net operating loss carryforwards.
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<PAGE>
Extraordinary Item. As a result of the credit agreement that it entered into
in 1996, the Company wrote off deferred costs of $0.4 million in 1996. This
write-off was related to the previous credit agreement. There were no
extraordinary items for 1995.
Net Income (Loss). Net income was $15.8 million in 1996. This represents an
increase of $18.7 million from the net loss of $2.9 million in 1995. The
increase was mainly due to the effect of recording an accrual for a litigation
expense in 1995. Net income as a percentage of net revenue increased to 6% in
1996 from a net loss as a percentage of net revenue of 1% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
On January 28, 1998, the Company replaced its existing $77.5 million credit
agreement with the Credit Agreement. The Credit Agreement provides a revolving
credit facility for borrowings of up to $77.5 million, due to restrictions
related to the Senior Notes, including up to $10.0 million in standby letters
of credit. The Credit Agreement further provides that if the Company redeems
the Senior Notes prior to December 15, 1998, the maximum permissible
borrowings under the Credit Agreement will be increased by $187.5 million,
which will consist of a $120.0 million term loan facility and an increase in
the revolving credit facility of $67.5 million. See "--Overview--Refinancing"
above.
In addition, in February 1998 the Partnership replaced its previous credit
agreement with the new Partnership Credit Agreement, which provides for
borrowings of up to $35.0 million. If the Company redeems the Senior Notes
prior to December 15, 1998, the Company plans to request that the banks
increase the amount of borrowings available under the Credit Agreement by up
to an additional $35.0 million, which the Company intends to use to refinance
borrowings under the Partnership Credit Agreement.
As of March 13, 1998, the Company had outstanding revolving credit
borrowings of $70.0 million under the Credit Agreement and $6.7 million
available for future borrowings thereunder, and the Partnership had
$20.5 million of borrowings outstanding under the Partnership Credit Agreement
and $14.5 million available for future borrowings thereunder. The Credit
Agreement requires, subject to certain exceptions, that the Company apply 50%
of the net cash proceeds (as defined therein) received by the Company from the
sale of its capital stock, 100% of the net cash proceeds received by the
Company from the sale of its debt securities and from certain asset
dispositions, and, under certain circumstances, 50% of its excess cash flow
(as defined therein) to repay borrowings thereunder. It further provides that
the amount of borrowings available under the Credit Agreement will be reduced
by the amount of any such repayment. Accordingly, unless the Company is able
to obtain a waiver from the lenders, the Company will be required to apply 50%
of the net proceeds received by the Company from this offering to repay
outstanding indebtedness under the Credit Agreement, which will permanently
reduce the borrowings available to the Company under the Credit Agreement by
the amount of such repayment. The Company intends to request that the lenders
under the Credit Agreement waive the repayment requirement with respect to the
net proceeds the Company will receive from this offering. However, there is no
assurance that the Company will be successful in doing so. The Company will be
required to repay outstanding revolving credit borrowings under the Credit
Agreement in quarterly installments from March 2000 through June 2005. The
term loan facility under the Credit Agreement will become available if the
Company redeems the Senior Notes prior to December 15, 1998. In such event,
and if the Company makes term borrowings under the Credit Agreement, it will
be required to repay outstanding borrowings under the term loan facility in
quarterly installments from March 1999 through June 2005.
The Company can choose to have interest calculated under the Credit
Agreement at a Base Rate or LIBOR rate plus defined margins. As of March 13,
1998, the annual interest rate of borrowings outstanding under the Credit
Agreement was approximately 7.06% and under the Partnership Credit Agreement
was approximately 7.69%.
The Company had $32.5 million aggregate principal amount of Subordinated
Notes outstanding at December 31, 1997. The Subordinated Notes require
principal repayments of $12.5 million, $10.0 million, and $10.0 million in
1998, 1999, and 2000, respectively.
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<PAGE>
The Company has pledged the stock of all of its corporate subsidiaries to
secure its obligations under the Credit Agreement and the Indenture. Thus, if
the Company defaults under the Credit Agreement or the Senior Notes, the
lenders may take possession of and sell some or all of the stock of its
corporate subsidiaries to satisfy its obligations. Similarly, the Partnership
has pledged all its assets as collateral for borrowings under the Partnership
Credit Agreement. If the Partnership defaults under the Partnership Credit
Agreement, the lenders may take possession of and sell some or all of the
Partnership's assets to satisfy its obligations, subject to applicable FCC
restrictions.
In addition, the Credit Agreement, the Indenture, and the Subordinated Notes
restrict, among other things, the Company's ability to assume or issue new
debt, declare and pay dividends, repurchase shares of Common Stock and Class B
Common Stock, and dispose of assets. They also contain restrictive covenants
requiring the Company to maintain certain specified financial ratios. See
"Risk Factors--Financial Condition--Restrictions Imposed by Debt Instruments;
Pledge of Collateral" and "Business--Restrictions on the Company's
Operations."
In connection with time brokerage agreements with the owners of television
stations WUTR and KION, the Company has guaranteed certain bank loan
obligations of the station owners. The aggregate outstanding principal balance
of such obligations was $11.6 million at December 31, 1997. See Note 12 to the
Consolidated Financial Statements.
Working capital was $12.0 million as of December 31, 1997; $11.2 million as
of December 31, 1996; and $15.1 million as of December 31, 1995.
The Company expended $17.6 million, $13.1 million, and $15.1 million for
capital expenditures in 1997, 1996, and 1995, respectively. Management
anticipates that 1998 capital expenditures, consisting primarily of
construction and maintenance of billboard structures, broadcasting equipment,
the Seattle SuperSonics aircraft, and other capital additions, will be between
$20.0 million and $25.0 million. In addition, to the extent that the Company
seeks to make future acquisitions, it may be required to obtain additional
sources of capital to finance such acquisitions. This forward-looking
statement is, however, subject to the qualifications set forth above under "--
Forward-Looking Statements."
For the fiscal years 1995 through 1997, the Company has financed its working
capital needs primarily from cash provided by operating activities. Over that
period, long-term liquidity needs, including for acquisitions, have been
financed primarily through additions to long-term debt, principally through
bank borrowings and the sale of senior and subordinated debt securities.
Capital expenditures over that period for new property and equipment have been
financed primarily with both cash provided by operating activities and long-
term debt. Cash provided by operating activities for 1997 increased to $28.0
million from $16.3 million in 1996. This increase is mainly due to one-time
advance payments made in 1996 related to Seattle SuperSonics players'
contracts.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognizes a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including among other
things, a temporary inability to process transactions and engage in normal
business activities.
The Company has completed a preliminary assessment to identify and mitigate
Year 2000-related issues. Based on such assessment, the Company determined
that most of its core business software that will be in use by 1999 has been
certified in writing to be Year 2000 compliant by the vendors. However, the
Company is aware of some core business software that has not been certified
and is in the process of obtaining certification or replacing the software. In
addition, system replacement projects are being planned for core business
software that is known today to have Year 2000 issues. These systems are
scheduled to be replaced, regardless of Year
29
<PAGE>
2000 issues, by mid-1999. The Company also identified some of the components
of its custom-developed software that are currently not Year 2000 compliant.
As a result, the Company has completed a detailed assessment and has developed
an action plan to address these issues by the end of 1998. Lastly, the Company
does not have total control of systems used in electronic communications with
third parties (e.g., banks, vendors, etc.). If these systems are not
successfully modified to address Year 2000 issues, the operations of the
Company may be negatively impacted. However, as part of its Year 2000 project,
due to be completed in 1998, the Company intends to identify exposure areas
and plan alternative solutions.
Based on its assessment, the Company believes Year 2000 issues will not pose
significant risk to its operations. Modifications and upgrades directly
related to Year 2000 issues are not expected to have a material financial
impact upon the Company.
QUARTERLY VARIATIONS
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 and sports & entertainment segments. In particular, net revenue
and Operating Cash Flow historically have been affected positively during the
NBA season (the first, second, and fourth quarters) and by increased
advertising activity in the second and fourth quarters. In that regard,
results of operations for the Company and its sports & entertainment segment
may vary significantly depending upon the Seattle SuperSonics' participation
in the NBA playoffs and the number of playoff games in which they participate.
TAXES
At December 31, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $38.4 million that expires in the
years 2005 through 2007, and an alternative minimum tax credit carryforward of
approximately $2.1 million.
INFLATION
The effects of inflation on costs generally have been offset by the
Company's ability to correspondingly increase its rate structure.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income. This statement establishes standards for
reporting and disclosure of comprehensive income and its components.
Comprehensive income includes net income and other comprehensive income which
refers to unrealized gains and losses that under generally accepted accounting
principles are excluded from net income. Adoption of this statement is
required in 1998. Currently, the Company does not engage in any transactions
that would result in the reporting of comprehensive income.
OTHER
On March 23, 1998, the Board of Governors of the NBA voted to reopen the
NBA's collective bargaining agreement with the National Basketball Players
Association. As a result, the current agreement will expire on June 30, 1998.
While the Company believes that it is the desire of the NBA Board of Governors
to reach a new agreement before the June 30, 1998 expiration date, there is no
assurance that the parties will do so. If the parties fail to reach a new
agreement before the start of the 1998-99 NBA season, there is a risk that all
or a portion of that season could be canceled. In such event, the Company's
Operating Cash Flow could be adversely affected. However, the loss of revenue
would be partially offset by a substantial reduction of operating expenses,
primarily players' salaries.
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<PAGE>
BUSINESS
GENERAL INFORMATION
The Ackerley Group, Inc. was founded in 1975 as a Washington corporation. In
1978, the Company was reincorporated under Delaware law. The Company is a
diversified media and entertainment company which, through its operating
subsidiaries, engages in three principal businesses:
. Out-of-Home Media. Through the Company's out-of-home media segment, the
Company engages in outdoor advertising in Florida, Massachusetts, and the
Pacific Northwest. The Company believes that it has leading positions in
outdoor advertising in its selected markets located in Washington,
Oregon, Massachusetts, and Florida, based upon the number of outdoor
advertising displays in those markets. The Company also engages in
airport advertising in approximately 80 airports throughout the United
States.
. Broadcasting. The Company engages in television and radio broadcasting in
California, Colorado, New York, and Washington. The Company owns six
television stations, operates three additional television stations under
time brokerage agreements, owns one radio station, and has interests,
through the Partnership, in three additional radio stations.
. Sports & Entertainment. The Company's sports & entertainment segment
includes ownership of the NBA's 1997 Pacific Division Champions, the
Seattle SuperSonics. In addition, the Company engages in sports marketing
and promotion of the SuperSonics through its Full House Sports &
Entertainment division.
OUT-OF-HOME MEDIA
The Company's out-of-home media business segment sells advertising space on
outdoor displays and on displays located in airport terminals. National
advertisers generally categorize outdoor and airport advertising as "out-of-
home media" because, unlike radio and television broadcasting, newspapers, and
magazines, such advertising is disseminated outside the home.
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
relatively low-cost means of reaching large audiences. Outdoor advertising is
used by large national advertisers as part of multi-media and other
advertising campaigns, as well as by local and regional advertisers seeking to
reach local and regional markets.
The Company believes that outdoor advertising is a cost-effective form of
advertising, particularly when compared to television, radio, and print, on a
"cost-per-rating point" basis (meaning cost per 1,000 impressions). Displays
provide advertisers with advertising targeted at a specified percentage of the
general population and are generally placed in appropriate well-traveled areas
throughout a geographic area. This results in the advertisement's broad
exposure within a market.
Outdoor advertising companies generally establish and publish "rate cards"
periodically, typically once a year, which list monthly rates for bulletins,
posters, and junior posters. 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 advertisers are subject to negotiation.
Advertising contracts relating to bulletins, posters, and junior posters
usually have terms of one year or less.
While outdoor advertising has been a stable source of revenue over the last
five years, the number and diversity of the Company's advertisers have
increased. For example, the Company has seen an increase in outdoor
advertising revenue from retail, real estate, entertainment, media, and
financial services companies. In addition, the Company has seen an increase in
customers who have not traditionally used outdoor advertising, such as fashion
designers, internet services providers, and telecommunications companies.
Operations. The Company operates primarily in the greater metropolitan areas
of Seattle/Tacoma, Washington; Portland, Oregon; Boston/Worcester,
Massachusetts; and Miami/Fort Lauderdale and West Palm Beach, Florida. For
purposes of defining out-of-home markets, the Company considers
Seattle/Tacoma, Portland,
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Boston/Worcester, Miami/Fort Lauderdale, and West Palm Beach each to be a
single market. Based on the most recent Traffic Audit Bureau's Summary of
Audited Markets (which was issued in May 1996 and is based on data for years
prior to 1996), the Company believes that it has more outdoor advertising
displays in each of these markets than any other outdoor advertising company.
The Company believes that its presence in large markets, the geographic
diversity of its operations, and its emphasis on local advertisers within each
of its markets lend stability to its revenue base, reduce its reliance on any
particular regional economy or advertiser, and mitigate the effects of
fluctuations in national advertising expenditures. However, because of zoning
and other regulatory limitations on the development of new outdoor advertising
displays, management anticipates that future growth in the Company's outdoor
advertising business will result primarily through diversification of its
advertiser base, increased demand brought about by creative marketing, and
increased rates.
The Company's outdoor advertising operations involve the sale of space on
advertising display faces. They also include, in many cases, the design of
advertisements and the construction of outdoor structures that carry those
displays. The Company's principal outdoor advertising display is the
billboard, of which there are three standard sizes:
. Bulletins: Bulletins are generally 14 feet high and 48 feet wide.
Generally, bulletins are covered with a single sheet of vinyl, called
"Superflex," on which an image has been printed by computer. The
Superflex is 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. Bulletins are usually located near major
highways for maximum impact. Space is usually sold to advertisers for
periods of four to twelve months.
. Posters: The most common type of billboard, posters are generally 12 feet
high by 25 feet wide. Lithographed or silk-screened paper sheets are
typically supplied by the advertiser and arrive prepasted and packaged in
airtight bags. They are applied like wallpaper to the face of the
display. Posters are usually located on major traffic arteries. Space is
usually sold to advertisers for periods of one to twelve months.
. Junior posters: Junior posters are generally 6 feet high by 12 feet wide.
These displays are prepared and mounted in the same manner as posters.
Most junior posters, because of their smaller size, 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, 1997, the Company had 1,363 bulletins, 6,122 posters, and
1,353 junior posters. The following chart itemizes markets the Company serves
and their DMA rank.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------------------
DMA JUNIOR
MARKET RANK(1) BULLETINS POSTERS POSTERS
------ ------- --------- ------- -------
<S> <C> <C> <C> <C>
Northwest:
Seattle/Tacoma.............................. 12 213 1,666 315
Portland.................................... 24 146 1,130 0
Massachusetts:
Boston/Worcester............................ 6 294 1,881 83
Florida:
Miami/Fort Lauderdale....................... 16 515 1,087 955
West Palm Beach............................. 44 195 358 0
</TABLE>
- --------
(1) Source: Stations Volume of the Television Cable Fact Book, 1997 Edition.
The Company owns substantially all of its outdoor displays. These displays
generally are located on leased property. The typical property lease provides
for a term ranging from 5 to 15 years and for a reduction in or termination of
rental payments if the display becomes obstructed during the lease term. In
certain circumstances
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<PAGE>
leases may be terminated, such as where the property owner develops or sells
the property. If a lease is terminated, the Company generally seeks to
relocate the display in order to maintain its inventory of advertising
displays in the particular geographic region. Display relocation is typically
subject to local zoning laws. See "--Regulation."
Sales and Marketing. The Company sells advertising space directly to
advertisers and also sells to advertising agencies and specialized media
buying services. These advertising agencies and specialized media buying
services charge the Company a commission for their services. In recent years,
the Company has focused increasingly on selling directly to local and regional
advertisers.
A broad cross-section of advertisers utilize the Company's outdoor
advertising displays, including tobacco, food and beverage, financial service,
automotive, and retail companies. The Company has actively sought to reduce
the percentage of its revenue attributable to any individual company. As a
result of these efforts, no single outdoor advertiser accounted for more than
3% of the Company's consolidated net revenue for the year ended December 31,
1997. In addition, outdoor tobacco advertising accounted for approximately 5%
of the Company's consolidated net revenue for that year. See "Risk Factors--
Out-of-Home Media--Tobacco Advertising" and""--Regulation."
Competition. The Company competes directly with other out-of-home
advertising companies, and indirectly with other types of advertising media
companies, including television, radio, newspapers, magazines, transit
advertising, yellow page directories, direct mail, local cable systems, and
satellite broadcasting systems. Substantial competition exists among all
advertising media on a "cost-per-rating-point" basis (meaning the cost per
1,000 impressions) and on the ability to effectively reach a particular
demographic section of the market. As a general matter, competition is
confined to defined geographic markets. See "Risk Factors--Competition."
Regulation. Outdoor advertising displays are subject to governmental
regulation at the federal, state, and local levels. These regulations, in some
cases, limit the height, size, location, and operation of outdoor displays
and, in some circumstances, regulate the content of the advertising copy
displayed on outdoor displays. As described below, certain jurisdictions have
recently proposed or enacted regulations restricting or banning outdoor
advertising of tobacco or liquor. Likewise, regulations in certain
jurisdictions prohibit the construction of new outdoor dispays or the
replacement, relocation, enlargement, or upgrading of existing structures. As
a result, no assurance can be given that existing or future laws or
regulations relating to outdoor advertising will not have a material adverse
effect on the Company. See "Risk Factors--Out-of-Home Media--Regulation of
Outdoor Advertising."
The Company's outdoor advertising operations are significantly affected by
local zoning regulations. Some jurisdictions impose a limitation on the number
of outdoor advertising structures permitted within the city limits. In
addition, local zoning ordinances can restrict or prohibit outdoor advertising
displays in specific areas. Most of the Company's outdoor advertising
structures are located in commercial and industrial zones subject to such
regulations. Some states and localities have also enacted restrictions on the
content of outdoor advertising signs.
Advertising for tobacco products has increasingly been the subject of
regulation. In that regard, the Company voluntarily agreed with the King
County (Washington) government to eliminate all tobacco advertising on its
billboards in King County effective January 1, 1998. In addition, in a recent
tobacco settlement, the State of Florida eliminated all tobacco advertising on
billboards throughout the state. In addition, there is legislation pending in
the U.S. Congress which, if enacted in its present form, would prohibit all
outdoor advertising of tobacco products.
Federal law also imposes additional regulations upon the Company's
operations. Under the Federal Highway Beautification Act of 1965, states are
required to adopt programs regulating outdoor advertising along federal
highways. This Act also provides for the payment of compensation to the owner
of a lawfully erected outdoor advertising structure that is removed by
operation of the statute. The Company's policy, when a governmental entity
seeks to remove one of its outdoor advertising displays, is to actively resist
such removal unless adequate compensation is paid.
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Airport Advertising
Industry Overview. Almost all airports in the United States grant franchises
for advertising services. According to a research report prepared by Audits &
Surveys, dated January 1995, airport advertising is particularly attractive to
advertisers targeting a relatively affluent audience with travel-related
needs. The Company engages in airport advertising at approximately 80 airports
throughout the United States.
Franchise Agreements. In order to sell advertising in airports, an airport
advertising company must execute a franchise agreement with local airport
authorities. Franchise agreements essentially authorize airport advertising
companies to install, maintain, and sell advertising space on advertising
display units in an airport's terminal. Many airport authorities have
established advertising guidelines for the location and content of advertising
materials. Some airport authorities retain the right to approve all
advertising displays prior to their installation.
Airport franchise agreements are individually negotiated with authorities
managing airport facilities, usually a county, city, or other governmental
authority. In some instances, the airport advertising company enters into
agreements with individual airlines maintaining separate terminal facilities
under terms similar to those negotiated with the relevant airport authority.
The franchise agreements typically have an 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 revenue derived from advertising in the
airport 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 for
an additional term or indefinitely, on an at-will basis, or subjected to a
competitive bidding process.
Operations. At December 31, 1997, the Company had approximately 3,900
advertising display units in approximately 80 airport terminals throughout the
United States, including principal airports serving Washington, D.C., Miami,
Houston, St. Louis, and Seattle.
Airport advertising display units generally consist of freestanding displays
(usually 4 x 4 feet in size, with some 8 x 8 feet or 10 x 20 feet), interior-
lighted units (usually 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 airport 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. The Company sells airport advertising space to national
and local advertisers at rates based on passenger traffic surveyed at the
relevant airport. The Company sells advertising space on its advertising
display units directly to advertisers, and also sells to advertising agencies
and specialized media buying services acting on behalf of advertisers. A broad
cross-section of advertisers utilize the Company's airport advertising
services, including hotels, motels, automobile rental companies, media and
telecommunication companies, and financial services companies. The Company's
largest airport advertising customer accounted for less than 1% of its
consolidated net revenue for the year ended December 31, 1997.
Competition. The Company competes directly for airport franchises with other
airport advertising companies, and competes indirectly with other types of
advertising media companies, including television, radio, newspapers,
magazines, outdoor advertising, transit advertising, yellow page directories,
direct mail, local cable systems, and satellite broadcast systems. Substantial
competition exists among all advertising media on a "cost-per-rating-point"
basis (meaning the cost per 1,000 impressions) and on the ability to
effectively reach a particular demographic section of the market. As a general
matter, competition is confined to defined geographic markets.
Airport advertising franchises are typically awarded following competitive
bidding. Factors considered in the bidding process include the amount of any
guaranteed minimum payment offered by the bidder, the
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<PAGE>
percentage of gross revenue to be paid to the airport authority, the bidder's
ability to meet specialized needs and the airport authorities' other
specifications, and the bidder's reputation and experience.
BROADCASTING
The Company's broadcasting operations involve the sale of air time to a
broad range of national, regional, and local advertisers.
Television
Industry Overview. Television stations in the United States are either "very
high frequency" or "VHF" stations, transmitting on channels 2 through 13, or
"ultra high frequency" or "UHF" stations, transmitting on channels 14 through
69. Broadcast licenses are issued by the FCC. Television station revenue comes
primarily from local, regional and national advertising. Revenue also comes,
to a lesser extent, from network compensation and from studio rental and
commercial production activities.
Advertising rates are based upon, among other things, (i) a program's
popularity among the viewers whom an advertiser wishes to attract, (ii) the
number of advertisers competing for the available time, (iii) the size and
demographic makeup of the market, and (iv) the availability of alternative
advertising media in the market area. The size of a television station's
audience is measured and reported by independent rating service surveys.
Affiliation with a major network (e.g., ABC, NBC, CBS, or FOX) has a
significant impact on a station's revenue, expenses and operations. A typical
affiliate receives the majority of its daily programming from a network.
Networks provide programming, together with cash payments, to the affiliate in
exchange for a substantial majority of the advertising time during network
programs. The network sells this advertising time and retains the revenue.
Operations. The Company currently operates nine television stations
throughout the United States. The Company operates three of these stations
through time brokerage agreements with the owners; the remainder are Company-
owned stations. The following table sets forth information with respect to the
Company's television stations and the markets in which they operate.
<TABLE>
<CAPTION>
DATE NO. OF
ACQUIRED COMMERCIAL
OR OF TIME DMA TV STATIONS
CALL BROKERAGE NETWORK MARKET RANKED IN
MARKET LETTERS AGREEMENT AFFILIATION RANK(1) MARKET(2) FREQUENCY(3)
- ------ --------- ------------ ----------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Syracuse, New York...... WIXT May 1982 ABC 68 3 VHF VHF
2 UHF(4)
Binghamton, New York.... WIVT July 1997(5) ABC 152 1 VHF UHF
(formerly 2 UHF
WMGC)
Utica, New York......... WUTR June 1997(6) ABC 166 1 VHF UHF
2 UHF
Colorado Springs/Pueblo, KKTV January 1983 CBS 96 3 VHF VHF
Colorado............... 1 UHF(7)
Bakersfield, KGET October 1983 NBC 132 4 UHF(8) UHF
California.............
Vancouver, British
Columbia and portions
of Seattle, Washington
(station located in
Bellingham,
Washington)............ KVOS June 1985 None (9) (9) VHF
Salinas/Monterey, KCBA June 1986 FOX 122 2 VHF UHF
California............. KION April 1996(10) CBS 3 UHF(11) UHF
(formerly
KCCN)
Santa Rosa, California.. KFTY April 1996 None (12) 5 VHF UHF
11 UHF
</TABLE>
35
<PAGE>
- --------
(1) Source: Stations Volume of the Television Cable Fact Book, 1997 Edition.
Market rank is based on population.
(2) Source: Stations Volume of the Television Cable Fact Book, 1997 Edition.
The number of stations listed does not include public broadcasting
stations, satellite stations or translators which rebroadcast signals
from distant stations, and also may not include smaller television
stations whose rankings fall below reporting thresholds.
(3) 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) The Company has entered into a purchase agreement for WIVT (formerly
WMGC). Pending approval of this acquisition by the FCC, the Company is
operating the station under a time brokerage agreement with the current
owner. The date in this column reflects the date the time brokerage
agreement was entered into. See "--Acquisitions and Time Brokerage
Agreements" below.
(6) The Company does not own WUTR but operates the station under a time
brokerage agreement with the current owners. The date in this column
reflects the date the time brokerage agreement was entered into. See "--
Acquisitions and Time Brokerage Agreements" below.
(7) 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.
(8) 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.
(9) KVOS serves primarily the Vancouver, British Columbia market (located in
size, according to the Nielsen Rating Service as of January 1998, between
the markets of Denver, Colorado and Pittsburgh, Pennsylvania, which have
DMA rankings of 18 and 19, respectively), and a portion of the Seattle,
Washington market (DMA rank 12) and the Whatcom County, Washington
market. The station's primary competition consists of five Canadian
stations. DMA rankings are from the Stations Volume of the Television
Cable Fact Book, 1997 Edition.
(10) The Company does not own KION but operates the station under a time
brokerage agreement with the current owner. The date in this column
reflects the date the time brokerage agreement was entered into. See "--
Acquisitions and Time Brokerage Agreements" below.
(11) 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.
(12) While KFTY is included in the San Francisco-Oakland-San Jose DMA market,
which has a DMA rank of 5, the station principally serves the community
of Santa Rosa, which is not separately ranked.
Programming. The Company's network-affiliated television stations operate
under standard contracts with the networks. These standard contracts are
automatically renewed for successive terms unless the Company or the network
exercises cancellation rights. 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's network-affiliated stations often pre-empt network programming
with alternative programming. By emphasizing non-network programming during
certain time periods, the Company increases the amount of advertising time
which may be sold by the Company. Such programming includes locally-produced
news, as well as syndicated and first-run talk programs, children's
programming and movies acquired from independent sources.
KVOS, which does not have a network affiliation, is located in Bellingham,
Washington and serves primarily the market of Vancouver, British Columbia,
Canada. Canadian regulations require Canadian cable television operators to
delete the signals of U.S.-based stations broadcasting network programs in
regularly scheduled time slots and to replace them with the signals of the
Canadian-based network affiliates broadcasting at the same time. By
broadcasting non-network programming, however, KVOS is able to increase the
amount of time it is on the air in the Vancouver market.
Acquisitions and Time Brokerage Agreements. The Company seeks to acquire
television broadcast stations generally in DMA markets ranking from 50 to 200.
The Company also enters into time brokerage agreements with owners of
television stations. Under those agreements, the Company provides programming
and sales services and makes monthly payments to station owners in exchange
for the right to receive revenue from network compensation and advertising
sold by the stations. Over the past three years, the Company has acquired, or
entered into time brokerage agreements to operate, the following stations:
36
<PAGE>
. On April 2, 1996 the Company purchased the assets of television station
KFTY, licensed to Santa Rosa, California, for approximately $7.8 million.
. On April 24, 1996, the Company entered into a time brokerage agreement
with Harron Television of Monterey, the owner of television station KION
(formerly KCCN) licensed to Monterey, California. In conjunction with the
transaction, the Company paid Harron Television approximately $6.3
million for an option to purchase the station's assets for an additional
payment of up to $7.7 million and guaranteed debt of Harron Television.
The outstanding principal amount of such debt was $3.7 million at
December 31, 1997. The Company may exercise the option at any time prior
to April 17, 1999 by delivering notice and performing under the purchase
terms. Under current FCC rules, however, the Company cannot acquire KION
and continue to own KCBA, the Company's television station in
Salinas/Monterey, California. See "--Broadcasting Regulation--Time
Brokerage Agreements." If the Company does not exercise its option, this
time brokerage agreement will expire on April 17, 1999. In addition, the
FCC has under consideration certain rule changes which would prohibit the
Company from both continuing to own KCBA and operate KION under a time
brokerage agreement. See "Risk Factors--Broadcasting--Time Brokerage
Agreements."
. On June 30, 1997, the Company entered into a time brokerage agreement
with Utica Television Partners, L.L.C., the owner of television station
WUTR licensed to Utica, New York. In conjunction with that transaction
and in exchange for an option to purchase the station's assets for a
maximum purchase price of approximately $8.0 million (based in part on
the station's profitability), the Company guaranteed debt of Utica
Television Partners. The outstanding principal amount of such debt was
$7.9 million at December 31, 1997. The Company may exercise the option at
any time prior to May 26, 2006 by delivering notice and performing under
the purchase terms. Under current FCC rules, however, the Company cannot
acquire WUTR and continue to own WIXT, the Company's television station
in Syracuse, New York. See "--Broadcasting Regulation--Time Brokerage
Agreements" below. If the Company does not exercise its option, this time
brokerage agreement will expire on May 26, 2006. In addition, the FCC has
under consideration certain rule changes which would prohibit the Company
from both continuing to own WIXT and operate WUTR under a time brokerage
agreement. See "Risk Factors--Broadcasting--Time Brokerage Agreements."
. On July 28, 1997, the Company entered into a purchase agreement with US
Broadcast Group, L.L.C. and US Broadcast Group, L.P.I, owners of
television station WIVT (formerly WMGC), licensed to Binghamton, New
York, to acquire all the station's assets for $9.0 million, and began
operating the station, pending closing, under a time brokerage agreement.
The Company's acquisition of this station is subject to FCC approval,
which the Company has requested. The time brokerage agreement terminates
on July 28, 1998, subject to automatic extension until such time as
either the Company acquires the station or the purchase agreement
terminates. Either party may terminate the purchase agreement if closing
has not occurred by August 1998.
Smith Broadcasting of New York, Inc., licensee of television stations
WKTV, Utica, New York and WETM-TV, Elmira, New York, and low-power
station WBGH-LP, Binghamton, New York, filed a Petition to Deny the
Company's application to acquire WIVT with the FCC. The Company believes
that the Petition to Deny is without merit and has filed an Opposition to
the Petition to Deny with the FCC. While the Company anticipates
receiving FCC consent to the transaction and closing the acquisition in
1998, there can be no assurance that FCC consent will be forthcoming.
Sales and Marketing. The Company receives revenue from its television
broadcasting operations from the sale of advertising time, usually 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 or on behalf of national and regional
advertisers.
During 1997, local spot or schedule advertising, which is sold by the
Company's personnel at each broadcast station, accounted for approximately 43%
of the Company's television stations' total consolidated net
37
<PAGE>
revenue. National spot or schedule advertising, which is sold primarily
through national sales representative firms on a commission-only basis,
accounted for approximately 53% of the Company's television stations' total
consolidated net revenue for 1997.
The Company also receives revenue from its network affiliations. The
networks pay the Company an hourly rate that is tied to the number of network
programs that the Company's television stations broadcast. Hourly rates are
established in the Company's agreements with the networks and are subject to
change by the networks. The Company has the right, however, to terminate a
network agreement if the network effects a decrease in hourly rates. Overall,
network compensation revenue was not a significant portion of the Company's
television stations' total consolidated net revenue for 1997.
Competition. The Company competes directly with other television stations,
and indirectly with other types of advertising media companies, including
radio, magazines, newspapers, outdoor advertising, transit advertising, yellow
page directories, direct mail marketing, local cable systems, and satellite
broadcasting systems. Substantial competition exists among all advertising
media on a "cost-per-rating-point" basis (meaning the cost per 1,000
impressions) and on the ability to effectively reach a particular demographic
section of the market. As a general matter, competition is confined to defined
geographic markets.
Maintenance of the Company's competitive positions in its broadcast markets
depends upon, among other things, the management experience of each station's
managers, the station's authorized broadcasting power, the station's assigned
frequency, the station's network affiliation, the station's access to non-
network programming, the audience's identification with the station and its
acceptance of the station's programming, and the strength of the local
competition.
In addition, the Company's television stations compete for both audience and
advertising 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. Historically, cable operators have not competed
with local broadcast stations for a share of the local news audience. If they
do, however, the increased competition for local news audiences could have an
adverse effect on advertising revenue.
The Company also faces competition from direct broadcast satellite services
which 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 with other forms of
home entertainment, such as home videotape and video 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, and changes in labor conditions and government
regulations.
The Company believes that the advertising revenue generated by the Company's
television stations are significantly influenced by rankings of their local
news programs in their respective markets. Three of the four network-
affiliated television stations the Company owns ranked number one in their
respective geographic markets in local news ratings points (ratio of the
number of viewers of a station's local news program to total viewers during
the same time period) delivered, according to the November 1997 Nielsen
Station Index.
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 1700 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 public's perception that stereo broadcasting,
which until recently was only available on FM radio stations, provides
enhanced sound quality.
38
<PAGE>
The radio stations owned by the Company and the Partnership derive most of
their revenue from local, regional, and national advertising and, to a lesser
extent, from network compensation. In 1997, approximately 72% of the Company's
radio broadcasting consolidated net revenue was derived from local advertising
generated by the stations' local sales staffs. National sales, on the other
hand, are usually generated by national independent sales representatives
acting as agents for the stations. The representatives obtain advertising from
national advertising agencies and receive commissions 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,
costs of transmitting equipment, and music license royalty fees.
Operations. The Company owns one radio station (KHHO(AM) in Tacoma,
Washington) and holds an interest in the Partnership, which owns and operates
three radio stations (KJR(AM), KJR-FM and KUBE(FM)) in Seattle, Washington.
Century Management, Inc., the sole general partner, controls the operations of
the Partnership's three radio stations.
In February 1998, the Partnership redeemed the limited partnership interests
of two limited partners, and satisfied certain other obligations, for $18.0
million, leaving the Company as the sole limited partner in the Partnership.
In February, 1998, the Company joined in an agreement that provides for the
Partnership to redeem the general partner's interest for approximately $17.7
million, following which the Company will be the sole owner of KJR(AM), KJR-
FM, and KUBE(FM). The redemption requires approval of the FCC, which the
Company has requested. The Company currently anticipates receiving the FCC's
consent and closing this transaction in 1998.
The following table sets forth certain information with respect to radio
stations KJR(AM), KJR-FM, KUBE(FM), and KHHO(AM):
<TABLE>
<CAPTION>
RADIO STATION
RADIO NO. OF FORMAT AND
STATION MSA COMMERCIAL PRIMARY
POWER MARKET RADIO STATIONS DEMOGRAPHIC
MARKET CALL LETTERS DATE ACQUIRED (WATTS) RANK(1) IN MARKET(1) TARGET
------ ------------ ---------------- ----------- ------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Seattle/Tacoma, KJR(AM) May 1984 (2) 5,000 13 11 AM Sports Talk;
Washington Men 25-54 (3)
KJR-FM (4) October 1987 (2) 100,000 20 FM Classic Hits;
Adults 25-54
KUBE(FM) July 1994 (5) 100,000 Top 40 Contemporary
Hit Radio;
Persons 18-34
KHHO(AM) March 1998 10,000 Sports Talk;
(daytime) Men 25-54
1,000
(nighttime)
</TABLE>
- --------
(1) Source: Fall 1997 Arbitron Radio Market Report. Metro Survey Area ("MSA")
market rank is based on population.
(2) Reflects the dates on which the Company first acquired the stations. The
Company contributed the station's assets to the Partnership in 1994. The
stations are currently owned by the Partnership.
(3) KJR(AM) serves as the Seattle SuperSonics' flagship radio station.
(4) Formerly KLTX(FM).
(5) This station is currently owned by the Partnership. The date shown in the
column reflects the date on which the Partnership acquired the station
from Cook Inlet, Inc.
Sales and Marketing. Most of the Company's radio broadcasting revenue comes
from the sale of air time to local advertisers. Each station's advertising
rates depend upon, among other things, (i) the station's ability to attract
audiences in its target demographic group, and (ii) the number of stations
competing in the market area. The size of a radio station's audience is
measured by independent rating service surveys.
39
<PAGE>
Much like the Company's television broadcasting stations, the radio stations
owned by the Company and the Partnership sell local spot or schedule
advertising. During 1997, such advertising accounted for approximately 72% of
the radio stations' consolidated net revenue. In contrast, approximately 25%
of the radio stations' 1997 consolidated net revenue was received from
national spot or schedule advertising, which is sold primarily through
national sales representative firms on a commission-only basis. The remaining
revenue consisted of tower rentals and production fees.
Competition. The Company and the Partnership compete directly with other
radio stations, and indirectly with other types of advertising media
companies, including television, newspapers, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail, local cable
systems, and satellite broadcasting systems. Substantial competition exists
among all advertising media on a "cost-per-rating-point" basis (meaning the
cost per 1,000 impressions) and on the ability to effectively reach a
particular demographic section of the market. As a general matter, competition
is confined to defined geographic markets.
A radio station's ability to maintain its competitive position in a market
is dependent upon a number of factors, including (i) the station's rank within
the market, (ii) transmitter power, (iii) assigned frequency, (iv) audience
characteristics, (v) audience acceptance of the station's local programming,
and (vi) the number and types of other stations in the market area.
Radio stations frequently change their broadcasting formats and radio
personalities in order to seize a larger percentage of the market. Thus, the
ratings of the radio stations owned by the Company and the Partnership are
regularly affected by changing formats.
Broadcasting Regulation
General. The Company's television and radio operations are heavily regulated
under the Communications Act and other federal laws. The Communications Act,
for instance, limits the number of broadcast properties that the Company may
acquire and operate. It also restricts ownership of broadcasting properties by
foreign individuals and foreign companies.
The Communications Act authorizes the FCC to supervise the administration of
federal communications laws, and to adopt additional rules governing
broadcasting. Thus, the Company's television and radio broadcasting operations
are primarily regulated by the FCC. The FCC, for example, approves all
acquisitions, transfers, assignments and renewals of the Company's
broadcasting properties.
KVOS, located in Bellingham, Washington, derives much of its revenue from
the Vancouver, British Columbia market, and is additionally regulated and
affected by Canadian law. Unlike U.S. law, for instance, a Canadian firm
cannot deduct expenses for advertising on a U.S.-based television station
which broadcasts into a Canadian market. In order to compensate for this
disparity, KVOS sells advertising time in Canada at a discounted rate. In
addition, Canadian law limits KVOS's ability to broadcast certain programming.
See "--Television--Operations."
Ownership. FCC rules limit the number and type of broadcasting properties
that the Company may own in the same geographic market. Thus, in a particular
geographic market, the Company cannot own the following combinations: more
than one television station; a cable system and a television station; or a
radio or television station and a daily newspaper. In addition, there are
limitations on the number of radio stations that the Company may own in a
market which vary according to the size of the market.
Time Brokerage Agreements. Currently, the FCC's Duopoly Rule precludes the
common ownership of more than one television station in a market. The FCC
does, however, permit a television station owner to program significant
amounts of the broadcast time of another station in the same market under a
time brokerage agreement, as long as the licensee of that other station
maintains ultimate control and responsibility for the programming and
operations of the station and compliance with applicable FCC rules and
policies.
40
<PAGE>
In connection with a review of its current overall television ownership
rules, the FCC is considering whether to eliminate or amend the Duopoly Rule
and whether to treat the programming of more than 15% of a station's weekly
broadcast time under a time brokerage agreement as outright ownership of that
station in counting the number of stations the programmer owns. The FCC has
indicated that if it ultimately decides to treat time brokerage agreements as
equivalent to ownership, it will either grandfather time brokerage agreements
entered into before a specific date or provide a period of time for station
owners to comply with the new rules by disposing of their interests in
television stations and/or time brokerage agreements for television stations
operating in the same markets.
The Company programs significant amounts of the broadcast times of stations
KION in Monterey, California and WUTR in Utica, New York under time brokerage
agreements. Although the Company has options to acquire both of these
stations, the FCC's Duopoly Rule currently prevents the Company from acquiring
the licenses of KION and WUTR because the Company owns television stations in
the same markets or owns stations that have substantially overlapping coverage
areas even though they are in different markets (i.e., KCBA in Salinas,
California, which is considered to be the same market as Monterey, California
and WIXT in Syracuse, New York, which overlaps the market of Utica, New York).
As a result, if the FCC were to decide that the programmer under a television
time brokerage agreement should be treated as owning the programmed station,
and if it does not change its Duopoly Rule to permit common ownership of two
stations in the same market, the Company would be required either (i) to
modify or terminate a time brokerage agreement that is not grandfathered, or
(ii) to sell the station in the market where the Company also has a time
brokerage agreement that is not grandfathered, which could have a material
adverse effect on the Company. The Company cannot predict whether the FCC will
change these rules.
Programming and Advertising. The Communications Act requires broadcasters to
serve the public interest. Thus, the Company's television and radio stations
are required to present some programming that is responsive to community
problems, needs, and interests. The Company must also broadcast informational
and educational programming for children, and limit the amount of commercials
aired during children's programming. The Company is also required to maintain
records demonstrating its broadcasting of public interest programming. FCC
rules impose obligations and restrictions on the broadcasting of political
advertising, sponsorship identifications, and the advertisement of contests
and lotteries.
Affirmative Action. FCC rules require the Company to develop and implement
programs designed to promote equal employment opportunities. The Company must
submit annual reports to the FCC documenting its compliance with those rules.
Cable Television. In many parts of the country, cable television operators
rebroadcast television signals via cable. In connection with cable
rebroadcasts of those signals, each television station is granted, pursuant to
the Cable Television Consumer Protection and Competition Act of 1992, either
"must-carry rights" or "retransmission consent rights." Each television
broadcaster must choose either must-carry rights or retransmission consent
rights with regard to its local cable operators.
If a broadcaster chooses must-carry rights, then the cable operator will
probably be required to carry the local broadcaster's signal. Must-carry
rights are not absolute, however, 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 broadcaster chooses retransmission consent rights, the broadcaster is
entitled to (i) prohibit a cable operator from carrying its signal, or (ii)
consent to a cable operator's rebroadcast of the broadcaster's signal, either
without compensation or pursuant to a negotiated compensation arrangement.
The four network-affiliated stations (KKTV, KCBA, KGET and WIXT) that the
Company owns have chosen retransmission consent rights, rather than must-carry
rights, within their respective markets. These stations have granted consents
to their local cable operators for the rebroadcast of their signals. The three
network-affiliated stations that the Company operates under time brokerage
agreements (KION, WUTR, WIVT) have chosen retransmission consent rights within
their respective markets.
41
<PAGE>
Digital Television. In recent years, developments in advanced television
technology have enabled broadcasters to deliver sharper television pictures
and sound to viewers. This new technology, sometimes referred to as digital
television or "DTV," will require broadcasters to transmit programming on a
new digital signal. In addition, DTV would require viewers to purchase new DTV
televisions or adapters in order to view digital programming.
After several years of investigations and debate, Congress adopted the
Telecommunications Act of 1996. This law requires the FCC to oversee the
transition from current analog television broadcasting to DTV broadcasting.
During the transition period, the FCC will issue one digital broadcast license
to each existing television licensee which files a license application. The
FCC has ordered network affiliates in larger broadcast markets to begin DTV
broadcasts during 1999. The Company's stations are required to begin
construction of their digital transmission facilities by May 1, 2002, but may
begin sooner if the Company so chooses. The stations will then be allowed to
broadcast two signals using two channels, one digital and one analog during
the transition period, which will extend until 2006. At the end of the
transition period, broadcasters will be required to choose whether they will
continue broadcasting on the digital or the analog channel, and return the
other channel to the FCC.
DTV will impose additional costs on the Company's television broadcasting
operations, due to increased equipment and operating costs, and on television
viewers, due to the increased costs of new DTV televisions. In addition,
conversion to DTV may reduce the Company's television stations' geographical
coverage area. On the other hand, the Company's television operations may
receive higher revenue due to their conversion to DTV. Thus, the Company
cannot assess DTV's impact on the Company's television operations.
FCC Rule Changes. Communications laws and FCC rules are subject to change.
These changes may adversely affect the Company's broadcasting operations. For
example, the FCC recently adopted rules that reduce the required distance
between existing stations and allow the utilization of directional antennas,
terrain shielding, and other engineering techniques. Another recent rule
change resulted in the expansion of the AM radio band. Other changes may
result in the addition of more AM and FM stations, or increased broadcasting
power for existing AM and FM stations, thus increasing competition to the
Company's broadcasting operations.
In addition to the matters discussed elsewhere herein, the U.S. Congress and
the FCC are currently considering many new laws, regulations, and policies
that could affect the Company's broadcasting operations. For instance,
Congress and/or the FCC currently are considering proposals to: (i) impose
spectrum use or other fees upon broadcasters; (ii) amend the FCC's equal
employment opportunity rules and other rules relating to minority and female
employment in the broadcasting industry; (iii) revise rules governing
political broadcasting, which may require stations to provide free advertising
time to political candidates; (iv) permit expanded use of FM translator
stations or the creation of microradio stations; (v) restrict or prohibit
broadcast advertising of alcoholic beverages; (vi) change broadcast technical
requirements; (vii) auction the right to use radio and television broadcast
spectrum; (viii) expand the operating hours of daytime-only stations; and (ix)
revise its television ownership and attribution rules.
The Company cannot predict the likelihood of Congress or the FCC adopting
any of these proposals. If any should be adopted, the Company cannot assess
their impact on its broadcasting operations. In addition, the Company cannot
predict the other changes that Congress or the FCC might consider in the
future.
Renewal of Broadcasting Licenses. The Company's broadcasting operations
depend upon the ability of the Company and the Partnership to renew their
broadcasting licenses, and the ability of the station owners to renew the
licenses for the stations the Company operates under time brokerage
agreements. Television and radio licenses (including renewals), in accordance
with the Telecommunications Act of 1996, currently are issued for terms of
eight years.
In considering whether to renew a license, the FCC considers several
factors, including the licensee's compliance with the FCC's children's
television rules, the FCC's equal employment opportunity rules, and the FCC's
radio frequency radiation rules. The FCC also considers the Communications
Act's limitations on license
42
<PAGE>
ownership by foreign individuals and foreign companies, and rules limiting
common ownership of broadcast, cable and newspaper properties. The FCC further
considers the licensee's general character, including the character of persons
holding interests in the licensee. In addition, the FCC considers complaints
from the public concerning the license holder, and competing applications from
third parties to acquire an existing license.
The FCC usually renews a license holder's broadcasting license. Because the
FCC may not grant renewal, however, the Company has no assurance that any of
its broadcasting licenses will be renewed, especially if third parties
challenge its renewal applications or file competing applications to acquire
its licenses.
The following chart lists the Company broadcasting licenses, and
broadcasting licenses owned by the Partnership and by the owners of television
stations the Company operates under time brokerage agreements, which are
subject to renewal within the next two years:
<TABLE>
<CAPTION>
BROADCASTING LICENSE EXPIRATION DATE
-------------------- ---------------
<S> <C>
KUBE(FM)(1).............................................. 2/1/98(2)
KKTV..................................................... 4/1/98(2)
KCBA..................................................... 12/1/98
KION(3).................................................. 12/1/98
KGET..................................................... 12/1/98
KFTY..................................................... 12/1/98
KVOS..................................................... 3/1/99
WIXT..................................................... 6/1/99
WIVT(3).................................................. 6/1/99
WUTR(3).................................................. 6/1/99
</TABLE>
- --------
(1) These stations are owned by the Partnership.
(2) Renewal applications for these stations are currently pending with the
FCC.
(3) The Company does not own these stations, but operates these stations
pursuant to time brokerage agreements. See "--Television--Acquisitions
and Time Brokerage Agreements."
No challenges or competing applications have been filed with respect to any
of the broadcasting licenses set forth in the above table for which the
Company or the Partnership has filed a renewal application, except for an
informal objection to KUBE's license renewal application. An application for
license renewal is normally filed four months before a license's expiration.
SPORTS & ENTERTAINMENT
The Company's sports & entertainment business consists of ownership of its
professional sports franchise, the Seattle SuperSonics, and its sports
marketing division, Full House Sports & Entertainment.
The Company also owns the Seattle SeaDogs, a franchise of the Continental
Indoor Soccer League and the 1997 League Champions. The Continental Indoor
Soccer League, however, terminated its business activities at the end of the
1997 indoor soccer season for financial reasons.
Seattle SuperSonics
The SuperSonics franchise is one of 29 members of the NBA. NBA teams play a
regular season schedule of 82 games from November through April, in addition
to 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 four years, and played for the NBA championship in 1996.
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<PAGE>
Industry Overview. The Company is a member of the NBA by virtue of its
ownership of the SuperSonics franchise. Thus, the Company shares in profits
generated by the NBA as a whole, and shares joint and several liability for
the NBA's debts and other obligations. Revenues shared equally by NBA members
include revenue from television broadcasting agreements, merchandising, the
award of new NBA franchises, and related activities.
As a member of the NBA, the Company must abide by the NBA's constitution,
bylaws, rules, and regulations, and by the NBA Commissioner's interpretation
of those rules and regulations. The NBA's Board of Governors consists of
representatives appointed by each NBA member. The Board of Governors, in turn,
elects a Commissioner. The Commissioner and the Board of Governors arbitrate
disputes between franchises; assure that the conduct of franchises, players,
and officials is in accordance with the NBA's constitution, bylaws, rules, and
regulations; review and authorize player transactions between franchises; and
impose sanctions (including fines and suspensions) on members, players, and
officials who are found to have breached NBA rules and regulations. The sale
of any NBA franchise is subject to the approval of a majority of the NBA's
franchise owners.
Operations. The NBA granted Seattle an NBA franchise in 1966. The
SuperSonics, throughout their history, have played in the Seattle/Tacoma area.
In November 1995, the team began using the Key Arena, a newly constructed
17,100-seat events facility, under a 15-year lease between the Company and the
City of Seattle.
The Company acquired the SuperSonics in 1983. The SuperSonics franchise, as
permitted by the NBA's constitution and bylaws, is authorized to operate for
an indefinite term of years, so long as the Company maintains its NBA
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. In addition, the SuperSonics' operations are subject to an NBA
collective bargaining agreement, which is discussed under "--Employees" below.
Sales and Marketing. The Company's revenue from the SuperSonics come from
(i) Company activities, such as ticket sales, merchandising, concessions, and
multi-media advertising packages that include local television and radio
broadcast advertising (called sponsorship packages), and (ii) the Company's
share of NBA revenue, such as network broadcasting rights, merchandising, and
the granting of new NBA franchises to new cities.
A major source of revenue is ticket sales for home games. The Company
receives substantially all of the revenue from SuperSonics ticket sales.
Revenue from ticket sales depends highly on the SuperSonics win/loss record.
The SuperSonics have the second best aggregate regular reason win/loss record
of any NBA team over the past five seasons (including the 1997-98 season).
Average paid attendance per game increased from 13,846 for the 1994-95 regular
season to 15,277 for the 1995-96 regular season, and to 15,632 for the 1996-97
regular season. Average paid attendance per game for the 1997-98 regular
season (through March 13, 1998) decreased to 15,411. The Company believes that
growth in average paid attendance since the 1994-95 season was mainly due to
the team's improved win/loss record and the team's move to the new Key Arena.
A majority of the SuperSonics games are broadcast on two local television
stations, KSTW and KTZZ, and one cable station, FOX Sports Northwest. All of
the SuperSonics' games are broadcast exclusively in the Seattle/Tacoma area
over radio station KJR(AM), which is owned by the Partnership, and KHHO(AM),
which the Company owns. The Company also licenses radio stations owned by
other broadcasting companies to carry SuperSonics games.
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<PAGE>
The Company shares equally with the other NBA franchises in revenue
generated by the NBA as a whole. A large portion of these revenue consists of
broadcast licenses granted to television networks. Such broadcast rights have
increased significantly in recent years and are expected to become a more
significant portion of total NBA revenue, primarily due to the growth of cable
television. In the spring of 1993, the NBA entered into new contracts with NBC
and TBS/TNT providing for the television broadcast of certain league games
through the 1997-98 season. These contracts provide for minimum total payments
to the NBA over the four-year contract period of approximately $1.1 billion.
Recently, the NBA renewed its contracts with NBC and TBS/TNT through the 2001-
2002 season. These contracts provide for total payments to the NBA over the
four-year contract period of up to $2.6 billion, plus, under certain
circumstances, revenue sharing payments. However, there can be no assurance
that the full $2.6 billion will be received by the NBA over the life of these
contracts.
Competition. The Company competes directly with other professional and
amateur sporting franchises and events, both in the Seattle/Tacoma market area
and nationally via sports broadcasting. The SuperSonics also compete
indirectly with other types of entertainment, including television, radio,
newspapers, live performances, and other events. Because the Company owns the
only NBA franchise located in the Seattle/Tacoma metropolitan area, there is
no significant local competition involving professional basketball. The
SuperSonics compete with professional football and baseball franchises located
in the Seattle/Tacoma metropolitan area. See "Risk Factors--Competition."
FINANCIAL INFORMATION REGARDING BUSINESS SEGMENTS
Financial information concerning each of the Company's business segments is
set forth in Note 14 to the Notes to Consolidated Financial Statements.
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PROPERTIES
The Company's principal executive offices are located at 1301 Fifth Avenue,
Suite 4000, Seattle, Washington 98101. The Company leases these offices, which
consist of approximately 16,800 square feet, pursuant to a lease that expires
in 2006.
The following table sets forth certain information regarding the Company's
facilities as of December 31, 1997:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE SQUARE
SQUARE FOOTAGE FOOTAGE
LOCATION NATURE OF FACILITY OWNED LEASED
-------- ------------------ -------------- -----------
<S> <C> <C> <C>
OUT-OF-HOME MEDIA
Seattle, Washington (Outdoor
Advertising)................... Plant 35,889 1,185
Boston, Massachusetts (Outdoor
Advertising)................... Plant 31,882 5,700
Miami, Florida (Outdoor
Advertising)................... Plant 242,980 --
Multiple locations (Airport
Advertising)................... Offices -- 18,820
BROADCASTING
Syracuse, New York (WIXT)....... Station Operations 25,000 --
Binghamton, New York (WIVT)(1).. Station Operations 21,638 --
Utica, New York (WUTR)(1)....... Station Operations 12,148 --
Colorado Springs, Colorado
(KKTV)......................... Station Operations 31,100 753
Bakersfield, California (KGET).. Station Operations 30,450 --
Bellingham, Washington (KVOS)... Station Operations 13,130 11,856
Salinas/Monterey, California
(KION(1) and KCBA)............. Station Operations 30,000 20,841
Santa Rosa, California (KFTY)... Station Operations 13,000 700
Portland, Oregon................ Antenna Facility 3,500 --
Seattle, Washington (KJR(AM),
KJR-FM, KUBE(FM))(2)........... Station Operations -- 16,082
Tacoma, Washington
(KHHO(AM))(1).................. Station Operations -- 4,252
SPORTS & ENTERTAINMENT
Seattle, Washington............. Office & Operating 30,000 27,246
Facilities
OTHER
Seattle, Washington (Corporate
Offices)....................... Offices -- 16,814
New York, New York (National
Sales Offices)................. Offices -- 11,359
Los Angeles, California
(National Sales Offices)....... Offices -- 1,841
</TABLE>
- --------
(1) The Company operates these stations under time brokerage agreements.
Accordingly, this table reflects data for the properties which are owned
or leased by the station owners for whom the Company operates the
stations. As of December 31, 1997, the Company had not yet acquired KHHO.
(2) The Partnership owns these stations.
In general, management believes that the Company's facilities are adequate
for its present business and that additional space is generally available for
expansion without significant delay. In 1997, the Company paid aggregate
annual rentals on office space and operating facilities of approximately $1.8
million.
KJR(AM) broadcasts from transmission facilities located on property leased
from the Port of Seattle, currently on a month-to-month basis. The Partnership
has filed an application with the FCC to co-locate KJR(AM)'s transmission
facilities with KHHO's facilities in Tacoma, Washington. The Partnership is
negotiating with the Port of Seattle to continue broadcasting from the present
tower location or from an alternative site until KJR(AM) can broadcast from
the KHHO site. However, the Partnership does not expect that KJR will be able
to broadcast from the KHHO site for at least another two to four years. The
Partnership is exploring its legal options in the event that the Port of
Seattle attempts to eject it from the current site before it is able to use
the new site.
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<PAGE>
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.
It was first occupied and used by the SuperSonics in November 1995, the
beginning of the 1995-96 NBA season. The SeaDogs used the Key Arena in 1996
and 1997.
At December 31, 1997, the Company owned 296 vehicles and leased 87 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. The Company presently leases, under a private carrier
agreement, a Learjet that is used for executive travel between its facilities.
In February 1998, the Company purchased a Boeing 727 jet aircraft to replace
the BAC 1-11 that it previously leased, which is used for travel involving the
SuperSonics.
EMPLOYEES
As of December 31, 1997, the Company employed 1,322 full-time persons. The
following table sets forth a breakdown of employment in each of the Company's
operating segments and corporate offices:
<TABLE>
<CAPTION>
OPERATING SEGMENT/CORPORATE OFFICES PERSONS EMPLOYED
----------------------------------- ----------------
<S> <C>
Out-of-Home Media....................................... 365
Broadcasting............................................ 809
Sports & Entertainment.................................. 105
Corporate Offices....................................... 43
</TABLE>
Approximately 280 of the Company's employees are represented by unions under
13 collective bargaining agreements. In addition to the NBA collective
bargaining agreement discussed below, collective bargaining agreements
covering approximately 6% of the Company's employees are terminable during
1998. The Company believes that, except as discussed below, these collective
bargaining agreements will be renegotiated or automatically extended and that
any renegotiation will not materially adversely affect its operations.
On March 23, 1998, the NBA Board of Governors voted to reopen the NBA's
collective bargaining agreement with the National Basketball Players
Association. As a result, the current agreement will expire on June 30, 1998.
While the Company believes that it is the desire of the NBA Board of Governors
to reach a new agreement before the June 30, 1998 expiration date, there is no
assurance that the parties will do so. If the parties fail to reach a new
agreement before the start of the 1998-99 season, there is a risk that all or
a portion of that season could be cancelled, which could have a material
adverse effect on the Company. See "Risk Factors--Sports & Entertainment--
Labor Relations in Professional Sports."
RESTRICTIONS ON THE COMPANY'S OPERATIONS
In addition to restrictions on the Company's operations imposed by
governmental regulations, franchise relationships, and other restrictions
discussed elsewhere herein, the Company's operations are subject to additional
restrictions imposed by its current financing arrangements.
In that regard, the Company's operations are subject to restrictions imposed
by the Credit Agreement, the Indenture, and the Subordinated Note Agreements.
Some of those provisions restrict the Company's ability to: (i) assume or
issue new debt and make advances, and to repay outstanding debt; (ii) incur
capital lease obligations in excess of a certain amount; (iii) enter into
certain time brokerage agreements; (iv) amend or modify the Senior Notes or
the Subordinated Notes; (v) incur additional negative pledges; (vi) enter into
sale and leaseback transactions; (vii) guaranty obligations; (viii) acquire
securities or assets of other businesses; (ix) create liens on its properties;
(x) dispose of assets; (xi) make certain investments and capital expenditures;
(xii) repurchase shares of Common Stock and Class B Common Stock; (xiii)
declare and pay dividends or make distributions on Common Stock and Class B
Common Stock; (xiv) change its, or enter into new, lines of business; (xv)
enter into transactions with affiliates; and (xvi) issue securities of, or
restrict distributions by, its subsidiaries.
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<PAGE>
In addition, the Company is required to maintain specified financial ratios,
including a maximum leverage ratio, minimum interest coverage ratio, and
minimum fixed charge coverage ratio. The Credit Agreement requires, subject to
certain exceptions, that the Company apply 50% of the net cash proceeds (as
defined therein) received by the Company from the sale of its capital stock,
100% of the net cash proceeds received by the Company from the sale of its
debt securities and from certain asset dispositions, and, under certain
circumstances, 50% of its excess cash flow (as defined therein) to repay
borrowings thereunder. It further provides that the amount of borrowings
available under the Credit Agreement will be permanently reduced by the amount
of any such repayment. The Company intends to request that the lenders under
the Credit Agreement waive the repayment requirement with respect to the net
proceeds the Company will receive from this offering. However, there is no
assurance that the Company will be successful in doing so. The Credit
Agreement also provides that it is an event of default thereunder if the
Ackerley Family (as defined therein) owns less than 51% of the outstanding
voting stock of the Company. In addition, upon the occurrence of a change of
control (as defined in the Indenture and the Subordinated Note Agreements, as
applicable), the holders of the Senior Notes and the Subordinated Notes have
the right to require the Company to repurchase the Senior Notes and the
Subordinated Notes, respectively.
The Company has pledged the stock of all its corporate subsidiaries to
secure its obligations under the Credit Agreement and Indenture. In the event
of a default under the Credit Agreement or the Indenture, the bank lenders or
the holders of the Senior Notes, as the case may be, could demand immediate
payment of the principal of and interest on all such indebtedness, and could
force a sale of all or a portion of the stock of the Company's subsidiaries to
satisfy its obligations. Likewise, because of cross-default provisions in the
Company's debt instruments, a default under the Credit Agreement, the
Indenture, or the Subordinated Notes could result in acceleration of
indebtedness outstanding under other debt instruments.
In addition, the Partnership has pledged all of its assets to secure
borrowings under the Partnership Credit Agreement. That agreement contains
restrictions on the Partnership's operations and financial ratios maintenance
requirements similar to those outlined above. In the event of a default under
such agreement, the lenders could demand immediate repayment of the principal
of and interest on all such borrowings and could force a sale of all or a
portion of the Partnership's assets to satisfy its obligations, subject to
applicable FCC restrictions.
Additional information concerning the Credit Agreement, Partnership Credit
Agreement, Senior Notes, and Subordinated Notes is set forth in Note 7 to the
Notes to Consolidated Financial Statements.
LEGAL PROCEEDINGS
General. 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. Management believes that the outcome of any such
pending claims or proceedings, individually or in the aggregate, will not have
a material adverse effect upon the Company's business or financial condition,
except for the matters disclosed below.
Lambert v. Ackerley. In December 1994 six former employees of one of the
Company's subsidiaries filed a complaint in King County (Washington) Superior
Court against Seattle SuperSonics, Inc. and Full House Sports & Entertainment,
Inc., both of which are wholly-owned subsidiaries of the Company, and two of
the Company's officers, Barry A. Ackerley and William N. Ackerley. The
complaint alleged various violations of applicable wage and hour laws and
breaches of employment contracts. The plaintiffs sought unspecified damages
and injunctive relief.
On or about January 10, 1995, those claims were removed on motion by the
defendants to the U.S. District Court for the Western District of Washington
in Seattle. On September 5, 1995, the plaintiffs amended the claims (1) to
specify violations of Washington and U.S. federal labor laws and (2) to seek
additional relief, including
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<PAGE>
liquidated and punitive damages under the U.S. Fair Labor Standards Act and
double damages under Washington law for willful refusal to pay overtime and
minimum wages.
On February 29, 1996, the jury rendered a verdict finding that the
defendants had wrongfully terminated the plaintiffs' employment under
Washington law and U.S. federal laws, and awarded compensatory damages of
approximately $1.0 million for the plaintiffs and punitive damages against the
defendants of $12.0 million. Following post-trial motions, the court reduced
the punitive damages award to $4,182,000, comprised of $1,394,000 against each
of Barry A. Ackerley and William N. Ackerley, and $1,394,000 against the
corporate defendants collectively.
On November 22, 1996, the defendants filed their Notice of Appeal from the
U.S. District Court to the Ninth Circuit Court of Appeals in San Francisco.
The appeal is currently pending.
Doe v. KION. In December 1997, complaints were filed in the California
Superior Court, County of Monterey, against AK Media Group, Inc., the
Company's principal operating subsidiary, and various employees of KION TV,
Monterey, California. The complaints seek unspecified damages for intentional
and negligent invasion of privacy, intentional and negligent infliction of
emotional distress, and negligence arising from KION's news coverage of the
prosecutions of two defendants charged with crimes involving minors. The
plaintiffs in the present civil cases are the two minor victims of these
crimes.
Civil proceedings are currently pending in the California Superior Court,
County of Monterey. The parties have agreed in principal to consolidate the
cases for purposes of discovery and pre-trial matters. The Company has filed a
demurrer to all causes of action and a special motion to strike under
California Code of Civil Procedure Section 425.16. Hearings regarding these
motions are scheduled to be held in May 1998.
Van Alstyne v. The Ackerley Group, Inc. On June 7, 1996, a former sales
manager for WIXT, Syracuse, New York filed a complaint in the U.S. District
Court for the Northern District of New York against the Company, WIXT and the
current and former general managers of WIXT. The complaint seeks unspecified
damages and injunctive relief for discrimination on the basis of gender and
disability, as well as unlawful retaliation, under both state and federal law.
A tentative trial date has been set for December 20, 1998.
RSA Media Inc. v. AK Media Group, Inc. On June 4, 1997, RSA Media Inc., a
supplier of out-of-home advertising in Massachusetts, filed a complaint in the
U.S. District Court for the District of Massachusetts alleging that the
Company has unlawfully monopolized the Boston-area billboard market in
violation of the Sherman Antitrust Act, engaged in unlawful restraint of trade
in violation of the Sherman Antitrust Act, and committed unfair trade
practices in violation of Massachusetts state law. The plaintiff is seeking in
excess of $20 million in damages. The Company has filed a motion to dismiss
the complaint, which motion is still pending.
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and positions of individuals
who are serving as the directors and executive officers of the Company. Each
director will hold office until the next annual meeting of stockholders or
until his or her successor has been elected and qualified. Executive officers
are elected by, and serve at the discretion of, the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Barry A. Ackerley...................... 64 Chairman and Chief Executive Officer
Gail A. Ackerley....................... 60 Co-Chairman and Co-President
Richard P. Cooley...................... 74 Director
M. Ian G. Gilchrist.................... 48 Director
Michael C. Thielen..................... 63 Director
William N. Ackerley.................... 37 Co-President and Chief Operating
Officer
Denis M. Curley........................ 50 Co-President and Chief Financial
Officer, Secretary, and Treasurer
Keith W. Ritzmann...................... 46 Senior Vice President and Chief
Information Officer, Assistant
Secretary, and Controller
</TABLE>
Mr. Barry A. Ackerley, one of the founders of the Company, assumed the
responsibilities of President and Chief Operating Officer 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
effective April 1991. He has been the Chief Executive Officer and a director
of the Company and its predecessor and subsidiary companies since 1975. He
also currently serves as the Company's Chairman.
Ms. Gail A. Ackerley was elected to the Board of Directors in May 1995. She
became Co-Chairman in September 1996, and was elected as one of the Company's
Co-Presidents in November 1996. Ms. Ackerley has served as Chair of Ackerley
Corporate Giving since 1986, supervising the Company's charitable activities.
Mr. Richard P. Cooley was elected to the Board of Directors in May 1995. Mr.
Cooley is the former Chairman and Chief Executive Officer of Seattle First
National Bank. He served as Chairman from 1988 through April 1994, and served
as Chief Executive Officer from 1988 through 1991. He is presently a member of
the Board of Directors of Egghead Inc.
Mr. M. Ian G. Gilchrist was elected to the Board of Directors in May 1995.
He is a Managing Director of Salomon Brothers Inc, an investment banking firm
which is affiliated with Smith Barney Inc. Prior to joining that company in
May 1995, Mr. Gilchrist was a Managing Director of CS First Boston
Corporation.
Mr. Michael C. Thielen has served as a director of the Company since 1979.
Mr. Thielen is Chairman and President of Thielen & Associates, an advertising
agency. He is also Vice President of Executive Wings, Inc., an airport
operations company.
Mr. William N. Ackerley was elected President in August 1993. He has served
as Chief Operating Officer 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 through October 1988, as Vice
President of the Seattle SuperSonics, Inc., in front office administration;
from October 1988 to September 1989, as Vice President of the Company, working
on special projects; and from September 1989 to April 1991, as Project Manager
with a subsidiary, The New Seattle Arena, Inc., responsible for the
development of a proposed sports arena.
Mr. Denis M. Curley, who joined the Company in December 1984, was elected as
a Co-President in November 1997. Previously, he served as Executive Vice
President from March 1995 to his election as a Co-President. Before then, he
served as Senior Vice President from January 1990 through the date of his
election as Executive Vice President. He has served as the Company's Chief
Financial Officer since May 1988. Mr. Curley also presently serves as
Secretary and Treasurer.
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<PAGE>
Mr. Keith W. Ritzmann was named Senior Vice President and Chief Information
Officer in January 1998. Before then, he served as a Vice President from
January 1990 through the date of his election as Senior Vice President. He
also presently serves as Assistant Secretary and Controller.
See "Certain Relationships and Related Transactions" for information
regarding the family relationships between certain of the Company's executive
officers and directors.
DIVISION MANAGEMENT
The following table sets forth information concerning the senior managers of
certain operating divisions of AK Media Group, Inc., the principal operating
subsidiary of the Company.
<TABLE>
<CAPTION>
NAME POSITION(S)
---- -----------
<C> <S>
Out-of-Home:
Randal G. Swain............. President, AK Media Northwest
Broadcasting:
David P. Reid............... Vice President and General Manager of KVOS TV
Sports & Entertainment:
John Dresel................. President, Full House Sports & Entertainment
Walter F. ("Wally") Walker.. President, Seattle SuperSonics
</TABLE>
Mr. Randal G. Swain was named President of the Company's Northwest outdoor
division, AK Media Northwest, in 1993. Previously, he served as the division's
Vice President of Operations from 1992 and assistant Operations Manager from
1982. Mr. Swain originally joined the Company in 1976 and has 22 years of
industry experience.
Mr. David P. Reid serves as Vice President and General Manager of KVOS-TV in
Bellingham, Washington, a position he has held since 1985. Prior to joining
the Company, Mr. Reid worked as the General Sales Manager of WSEE-TV in Erie,
Pennsylvania from 1982 to 1985. He has 21 years of industry experience.
Mr. John Dresel serves as President of Full House Sports & Entertainment, a
position he has held since 1994. Prior to that date he served as General
Manager of KJR(AM), KLTX-FM (now KJR-FM) and the Seattle SuperSonics from 1992
to 1994. Mr. Dresel's affiliation with the Company dates back to 1986, when he
joined the Seattle SuperSonics as Director of Ticket Sales. He has 12 years of
industry experience.
Mr. Walter F. ("Wally") Walker serves as President of the Seattle
SuperSonics, a position he has held since 1994. Prior to joining the Company,
Mr. Walker worked for Goldman, Sachs & Co. for seven years (1987-1994), and in
1992, was certified as a Chartered Financial Analyst. From 1976 to 1984 he
played professional basketball with three different NBA teams, including the
Seattle SuperSonics (1977-1982). Upon his completion of his professional
basketball career, he attended Stanford University's Graduate School of
Business from 1985 to 1987. He has 12 years of industry experience.
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<PAGE>
COMPENSATION
All of the Company's executive officers receive compensation for their
services. The following table sets forth compensation information concerning
the Chief Executive Officer and the four other most highly compensated
executive officers ("Named Executives") for the fiscal years ended December
31, 1997, 1996, and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) AWARDS ALL OTHER COMPENSATION
---------------------------- ------------ ----------------------
SECURITIES SAVINGS
UNDERLYING AND
NAME AND OPTIONS RETIREMENT OTHER($)
PRINCIPAL POSITIONS YEAR SALARY ($) BONUS ($) (#)(2) PLAN ($)(3) (4)
------------------- ---- ---------- --------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Barry A. Ackerley....... 1997 500,016 200,000 -0- 6,400 13,182
Chairman and Chief
Executive Officer 1996 500,016 200,000 -0- 6,000 6,318
1995 500,016 200,000 -0- 6,000 18,706
Gail A. Ackerley........ 1997(5) 200,000 30,000 -0- -0- 4,050
Co-Chairman and Co-
President
William N. Ackerley..... 1997 300,000 298,716(6) -0- 6,400 594
Co-President and Chief
Operating Officer 1996 216,010 25,489 -0- 6,000 594
1995 208,200 30,731 20,000 6,000 486
Denis M. Curley......... 1997 259,992 386,089(6) -0- 6,400 2,484
Co-President and Chief
Financial Officer,
Treasurer, 1996 200,000 23,600 -0- 4,863 1,566
and Secretary 1995 192,500 28,248 30,000 6,000 1,566
Keith W. Ritzmann....... 1997 115,440 94,200(6) -0- 4,618 1,031
Senior Vice President
and Chief Information
Officer, 1996 111,000 10,268 -0- 4,440 577
Controller, and 1995 106,800 10,168 5,000 4,272 552
Assistant Secretary
</TABLE>
- --------
(1) None of the Named Executives received perquisites or other personal
benefits, in any of the years shown, in an aggregate amount equal to or
exceeding the lesser of (i) $50,000 or (ii) 10% of the executive's total
annual salary and bonus for each year.
(2) The Company did not have a stock appreciation rights program during the
fiscal years ended December 31, 1997, 1996, or 1995.
(3) The amounts appearing in this column are the Company's contributions and
credits on behalf of each Named Executive under its Savings and
Retirement Plan.
(4) Includes value of life insurance in excess of $50,000 for each of the
Named Executives and imputed interest on indebtedness to the Company
incurred by Barry A. Ackerley for the years 1997 and 1995.
(5) Ms. Ackerley first became an executive officer of the Company when she
was elected Co-President on November 3, 1996. She was not an executive
officer of the Company prior to that date.
(6) Includes bonuses to William N. Ackerley, Denis M. Curley, and Keith W.
Ritzmann in the amounts of $253,716, $338,287, and $84,572, respectively,
which were declared in 1997 for payment in March 1998.
OPTION GRANTS IN LAST FISCAL YEAR
Pursuant to the Company's Stock Option Plan, options to acquire shares of
Common Stock have been granted to some of the Named Executives from time to
time. No options were granted to any of the Named Executives during 1997.
52
<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR
The following table includes the number of shares of Common Stock covered by
both exercisable and non-exercisable stock options held by each of the Named
Executives as of December 31, 1997. Also reported are the values for "in-the-
money" options which represent the positive spread between the exercise price
of any such existing stock options and the year-end price of the Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE (#) UNEXERCISABLE ($)
---- ----------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Barry A. Ackerley....... -0- -0- -0- -0-
Gail A. Ackerley........ -0- -0- -0- -0-
William N. Ackerley..... 30,000 421,875 -0-/20,000 -0-/186,200
Denis M. Curley......... 40,000 562,500 -0-/30,000 -0-/363,125
Keith W. Ritzmann....... 10,000 140,625 -0-/ 5,000 -0-/ 46,563
</TABLE>
REPRICING, REPLACEMENT OR CANCELLATION AND REGRANT OF OPTIONS
The Company did not adjust or amend the exercise price of stock options
previously awarded to any of the Named Executives at any time during 1997.
LONG TERM INCENTIVE PLANS
The Company did not grant any long-term incentive compensation to any of its
Named Executives during 1997.
DIRECTORS' FEES
Those directors not employed by the Company as officers receive a quarterly
fee of $5,000. In addition, the Company reimburses each nonemployee director
up to $1,500 per quarter for his or her out-of-pocket expenses in connection
with attendance at meetings of the Board of Directors. Nonemployee directors
are eligible to receive their directors' fees in the form of shares of Common
Stock, as discussed in "--Nonemployee-Directors' Equity Compensation Plan."
BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has no separate compensation committee. Thus, the
Board as a whole determines the compensation to be paid to the Company's
executive officers as well as the options to be granted to any executive
officer at any time. Barry A. Ackerley, the Company's Chief Executive Officer,
and his wife, Gail A. Ackerley, one of its Co-Presidents, served on the Board
of Directors during the past fiscal year.
EMPLOYEE STOCK OPTION PLAN
From time to time, the Company issues stock options to certain employees
eligible to receive such options pursuant to its Employee Stock Option Plan.
The plan was approved by the Board of Directors and the Company's stockholders
in 1983. In 1994, the plan was amended, with the approval of the shareholders,
to, among other things, extend the plan's term and to increase the number of
shares available for stock option grants. The plan was further amended in 1997
to revise provisions governing termination of stock options upon termination
of employment due to retirement or disability. A total of 1,000,000 shares of
Common Stock were originally authorized and reserved for issuance under the
plan. The terms of all options granted under the plan may not exceed ten
years, except for options granted to a 10% shareholder, which may not exceed
five years.
53
<PAGE>
The plan allows the grant of both "incentive stock options" and
"nonincentive stock options" to employees, including the corporate officers.
"Incentive stock options" are options which, as required by Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
must have exercise prices equal to or greater than the fair market value of
the Common Stock on the date the options are granted. The exercise price of
any incentive stock options granted to employees who own more than 10% of the
voting rights of the Company's outstanding capital stock, however, must equal
at least 110% of the fair market value on the grant date and the maximum term
of the option must not exceed five years.
Nonincentive stock options are not subject to the special exercise price
restriction imposed upon incentive stock options by the Internal Revenue Code.
The exercise price of all nonincentive stock options granted under the plan is
determined by the Board of Directors in its sole discretion.
The Board of Directors administers the plan, and determines employees who
are granted options and the terms of those options (including the term of the
option, exercise price, number of shares subject to the option, and the
exercisability of the option). Options cannot be transferred other than by
will or the laws of descent and distribution. Only the holder can exercise the
options granted to him or her during his or her lifetime.
Generally, options vest and become exercisable five years from the date of
grant and terminate ten years from the date of grant. Options may terminate
earlier, however, if the holder's employment is terminated. If the Company
merges into, consolidates with, or acquires another corporation, or if the
Company sells substantially all of its assets, then the Company shall be
entitled to (i) permit any optionee, even as to any option not then
exercisable by its terms, to exercise such option, (ii) require such optionee
to complete the exercise of any option by the effective date of such merger,
consolidation or acquisition, (iii) provide for the assumption by the
surviving or acquiring entity of all outstanding options, or (iv) take other
action that the Board of Directors deems fit.
As of December 31, 1997, the Company had options to purchase an aggregate of
320,600 shares of Common Stock outstanding at a weighted average exercise
price of $4.75 per share, leaving 230,250 shares of Common Stock available for
future grants under the plan. During 1997, options to purchase 367,400 shares
of Common Stock were exercised.
STOCK PURCHASE AGREEMENTS
In 1981, the Company entered into various Stock Purchase Agreements with
several key employees. Under the Stock Purchase Agreements, the Company agreed
to sell shares of Common Stock and Class B Common Stock to various parties at
a price per share equal to the fair market value of the stock when the
agreements were executed.
In 1989, the Company entered into amendments to some of the Stock Purchase
Agreements. Under the Stock Purchase Agreements, as amended, the holders may
purchase shares at any time within ten years from the date of the amendment.
The holders can purchase the shares with funds which have been credited to
escrow accounts, which are subject to certain earlier termination provisions.
Under certain circumstances, the Company may have a right of first refusal
on the sale of any shares of Common Stock and Class B Common Stock acquired
pursuant to the Stock Purchase Agreements. In connection with the Class B
Common Stock dividend in June 1987, the Stock Purchase Agreements were amended
to provide for the distribution of one share of Class B Common Stock at no
extra cost to the holder for each share of Common Stock subject to the Stock
Purchase Agreement at the time such Common Stock is purchased.
As of December 31, 1997, there was an aggregate of 52,500 shares of Common
Stock and an equal number of shares of Class B Common Stock subject to Stock
Purchase Agreements, at a weighted average purchase price per share of $2.00
per share of Common Stock. During 1997, no rights to purchase Common Stock or
Class B Common Stock under any Stock Purchase Agreement were exercised. No
Named Executives hold outstanding rights to purchase stock under any of the
Stock Purchase Agreements.
54
<PAGE>
SAVINGS AND RETIREMENT PLAN
In 1978, the Company adopted its Savings and Retirement Plan. The Savings
and Retirement Plan was amended, effective January 1, 1985, to convert it to a
plan qualified under Section 401(k) of the Internal Revenue Code.
All employees who have served at least three months as of the beginning of a
calendar quarter, including employees of the Company's subsidiaries who are
not covered by collective bargaining agreements, may participate in the plan.
The exclusion of employees subject to collective bargaining agreements may be
waived in individual cases. As of December 31, 1997, all of the Company's
subsidiaries were participating in the plan.
The plan allows participating employees to contribute from 1% to 15% of
their compensation, up to a limit imposed by the Internal Revenue Code. The
Company matches participating employees' contributions up to 4% of their
compensation and may also make an addition voluntary contribution to the plan.
The Company's obligation to provide matching contributions vests over a
period of five years. An employee vests a portion of such matching
contributions after completion of three years of service. Once an employee has
completed five years of service, 100% of the matching contributions are
vested. The Company may be obligated to contribute 100% before an employee
completes five years of service if he or she turns 65, becomes totally
disabled, or dies.
All amounts contributed by an employee, and those portions of the amounts
contributed by the Company that have vested, are payable in a single lump sum
or a qualified joint and survivor annuity upon retirement, total disability,
death, or termination of employment.
NONEMPLOYEE-DIRECTORS' EQUITY COMPENSATION PLAN
The Company's Nonemployee-Directors' Equity Compensation Plan was approved
by the Board of Directors in 1995 and by its shareholders in 1996. Directors
who do not also serve as employees are eligible to participate in the plan.
The plan's purpose is to allow nonemployee directors to elect to receive
directors' fees in the form of shares of Common Stock instead of in cash.
There were a total of 100,000 shares of Common Stock authorized and 95,290 are
reserved for issuance under the plan.
Nonemployee directors who want to receive their directors' fees in shares of
Common Stock must submit a written election to the Company before their
quarterly directors' fees become due and payable for a given quarter. The
Company issues a number of shares to each nonemployee director as calculated
against the closing price on
the last trading day of the quarter, as quoted on the AMEX until December 15,
1997 and, thereafter, as quoted on the NYSE. Thus, a nonemployee director
receives the number of shares that he could have purchased for $5,000 on the
open market as of closing on the last trading day of the quarter.
As of December 31, 1997, Richard P. Cooley, M. Ian G. Gilchrist, and Michael
C. Thielen have each received a total of 2,653 shares (as adjusted to reflect
the Company's 1996 stock split) of Common Stock, including 1,570 shares during
1997, pursuant to their respective elections under the plan.
55
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AIRCRAFT TRANSACTION
In June 1990, a corporation owned by the Company's Chairman and Chief
Executive Officer, Barry A. Ackerley, and Co-Chairman and a Co-President, Gail
A. Ackerley, entered into an agreement with one of the Company's subsidiaries
to provide air transportation services for the Seattle SuperSonics and other
purposes. The agreement called for monthly fees of approximately $63,000 for
such services. This agreement terminates in mid-1998. The Company believes
that this agreement is at least as fair to the Company as a transaction which
could have been negotiated with a third party.
FAMILY RELATIONSHIPS
During 1997, the Company employed William N. Ackerley and Kimberly Cleworth,
both of whom are the children of Barry A. Ackerley and Gail A. Ackerley.
William N. Ackerley serves as Co-President and Chief Operating Officer.
Details regarding his compensation, stock ownership, and related matters are
set forth under "Management" and "Principal and Selling Stockholders."
Kimberly Cleworth served as Vice President of Marketing from January 1, 1994
through June 13, 1997, when her employment terminated. She was paid a total of
$63,489 during 1997 as compensation.
ADVANCES
From time to time the Company advanced funds to certain executive officers
for their personal use. Interest on such advances accrues at the same rate as
that charged to the Company on its senior bank debt, which was 7.06% as of
March 13, 1998.
Since January 1, 1995, the highest aggregate amount of such loans to Barry
A. Ackerley was $1,025,000. At December 31, 1997, 1996, and 1995, the
aggregate outstanding principal amounts of such loans were $1,025,000, $-0-
and $-0-, respectively.
In August 1997, the Company advanced $123,977 to William N. Ackerley, and
$165,303 to Denis M. Curley, which amounts were still outstanding as of
December 31, 1997. Interest on these loans accrues at a fixed rate of 7.5%.
These loans were due and were fully repaid in March 1998.
56
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and Class B Common Stock of the Company as of
March 13, 1998 (except with respect to The Capital Group Companies, Inc., for
which information is given as of February 10, 1998), and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, with respect to
(i) each person known by the Company to own beneficially more than 5% of the
outstanding shares of Common Stock, (ii) Barry A. Ackerley, the Chairman and
Chief Executive Officer and the Company, and The Ginger and Barry Ackerley
Foundation (collectively, the "Selling Stockholders"), (iii) each of the
Company's executive officers and directors, and (iv) all of the Company's
officers and directors as a group. Unless otherwise indicated, the address of
each stockholder is c/o The Ackerley Group, Inc., 1301 Fifth Avenue, Suite
4000, Seattle, Washington 98101.
COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
OWNED AFTER THE
OFFERING
---------------
NUMBER OF
SHARES PERCENT OF SHARES
BENEFICIALLY CLASS OWNED BEING
NAME AND ADDRESS OWNED(1) BENEFICIALLY(1) OFFERED(2) NUMBER %
- ---------------- ------------ --------------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C>
Barry A. Ackerley....... 10,094,043(2) 49.1% 150,000 9,944,043 45.1%
Gail A. Ackerley........ 10,094,043(3) 49.1% -- 9,944,043 45.1%
Richard P. Cooley....... 6,100 * -- 6,100 *
M. Ian G. Gilchrist..... 1,180 * -- 1,180 *
Michel C. Thielen....... 2,960 * -- 2,960 *
William N. Ackerley..... 52,029 * -- 52,029 *
Denis M. Curley......... 40,002 * -- 40,002 *
Keith W. Ritzmann....... 10,802 * -- 10,802 *
Gabelli Funds, Inc.
One Corporate Center
Rye, NY 10580-1434..... 2,768,300 13.5% -- 2,768,300 12.5%
The Capital Group
Companies, Inc.
333 South Hope St.,
52nd Floor
Los Angeles, CA 90071.. 1,285,000 6.2% -- 1,285,000 5.8%
The Ginger and Barry
Ackerley Foundation.... 596,670 2.9% 350,000 246,670 1.1%
All Directors and
Executive Officers as a
group (8 persons)...... 10,207,116 49.6% -- 10,057,116 45.6%
</TABLE>
57
<PAGE>
CLASS B COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
BENEFICIALLY CLASS OWNED
NAME OWNED(1) BENEFICIALLY(1)
- ---- ------------ ---------------
<S> <C> <C>
Barry A. Ackerley.............................. 10,960,029(2) 99.2%
Gail A. Ackerley............................... 10,960,029(3) 99.2%
William N. Ackerley............................ 30,578(4) *
Keith W. Ritzmann.............................. 200 *
All Directors and Executive Officers as a
group......................................... 10,990,807 99.4%
</TABLE>
- --------
* Indicates amounts equal to less than 1% of the outstanding shares.
(1) Unless otherwise indicated, represents shares over which each stockholder
exercises sole voting or investment power.
(2) Barry A. Ackerley and Gail A. Ackerley are husband and wife. Includes
7,264 shares of Common Stock and 264 shares of Class B Common Stock held
by Gail A. Ackerley, of which Mr. Ackerley disclaims beneficial ownership.
Does not include shares held by The Ginger and Barry Ackerley Foundation.
(3) Barry A. Ackerley and Gail A. Ackerley are husband and wife. The amount
shown includes 10,086,779 shares of Common Stock and 10,959,765 shares of
Class B Common Stock held by Barry A. Ackerley, of which Ms. Ackerley
disclaims beneficial ownership. Does not include shares held by The Ginger
and Barry Ackerley Foundation.
(4) Includes 18,966 shares of Class B Common Stock held by William N.
Ackerley's minor children, for which William N. Ackerley exercises sole
voting and investment power as custodian under the Washington Uniform
Transfers to Minors Act.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock and 11,406,510 shares of Class B Common Stock. At March 13, 1998,
20,572,213 shares of Common Stock and 11,053,270 shares of Class B Common Stock
were outstanding. After giving effect to the issuance and sale of the Common
Stock being offered hereby, the Company will have outstanding 22,072,213 shares
of Common Stock and 11,053,270 shares of Class B Common Stock.
COMMON STOCK AND CLASS B COMMON STOCK
Voting Rights. Each share of Common Stock is entitled to one vote and each
share of Class B Common Stock is entitled to ten votes on all matters presented
for a vote of the Company's stockholders. The Common Stock and the Class B
Common Stock vote together as a single class on all matters presented for a
vote of stockholders, except as otherwise provided by law. Under the DGCL, the
holders of a majority of the outstanding shares of Common Stock or Class B
Common Stock, voting as separate classes, must approve certain amendments to
the Company's Certificate of Incorporation affecting the shares of such class.
Specifically, if there is any proposal to amend the Certificate of
Incorporation in a manner that would increase or decrease the aggregate number
of authorized shares of such class, increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences or special
rights of the shares of such class so as to affect such class adversely, such
an amendment must be approved by a majority of the outstanding shares of the
affected class, voting separately as a class. Shares of Common Stock and Class
B Common Stock do not have cumulative voting rights whether voting as a
separate class or a single class.
After the sale of the Common Stock offered hereby, Barry A. Ackerley, the
Chairman of the Board and Chief Executive Officer of the Company, will
beneficially own approximately 45% of the outstanding shares of Common Stock
and approximately 99% of the outstanding shares of Class B Common Stock, giving
him approximately 90% of the combined voting power of the Company's voting
securities. So long as Mr. Ackerley continues to own or control stock having a
majority of the combined voting power of the Company's voting securities, he
will have the power to elect all of the Company's directors and effect
fundamental corporate transactions such as mergers, asset sales, and "going
private" transactions without the approval of any other stockholder. Moreover,
Mr. Ackerley's voting control would effectively prevent any other person or
entity from acquiring or taking control of the Company without his approval.
See "Risk Factors--Voting Control by Principal Stockholder," "Management," and
"Principal and Selling Stockholders."
Dividends. Holders of shares of Common Stock and Class B Common Stock share
equally in such dividends, if any, as may be declared from time to time by the
Board of Directors of the Company at its discretion from funds legally
available therefor. See "Dividend Policy."
Terms of Conversion. The shares of Common Stock have no conversion rights.
Each share of Class B Common Stock is convertible at any time, at the option of
the holder, into one share of Common Stock.
Restrictions on Transfer of Common Stock and Class B Common Stock. The
Company's Bylaws provide that no shares shall be issued or transferred to any
person where such issuance or transfer will result in the violation of the
Communications Act or any regulations promulgated thereunder, and that any
purported transfer in violation of such restrictions is void. Likewise, the
Company's Certificate of Incorporation provides that, so long as the Company or
any of its subsidiaries hold authority from the FCC (or any successor thereto)
to operate any television or radio broadcast station, if the Company has reason
to believe that the ownership, or proposed ownership, of shares of the
Company's capital stock by any stockholder or any person presenting any shares
of the Company's capital stock for transfer into his name ("Proposed
Transferee") may be inconsistent with, or in violation of, any Federal
Communications Laws (as defined therein), such stockholder or Proposed
Transferee, upon request of the Company, is required to furnish such
information (including, without limitation, information with respect to
citizenship, other ownership interests and affiliations) as the Company shall
reasonably request to determine whether the ownership of, or the exercise of
any rights with respect to, shares of the Company's capital stock by such
stockholder or Proposed Transferee is inconsistent with, or in violation of,
the Federal
59
<PAGE>
Communications Laws. If any stockholder or Proposed Transferee from whom such
information is requested shall fail to respond to such request, or if the
Company shall conclude that the ownership of, or the exercise of any rights of
ownership with respect to, shares of capital stock by such stockholder or
Proposed Transferee could result in any inconsistency with or violation of
Federal Communications Laws, the Company may refuse to permit the transfer of
shares of capital stock to such Proposed Transferee or may suspend those
rights of stock ownership the exercise of which would result in such
inconsistency with or violation of the Federal Communications Laws, with such
refusal of transfer or suspension to remain in effect until the requested
information has been received or until the Company has determined that such
transfer, or the exercise of such suspended rights, as the case may be, is
permissible under the Federal Communications Laws. The Company may exercise
any and all appropriate remedies, at law or in equity, in any court of
competent jurisdiction, against any such stockholder or Proposed Transferee,
with a view towards obtaining such information or preventing or curing any
situation which would cause any inconsistency with, or violation of, any
provision of the Federal Communication Laws. The existence of the foregoing
restrictions on transfer is noted in a legend set forth on the certificates
evidencing the Common Stock and Class B Common Stock.
The foregoing restrictions on transfer are intended to ensure compliance
with, among other things, the alien ownership restrictions of the
Communications Act. Among these restrictions is a provision which prohibits
aliens or their representatives, a foreign government or representatives
thereof or any corporation organized under the laws of a foreign country from
owning of record or voting, directly or indirectly, more than one-fifth of the
capital stock of a corporation holding a radio or television station license
or more than one-fourth of the capital stock of a corporation holding the
stock of a broadcast licensee.
Restrictions on Transfers of Class B Common Stock. The transfer of Class B
Common Stock is restricted by the Certificate of Incorporation to Permitted
Transferees (as defined therein), which, in general, include only (i) spouses
and former spouses of the current holder, and the current holders' estates;
(ii) the original holders of the Class B Common Stock, their spouses and
former spouses, and their lineal descendants (including lineal descendants of
their spouses and former spouses); (iii) entities controlled by, or solely
benefitting, the current holder or a Permitted Transferee (such as trusts,
corporations, charitable organizations, and partnerships); and (iv) the
Company's executive officers and employee benefit plans. Any purported
transfer of shares of Class B Common Stock other than in accordance with the
restrictions set forth in the Certificate of Incorporation results in the
automatic conversion of such shares into a like number of shares of Common
Stock.
Liquidation Rights. In the event of the liquidation, dissolution or winding
up of the Company, holders of shares of Common Stock and Class B Common Stock
are entitled to share ratably in the assets available for distribution to
stockholders.
Other. No stockholder of the Company has preemptive or other rights to
subscribe for additional shares of the Company. All outstanding shares of
Common Stock and Class B Common Stock are, and the shares of Common Stock to
be sold by the Company in the offering hereby will be, fully paid and
nonassessable.
The Company's Certificate of Incorporation provides that, if the Company
subdivides or combines the outstanding shares of Common Stock or Class B
Common Stock, the Company is required to proportionately subdivide or combine
the outstanding shares of the other class of capital stock.
The Company's Certificate of Incorporation eliminates, in certain
circumstances, the liability of directors and former directors of the Company
for monetary damages for breach of their fiduciary duty as directors. This
provision does not eliminate or limit the liability of a director (i) for a
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions by the director not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for a willful or
negligent declaration and payment of an unlawful dividend, stock purchase or
redemption; (iv) for transactions from which the director derived an improper
personal benefit; or (v) for any act or omission which occurred before such
section of the Company's Certificate of Incorporation became effective.
60
<PAGE>
SECTION 203 OF THE DELAWARE LAW
Generally, Section 203 of the DGCL prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless (i) prior to such date
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the board of
directors of the corporation; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (A) persons
who are both directors and officers and (B) certain employee stock plans; or
(iii) on or after such date the business combination is approved by the board
of directors and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. A
"business combination" includes certain mergers, consolidations, asset sales,
transfers, and other transactions resulting in a financial benefit to the
stockholder. An "interested stockholder" is, in general, a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. Although a corporation's
certificate of incorporation may exclude such corporation from the
restrictions imposed by Section 203, the Company's Certificate of
Incorporation does not exclude the Company from those restrictions.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Stock is First Union
National Bank, N.A.
61
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Stockholders have agreed
to sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Smith Barney Inc. .................................................
Bear, Stearns & Co. Inc. ..........................................
NationsBanc Montgomery Securities LLC..............................
Total.......................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Bear, Stearns & Co. Inc., and
NationsBanc Montgomery Securities LLC are acting as the Representatives,
propose to offer part of the shares of Common Stock offered hereby directly to
the public at the public offering price set forth on the cover page of this
Prospectus and part of the shares to certain dealers at a price which
represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial offering of the shares to the public, the public offering price and
such concessions may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the price to public set forth on the
cover page of this Prospectus minus the underwriting discounts and commissions
and minus an amount per share equal to any dividends or distributions payable
on the shares purchased by the Underwriters as set forth in the preceding
table and not payable on the shares to be purchased pursuant to such option.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite such Underwriter's name in the preceding table bears
to the bears to the total number of shares listed in such table.
The Company, its executive officers and directors, certain employees of the
Company, and the Selling Stockholders have agreed that, for a period of 90
days from the date of this Prospectus, they will not, without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell or
otherwise dispose of any shares of Common Stock or Class B Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock
or Class B Common Stock, other than the shares of Common Stock offered hereby.
62
<PAGE>
In connection with this offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more shares of Common Stock than the
total amount shown on the list of Underwriters and participations which
appears above) and may effect transactions which stabilize, maintain or
otherwise affect the market price of the Common Stock at levels above those
which might otherwise prevail in the open market. Such transactions may
include placing bids for Common Stock or effecting purchases of Common Stock
for the purpose of pegging, fixing or maintaining the price of the Common
Stock or for the purpose of reducing a syndicate short position created in
connection with the offering. A syndicate short position may be covered by
exercise of the option described above in lieu of or in addition to open
market purchases. In addition, the contractual arrangements among the
Underwriters include a provision whereby, if the Representatives purchase
Common Stock in the open market for the account of the underwriting syndicate
and the Common Stock purchased can be traced to a particular Underwriter or
member of the selling group, the underwriting syndicate may require the
Underwriter or selling group member in question to purchase the Common Stock
in question at the cost price to the syndicate or may recover from (or decline
to pay to) the Underwriter or selling group member in question the selling
concession applicable to the Common Stock in question. The Underwriters are
not required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
The Company, the Selling Stockholders, and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
M. Ian G. Gilchrist, a Managing Director of Salomon Brothers Inc, serves as
a director of the Company. Salomon Brothers Inc and Smith Barney Inc. are
affiliated but separately registered broker/dealers under common control of
Salomon Smith Barney Holdings Inc. See "Management."
Certain affiliates of Smith Barney Inc., one of the Underwriters, are the
beneficial owners of more than 10% of the Company's outstanding Subordinated
Notes and, as a result of such beneficial ownership, this offering is being
made pursuant to Conduct Rule 2720 of the National Association of Securities
Dealers, Inc.
LEGAL MATTERS
Certain legal matters in connection with the sale of the Common Stock being
offered, including the validity of the Common Stock being offered, will be
passed upon for the Company and the Selling Stockholders by Graham & Dunn PC,
Seattle, Washington. Certain legal matters concerning federal communications
law and other legal matters are being passed upon for the Company by Rubin,
Winston, Diercks, Harris & Cooke, L.L.P., Washington, D.C. and by Eric M.
Rubin, Assistant Secretary and General Counsel of the Company. Mr. Rubin,
Assistant Secretary and General Counsel of the Company and a partner in Rubin,
Winston, Diercks, Harris & Cooke, L.L.P., beneficially owns 104,600 shares of
Common Stock and 600 shares of Class B Common Stock and has been granted
options to purchase 30,000 shares of Common Stock. Brown & Wood LLP, San
Francisco, California will act as counsel for the Underwriters.
EXPERTS
The consolidated financial statements of The Ackerley Group, Inc. at
December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Ernst & Young LLP, independent auditors...................... F-2
Consolidated balance sheets as of December 31, 1997 and 1996........... F-3
Consolidated statements of operations for the years ended December 31,
1997, 1996, and 1995.................................................. F-4
Consolidated statements of stockholders' deficiency for the years ended
December 31, 1997, 1996, and 1995..................................... F-5
Consolidated statements of cash flows for the years ended December 31,
1997, 1996, and 1995.................................................. F-6
Notes to consolidated financial statements............................. F-8
</TABLE>
F-1
<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, 1997 and 1996, and the related consolidated
statements of operations, stockholders' deficiency, and cash flows for each of
the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
-------------------------------------
Seattle, Washington
February 27, 1998
except for Note 12, as to which
the date is March 23, 1998
F-2
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 3,656 $ 2,910
Accounts receivable, net of allowance ($1,498 in 1997,
$1,426 in 1996)......................................... 52,923 43,754
Current portion of broadcast rights...................... 7,349 5,656
Prepaid expenses......................................... 12,360 13,336
Deferred tax asset....................................... 11,499 --
Other current assets..................................... 4,734 3,509
-------- --------
Total current assets................................... 92,521 69,165
Property and equipment, net................................ 94,968 88,136
Intangibles, net........................................... 42,318 41,856
Other assets............................................... 36,578 25,755
-------- --------
Total assets........................................... $266,385 $224,912
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current liabilities:
Accounts payable......................................... $ 9,103 $ 5,019
Accrued interest......................................... 3,995 3,959
Other accrued liabilities................................ 19,071 16,160
Deferred revenue......................................... 23,857 20,050
Current portion of broadcasting obligations.............. 8,346 7,032
Current portion of long-term debt........................ 16,130 5,791
-------- --------
Total current liabilities.............................. 80,502 58,011
Long-term debt, net of current portion..................... 213,294 229,350
Litigation accrual......................................... 8,072 13,248
Other long-term liabilities................................ 9,426 8,142
-------- --------
Total liabilities...................................... 311,294 308,751
Commitments and contingencies
Stockholders' deficiency:
Common stock, par value $.01 per share--authorized
50,000,000 shares; issued 21,855,398 and 21,186,724
shares at December 31, 1997 and 1996 respectively; and
outstanding 20,480,452 and 19,811,778 shares at December
31, 1997 and 1996 respectively.......................... 218 212
Class B common stock, par value $.01 per share--autho-
rized 11,406,510 shares; issued and outstanding
11,053,510 and 11,353,810 shares at December 31, 1997
and 1996 respectively................................... 111 114
Capital in excess of par value............................. 9,816 3,195
Deficit.................................................... (44,965) (77,271)
Less common stock in treasury, at cost (1,374,946 shares).. (10,089) (10,089)
-------- --------
Total stockholders' deficiency......................... (44,909) (83,839)
-------- --------
Total liabilities and stockholders' deficiency......... $266,385 $224,912
======== ========
</TABLE>
See accompanying notes
F-3
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
(IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue............................. $ 306,169 $ 279,662 $ 235,820
Less agency commissions and dis-
counts............................. 34,994 32,364 28,423
------------ ------------ ------------
Net revenue......................... 271,175 247,298 207,397
Expenses:
Operating expenses................ 210,752 186,954 156,343
Amortization...................... 4,146 6,404 5,734
Depreciation...................... 11,957 10,592 7,509
Interest expense.................. 26,219 24,461 25,010
Litigation expense (credit)....... (5,000) -- 14,200
Stock compensation expense........ 9,344 -- --
------------ ------------ ------------
Total expenses.................. 257,418 228,411 208,796
Income (loss) before income taxes
and extraordinary item............. 13,757 18,887 (1,399)
Income tax (benefit) expense........ (19,172) 2,758 1,515
------------ ------------ ------------
Income (loss) before extraordinary
item............................... 32,929 16,129 (2,914)
Extraordinary item: loss on debt ex-
tinguishment -- (355) --
------------ ------------ ------------
Net income (loss)................... $ 32,929 $ 15,774 $ (2,914)
============ ============ ============
Earnings per common share:
Income (loss) per common share, be-
fore extraordinary item............ $ 1.05 $ .52 $ (.09)
Extraordinary item: loss on debt ex-
tinguishment....................... -- (.01) --
------------ ------------ ------------
Net income (loss) per common share.. $ 1.05 $ .51 $ (.09)
============ ============ ============
Earnings per common share--assuming
dilution:
Income (loss) per common share, be-
fore extraordinary item............ $ 1.04 $ .51 $ (.09)
Extraordinary item: loss on debt ex-
tinguishment....................... -- (.01) --
------------ ------------ ------------
Net income (loss) per common share.. $ 1.04 $ .50 $ (.09)
============ ============ ============
Weighted average number of shares... 31,345 31,166 31,052
Weighted average number of shares--
assuming dilution.................. 31,652 31,760 31,052
</TABLE>
See accompanying notes
F-4
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK
----------------- ------------------
COMMON
CAPITAL IN STOCK IN
EXCESS OF TREASURY
SHARES AMOUNT SHARES AMOUNT PAR VALUE DEFICIT (AT COST)
---------- ------ ---------- ------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... 20,499,812 $205 11,803,722 $118 $2,851 $(89,044) $(10,089)
Exercise of stock
options and stock
conversions............ 277,200 3 (72,200) (1) 242 -- --
Cash dividend, $0.015
per share.............. -- -- -- -- -- (464) --
Net loss................ -- -- -- -- -- (2,914) --
---------- ---- ---------- ---- ------ -------- --------
Balance, December 31,
1995................... 20,777,012 208 11,731,522 117 3,093 (92,422) (10,089)
Exercise of stock
options and stock
conversions............ 409,712 4 (377,712) (3) 102 -- --
Cash dividend, $0.02 per
share.................. -- -- -- -- -- (623) --
Net income.............. -- -- -- -- -- 15,774 --
---------- ---- ---------- ---- ------ -------- --------
Balance, December 31,
1996................... 21,186,724 212 11,353,810 114 3,195 (77,271) (10,089)
Exercise of stock
options and stock
conversions............ 663,964 6 (300,300) (3) 6,561 -- --
Stock issued to direc-
tors................... 4,710 -- -- -- 60 -- --
Cash dividend, $0.02 per
share.................. -- -- -- -- -- (623) --
Net income.............. -- -- -- -- -- 32,929 --
---------- ---- ---------- ---- ------ -------- --------
Balance, December 31,
1997................... 21,855,398 $218 11,053,510 $111 $9,816 $(44,965) $(10,089)
========== ==== ========== ==== ====== ======== ========
</TABLE>
See accompanying notes
F-5
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Reconciliation of net income (loss) to net cash
provided by operating activities:
Net income (loss)................................. $32,929 $15,774 $(2,914)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Litigation expense (credit)..................... (5,000) -- 14,200
Stock compensation expense...................... 9,344 -- --
Deferred tax benefit............................ (19,798) -- --
Loss on debt extinguishment..................... -- 355 --
Depreciation and amortization................... 16,103 16,996 13,243
Amortization of deferred financing costs........ 1,790 1,379 820
Gain on sale of property and equipment.......... (155) (423) (50)
Change in assets and liabilities:
Accounts receivable............................. (9,169) (164) (1,037)
Current portion of broadcast rights............. (1,693) 123 (1,513)
Prepaid expenses................................ 976 (6,236) (300)
Other current assets and other assets........... 10,804 (3,274) 7,691
Accounts payable and accrued interest........... 4,120 1,066 (2,675)
Other accrued liabilities and other long-term
liabilities.................................... (17,362) (11,927) 2,898
Deferred revenue................................ 3,807 1,781 4,574
Current portion of broadcast obligations........ 1,314 887 1,401
------- ------- -------
Net cash provided by operating activities......... 28,010 16,337 36,338
Cash flows from investing activities:
Proceeds from sale of property and equipment...... 275 1,474 478
Payments for acquisitions......................... (2,483) (20,445) --
Capital expenditures.............................. (17,593) (13,124) (15,098)
------- ------- -------
Net cash used in investing activities........... (19,801) (32,095) (14,620)
Cash flows from financing activities:
Borrowings under debt obligations................. 27,000 38,000 64,000
Repayments under debt obligations................. (34,100) (24,539) (81,294)
Dividends paid.................................... (623) (623) (464)
Payments of deferred financing costs.............. -- (694) (70)
Proceeds from the issuance of stock............... 260 103 243
------- ------- -------
Net cash provided (used in) financing activi-
ties........................................... (7,463) 12,247 (17,585)
------- ------- -------
Net increase (decrease) in cash and cash equiva-
lents.............................................. 746 (3,511) 4,133
Cash and cash equivalents at beginning of period.... 2,910 6,421 2,288
------- ------- -------
Cash and cash equivalents at end of period........ $ 3,656 $ 2,910 $ 6,421
======= ======= =======
</TABLE>
F-6
<PAGE>
THE ACKERLEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid........................................ $23,163 $21,524 $24,032
Income taxes paid.................................... 836 2,157 538
Noncash transactions:
Broadcast rights acquired and broadcast obligations
assumed........................................... $12,201 $ 9,165 $10,337
Assets acquired through barter..................... 1,053 1,342 1,065
Assets acquired under capital leases............... -- -- 7,982
</TABLE>
See accompanying notes
F-7
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization--The Ackerley Group, Inc. and its subsidiaries (the
"Company") is a diversified media and entertainment company that 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 ownership of the Seattle
SuperSonics, a franchise of the National Basketball Association. Outdoor
advertising operations are conducted principally in the Seattle/Tacoma,
Portland, Boston/Worcester, 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 network affiliations are as follows: Syracuse, New York (ABC affiliate);
Utica, New York (ABC affiliate through a time brokerage agreement);
Binghamton, New York (ABC affiliate through a time brokerage agreement);
Colorado Springs/Pueblo, Colorado (CBS affiliate); Santa Rosa, California
(independent); Bakersfield, California (NBC affiliate); Salinas/Monterey,
California (FOX affiliate and CBS affiliate through a time brokerage
agreement); and Bellingham, Washington/Vancouver, British Columbia
(independent). Radio broadcasting consists of one AM and two FM stations
serving the Seattle/Tacoma area through the Company's limited partnership
interest in the Partnership (as defined below), and one AM station 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--Out-of-home 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 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 games are played.
(d) Barter transactions--The Company engages in nonmonetary trades of
advertising space or time in exchange for goods or services. These 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. Goods and services due to the Company in excess of
advertising provided are recorded in other current assets. Advertising to be
provided in excess of goods and services received is recorded in other accrued
liabilities.
(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. The Company depreciates groups of large numbers of assets
with homogeneous characteristics and useful lives. Under group depreciation,
no gain or loss on disposals is recognized unless the asset group is fully
depreciated. For assets accounted for under group depreciation, the Company
recognizes gains on disposals primarily from proceeds received from
condemnations of fully-depreciated advertising structures. The Company
recognizes gains and losses on disposals of individual, non-homogeneous
assets. 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. Goodwill represents the cost of acquired businesses in excess of
amounts assigned to certain tangible and intangible assets at the dates of
acquisition.
F-8
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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. Broadcast obligations are stated at contractual amounts and
balances due within one year are reported as current obligations.
(h) Stock based compensation--The Company generally 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
compensation expense for incentive stock option grants using the intrinsic
method.
(i) 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.
(j) 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 carrying value of financial instruments,
which include cash, receivables, payables, and long-term debt, approximates
market value at December 31, 1997.
(k) Statements of cash flows--Beginning in 1997, the Company began
presenting the Consolidated Statements of Cash Flows using the indirect method
instead of the direct method which was used in prior years. The 1996 and 1995
Consolidated Statements of Cash Flows have been restated to conform to the
1997 presentation.
(l) 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.
(m) Reclassifications--Certain prior years' amounts have been reclassified
to conform to the 1997 presentation.
2. NEW ACCOUNTING STANDARDS
The Company adopted Financial Accounting Standards Board Statement No. 128,
Earnings Per Share, during 1997. This statement simplifies the standards for
computing earnings per share and makes them comparable to international
earnings per share standards. It requires dual presentation of basic and
diluted earnings per share on the face of the income statement. Basic earnings
per share excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution that could occur if options and rights to purchase common stock were
exercised. The 1996 and 1995 earnings per share amounts have been restated to
conform to Statement No. 128 requirements.
F-9
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The dilutive effects of the weighted-average number of shares representing
options and rights included in the calculation of diluted earnings per share
were 306,982 shares and 594,283 shares in 1997 and 1996, respectively. Due to
a net loss in 1995, the dilutive effects of options and stock purchase rights
were excluded from diluted earnings per share as the effects would be
antidilutive. There were no differences between net income (loss) amounts used
to calculate basic and dilutive earnings per share for any of the periods
presented.
The Company adopted early Financial Accounting Standards Board Statement No.
131, Disclosures about Segments of an Enterprise and Related Information,
during 1997. The statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. The adoption of Statement No. 131 did
not affect results of operations or financial position but did affect the
disclosure of segment information (See Note 14).
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income. This statement establishes standards for
reporting and disclosure of comprehensive income and its components.
Comprehensive income includes net income and other comprehensive income which
refers to unrealized gains and losses that under generally accepted accounting
principles are excluded from net income. Adoption of this statement is
required in 1998. Management does not expect the adoption of the statement to
impact the financials statements.
3. INVESTMENTS AND ACQUISITIONS
The Company's wholly-owned subsidiary, KJR Radio, Inc., is a limited partner
in New Century Seattle Partners, L.P. (the "Partnership"), which owns and
operates radio stations in the Seattle/Tacoma market. As a limited partner,
KJR Radio, Inc. held, in 1997, an approximate 80% equity interest in the
Partnership before certain preferred distributions to other limited partners.
The Company accounts for this investment using the consolidation method and
believes consolidation to be appropriate based on the substantial equity
interest held by its wholly owned subsidiary along with certain important
rights granted to its subsidiary, as a limited partner, under the
Partnership's limited partnership agreement.
In February 1998, the Partnership redeemed the limited partnership interests
and satisfied certain other obligations of former limited partners for $18.0
million. The Partnership has entered into an agreement to redeem the general
partner's interest for approximately $17.7 million, following which KJR Radio,
Inc. will be the sole owner of the stations. The redemption requires approval
of the Federal Communications Commission ("FCC"), which has been requested.
The Company currently anticipates receiving the FCC's consent and closing this
transaction in 1998.
During 1996, the Company acquired a television station in Santa Rosa,
California, and substantially all of the assets of an outdoor advertising
company in Boston, Massachusetts. The Company recorded net assets with
estimated fair values aggregating $4.7 million and goodwill of $15.8 million.
The operations of the acquired businesses did not materially affect the
consolidated financial statements of the Company.
F-10
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
As of December 31, 1997 and 1996, accounts receivable includes employee
receivables of $2.9 million and $0.2 million, respectively.
The activity in the allowance for doubtful accounts is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year........................ $1,426 $ 1,163 $1,160
Additions charged to operating expense.............. 814 1,386 979
Write-offs of receivables, net of recoveries........ (742) (1,123) (976)
------ ------- ------
Balance at end of year.............................. $1,498 $ 1,426 $1,163
====== ======= ======
</TABLE>
5. PROPERTY AND EQUIPMENT
At December 31, 1997 and 1996, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 USEFUL LIFE
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Land........................................... $ 7,468 $ 6,976
Advertising structures......................... 86,737 82,325 6-20 years
Broadcast equipment............................ 56,065 52,712 6-20 years
Building and improvements...................... 38,403 33,264 3-40 years
Office furniture and equipment................. 25,482 22,738 5-10 years
Transportation and other equipment............. 10,335 9,238 5-6 years
Equipment under capital leases................. 7,930 7,982 10 years
-------- --------
232,420 215,235
Less accumulated depreciation.................. 137,452 127,099
-------- --------
$ 94,968 $ 88,136
======== ========
</TABLE>
6. INTANGIBLES
At December 31, 1997 and 1996, intangibles consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
1997 1996 USEFUL LIFE
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill......................................... $46,229 $48,923 15-40 years
Favorable leases and contracts................... 17,462 15,294 20 years
Broadcasting agreements.......................... 4,000 4,000 15 years
Other............................................ 6,196 7,333 5-30 years
------- -------
73,887 75,550
Less accumulated amortization.................... 31,569 33,694
------- -------
$42,318 $41,856
======= =======
</TABLE>
7. DEBT
On September 30, 1996, the Company entered into a credit agreement (the
"1996 Credit Agreement") with various banks which increased the aggregate
principal amount of borrowings available under the lending facility from $65.0
million to $77.5 million. The refinancing of the Company's debt in 1996
resulted in an extraordinary loss of $0.4 million. At December 31, 1997, the
interest rate under the 1996 Credit Agreement was LIBOR (5.9375%) plus 2.25%.
F-11
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In January 1998, the Company replaced its 1996 Credit Agreement with a new
credit agreement (the "1998 Credit Agreement"). The 1998 Credit Agreement
currently permits borrowings of up to $77.5 million, including up to $10.0
million in standby letters of credit, due to restrictions related to the
Company's 10 3/4% Senior Secured Notes due 2003 (the "Senior Notes"). The 1998
Credit Agreement further provides that if the Company redeems its Senior Notes
prior to December 15, 1998, the maximum permissible borrowings under the 1998
Credit Agreement will be increased by $187.5 million.
The Company can choose to have interest calculated under the 1998 Credit
Agreement at rates based on either a Base Rate or LIBOR rate plus defined
margins. The margins and the fees on the letter of credit facility vary based
on the Company's total leverage ratio. Principal repayments under the 1998
Credit Agreement are due quarterly from March 2000 through June 2005.
At December 31, 1997 and 1996, outstanding balances under letter of credit
agreements totaled $1.1 million and $1.5 million, respectively.
The Company's Senior Notes bear interest at 10.75% and mature in October
2003. Interest payments are due semiannually in April and October.
Senior subordinated notes (the "Subordinated Notes") consist of amounts
borrowed from several insurance companies. Effective interest rates under
these agreements range from 10.5% to 11.2%. Interest is payable quarterly.
Principal repayments of $12.5 million, $10.0 million, and $10.0 million are
due in 1998, 1999, and 2000, respectively.
Partnership debt represents the debt of New Century Seattle Partners, L.P.
and consists of senior term notes totaling $3.3 million and subordinated notes
totaling $5.6 million. In February 1998, the Partnership replaced these notes
with a new credit agreement providing for borrowings up to $35.0 million. The
borrowings are secured by a pledge of all Partnership assets.
At December 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Credit agreement......................................... $ 59,000 $ 55,000
Senior secured notes..................................... 120,000 120,000
Senior subordinated notes payable........................ 32,500 35,000
Partnership debt......................................... 8,888 13,903
Capitalized lease obligation (net of imputed interest of
$1,434 in 1997 and $1,854 in 1996)...................... 6,451 7,268
Other.................................................... 2,585 3,970
-------- --------
229,424 235,141
Less amounts classified as current....................... 16,130 5,791
-------- --------
$213,294 $229,350
======== ========
</TABLE>
F-12
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Aggregate annual payments of long-term debt during the next five years are
as follows:
<TABLE>
<CAPTION>
CREDIT PARTNERSHIP
AGREEMENT DEBT AND CAPITAL LEASE
AND NOTES OTHER OBLIGATION TOTAL
--------- ----------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998............................ $ 12,500 $ 2,770 $ 860 $ 16,130
1999............................ 10,000 3,006 907 13,913
2000............................ 15,900 2,313 957 19,170
2001............................ 11,800 2,518 1,011 15,329
2002............................ 11,800 209 1,070 13,079
Later years..................... 149,500 657 1,646 151,803
-------- ------- ------ --------
Total........................... $211,500 $11,473 $6,451 $229,424
======== ======= ====== ========
</TABLE>
All of the outstanding stock of the Company's corporate subsidiaries is
pledged as collateral under the 1998 Credit Agreement and Senior Notes. In
addition, the 1998 Credit Agreement, Senior Notes and Subordinated Notes
restrict, among other things, the Company's borrowings, dividend payments,
stock repurchases, sales or transfers of assets and contain certain other
restrictive covenants which require the Company to maintain certain debt
coverage and other financial ratios.
8. INCOME TAXES
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, 1997
and 1996 significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $14,579 $22,752
Litigation accrual........................................ 3,067 5,067
Tax credit carryforwards.................................. 2,133 951
Capital lease obligation.................................. 2,451 2,780
Deferred NBA expansion revenue............................ 772 1,958
Deferred compensation agreements.......................... 730 1,293
Other..................................................... 5,494 5,559
------- -------
Total deferred tax assets................................... 29,226 40,360
Valuation allowance for deferred tax assets................. -- (27,202)
------- -------
Net deferred tax assets..................................... 29,226 13,158
------- -------
Deferred tax liabilities:
Tax over book depreciation................................ 7,131 8,701
Other..................................................... 297 4,457
------- -------
Total deferred tax liabilities.............................. 7,428 13,158
Net deferred tax assets..................................... $21,798 $ --
======= =======
</TABLE>
In 1997, the Company's valuation allowance decreased by $27.2 million,
primarily through utilization of net operating loss carryforwards and the
reversal of the remaining balance due to improved recent and anticipated
future operating results.
F-13
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Significant components of the income tax (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $ 263 $1,561 $ 422
State............................................. 363 1,197 1,093
-------- ------ ------
626 2,758 1,515
Deferred:
Federal........................................... (18,235) -- --
State............................................. (1,563) -- --
-------- ------ ------
(19,798) -- --
-------- ------ ------
Income tax (benefit) expense........................ $(19,172) $2,758 $1,515
======== ====== ======
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax (benefit) expense is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rate....................... $ 4,815 $ 6,422 $ (476)
Non-deductible expenses.......................... 929 582 476
State taxes...................................... 363 1,197 1,093
Net operating loss carryforwards................. (5,744) (7,004) --
Alternative minimum tax.......................... -- 1,561 422
Change in valuation account...................... (19,535) -- --
-------- ------- ------
Provision (benefit) for income taxes............. $(19,172) $ 2,758 $1,515
======== ======= ======
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $38.4 million that expire in the years 2005 through 2007 and
alternative minimum tax credit carryforwards of approximately $2.1 million.
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 1% to 15% of their compensation up to a limit imposed by the Internal
Revenue Code. The Company matches participating employee contributions up to
4% of their compensation and may also make an additional voluntary
contribution to the plan. The Company's contributions totaled $1.1 million in
1997, $1.1 million in 1996, and $0.8 million in 1995.
10. 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. Each outstanding share of Class B Common
Stock may be converted into one share of Common Stock at any time at the
option of the stockholder.
In 1981, the Company entered into various stock purchase agreements 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
agreements expire in 1999. The stock purchase agreements provide for
distribution of one share
F-14
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of Class B Common Stock at no extra cost to the holder for each share of
Common Stock at the time the Common Stock is purchased. At December 31, 1997
and 1996, there were an aggregate of 52,500 shares of Common Stock and an
equal number of shares of Class B Common Stock available for purchase at $2.00
per share of Common Stock. No shares were purchased under these agreements in
1997 and 1996.
The Company's Nonemployee--Directors' Equity Compensation Plan ("Directors
Plan") was approved by the Board of Directors in 1995 and the stockholders of
the Company in 1996. The Directors Plan's purpose is to allow nonemployee
directors to elect to receive directors' fees in the form of Common Stock
instead of cash. There are 100,000 shares of Common Stock authorized and
reserved for issuance under the Directors Plan.
At December 31, 1997, the Company had 11,053,510 shares of Common Stock
reserved for conversion of Class B Common Stock, 550,850 shares reserved under
the Employee Stock Option Plan, 105,000 shares reserved under stock purchase
agreements, and 95,290 shares reserved under the Directors Plan.
11. STOCK OPTION PLAN
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 1,000,000 shares.
Under the Plan, the exercise price of the options equals the market price of
the Company's stock on the date of grant and the options' maximum life is 10
years. The options vest at the end of five years of continuous employment.
In 1997, the Company amended certain employees' stock option agreements,
converting 338,000 incentive stock options to nonqualified stock options. In
conjunction with this transaction, the Company declared bonuses to the option
holders to pass on the Company's projected tax savings, representing
deductions attributable to the exercise of these nonqualified options, to the
option holders. Accordingly, the Company recognized total compensation expense
of $8.3 million, consisting of stock compensation expense of $5.4 million and
bonus expense of $2.9 million. The Company also granted 70,000 nonqualified
options at below-market exercise prices and recorded compensation expense of
$1.0 million.
A summary of the Company's stock option activity and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 658,000 $2.96 690,000 $2.97 512,000 $0.97
Granted................. 70,000 0.69 -- -- 300,000 5.67
Exercised............... (367,400) 0.69 (32,000) 3.23 (40,000) 2.25
Canceled................ (40,000) 5.53 -- -- (82,000) 0.69
-------- ------- -------
Options outstanding at
end of year............ 320,600 $4.75 658,000 $2.96 690,000 $2.97
Exercisable at end of
year................... 60,600 $0.69 -- -- 20,000 $4.75
Weighted average fair
value of options
granted during year.... $14.00 -- $3.67
</TABLE>
F-15
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Exercise prices for options outstanding at December 31, 1997 ranged from
$0.69 to $7.63. A summary of options outstanding as of December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
RANGE OF EXERCISE OPTIONS REMAINING EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE
----------------- ----------- ---------------- --------- -----------
<S> <C> <C> <C> <C>
$0.00-$0.69............... 60,600 4.6 years $0.69 60,600
0.70-3.44................ 120,000 7.1 3.44 --
3.45-7.63................ 140,000 8.0 7.63 --
-------
$0.00-$7.63............... 320,600 7.0 years $4.75
</TABLE>
As required by Financial Accounting Standards Board Statement No. 123, the
pro forma information regarding net income and earnings per share has been
calculated as if the Company had accounted for its employee stock options
under the fair value method of that statement. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in 1997
and 1995 (there were no grants in 1996): Dividend yield of 0%; expected
volatility of 55%; risk-free interest rate of 6%; and a weighted-average
expected life of the options of 7.5 years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro forma
net income and earnings per common share follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income......................................... $32,742 $15,554 $(2,972)
Net income per common share........................ $ 1.04 $ 0.50 $ (0.10)
</TABLE>
12. 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. 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, except for
the matters discussed in Note 13.
The Company has employment contracts with certain employees, including
basketball coaches and players of the Seattle SuperSonics, extending beyond
December 31, 1997. 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:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998.......................................................... $ 33,380
1999.......................................................... 23,049
2000.......................................................... 20,992
2001.......................................................... 21,373
2002.......................................................... 18,925
Later years................................................... 6,503
--------
$124,222
========
</TABLE>
F-16
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The players are covered by the terms of a collective bargaining agreement
which expires on June 30, 2001. However, on March 23, 1998, the NBA Board of
Governors voted to reopen the NBA's collective bargaining agreement with the
National Basketball Players Association. As a result, the current agreement
will expire on June 30, 1998. There is no assurance that a new collective
bargaining agreement will be in effect before June 30, 1998. If a new
agreement is not in effect before the start of the 1998-1999 season, there is
a risk that all or a portion of that season would be cancelled.
The Seattle SuperSonics maintains disability and life insurance policies on
most of its key players. The level of insurance coverage maintained is based
on the determination of the insurance proceeds which would assist meeting its
guaranteed obligations in the event of permanent or total disability of its
key players.
The Company is required to make the following minimum payments for equipment
and facilities under non-cancelable operating lease agreements, guaranteed
display advertising franchises agreements, and broadcast agreements which
expire in more than one year as follows:
<TABLE>
<CAPTION>
EQUIPMENT/FACILITIES FRANCHISES BROADCAST OBLIGATIONS
-------------------- ---------- ---------------------
(IN THOUSANDS)
<S> <C> <C> <C>
1998.................. $ 4,829 $ 9,155 $ 9,723
1999.................. 4,196 6,487 4,913
2000.................. 3,329 5,301 2,420
2001.................. 3,090 3,505 292
2002.................. 2,620 1,159 12
Later years........... 14,585 1,314 --
------- ------- -------
$32,649 $26,921 $17,360
======= ======= =======
</TABLE>
Rent expense for operating leases aggregated $5.4 million in 1997, $4.5
million in 1996, and $3.2 million in 1995. Franchise fee expense aggregated
$18.8 million in 1997, $16.1 million in 1996, and $17.2 million in 1995.
Broadcasting film and programming expense aggregated $8.3 million in 1997,
$8.2 million in 1996, and $6.7 million in 1995.
On June 30, 1997, the Company entered into a time brokerage agreement with
Utica Television Partners, L.L.C., the owner of television station WUTR
licensed to Utica, New York. In conjunction with the transaction, the Company
guaranteed a bank loan obligation of the licensee which had an aggregate
principal amount of $7.9 million at December 31, 1997, maturing in December
2001. To date, there has been no default under the bank loan obligation and
revenue from WUTR have been and are expected to continue to service the bank
loan obligation.
On April 24, 1996, the Company entered into a time brokerage agreement with
Harron Television of Monterey, the owner of television station KION licensed
to Monterey, California. In conjunction with the transaction, the Company
guaranteed a bank loan obligation of the licensee which had an aggregate
principal amount of $4.8 million maturing in April 1999. At December 31, 1997
and 1996, the outstanding principal amount of the bank loan obligation under
the guarantee was $3.7 million and $4.8 million, respectively. To date, there
has been no default under the bank loan obligation and revenue from KION have
been and are expected to continue to service the bank loan obligation.
The Company has incurred transportation costs of $2.0 million in 1997, $2.0
million in 1996, and $2.1 million in 1995, and made advance payments of $0.1
million at December 31, 1997, to a company controlled by the Company's major
stockholder. At December 31, 1997, principal amounts outstanding on loans to
the Company's major stockholder were $1.0 million.
F-17
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. At December 31, 1995, the Company initially
recorded an accrual of $14.2 million, including estimated additional legal
costs, related to the verdict. Following post-trial motions, the punitive
damages award was reduced. The Company is currently appealing the verdict.
Based on the Company's progress to date with respect to the appeal, management
estimated that the verdict, plus legal costs, will result in payments of
approximately $8.0 million. Based on the revised estimate, the Company reduced
the accrual related to this litigation by $5.0 million.
14. INDUSTRY SEGMENT INFORMATION
In 1997, the Company adopted Financial Accounting Standards Board Statement
No. 131. The Company organizes its segments based on the products and services
from which revenue are generated. Segment information has been restated to
present the Out-of-Home Media, Broadcasting, and Sports & Entertainment
segments. The Company evaluates segment performance and allocates resources
based on Segment Operating Cash Flow. The Company defines Operating Cash Flow
as net revenue less operating expenses before amortization, depreciation,
interest, litigation, and stock compensation expenses. Segment Operating Cash
Flow is defined as Operating Cash Flow before corporate overhead.
F-18
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Selected financial information for these segments for the years ended
December 31, 1997, 1996, and 1995 is presented as follows:
<TABLE>
<CAPTION>
OUT-OF- SPORTS &
HOME MEDIA BROADCASTING ENTERTAINMENT CONSOLIDATED
---------- ------------ ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997:
Net revenue................ $113,162 $ 96,533 $ 61,480 $ 271,175
Segment operating ex-
penses.................... (72,159) (60,049) (68,531) (200,739)
-------- -------- -------- ---------
Segment Operating Cash
Flow...................... $ 41,003 $ 36,484 $ (7,051) 70,436
======== ======== ========
Corporate overhead......... (10,013)
---------
Operating Cash Flow........ 60,423
Other expenses:
Depreciation and amortiza-
tion..................... (16,103)
Interest expense.......... (26,219)
Litigation credit......... 5,000
Stock compensation ex-
pense.................... (9,344)
---------
Income before income tax-
es........................ $ 13,757
=========
Segment assets............. $ 79,208 $107,651 $ 43,133 $ 229,992
======== ======== ========
Corporate assets........... 36,393
---------
Total assets............... $ 266,385
=========
Capital expenditures....... $ 6,523 $ 8,084 $ 1,706 $ 16,313
======== ======== ========
Corporate capital expendi-
tures..................... 1,280
---------
Total capital expendi-
tures..................... $ 17,593
=========
1996:
Net revenue................ $ 99,833 $ 85,927 $ 61,538 $ 247,298
Segment operating ex-
penses.................... (63,924) (53,096) (61,701) (178,721)
-------- -------- -------- ---------
Segment Operating Cash
Flow...................... $ 35,909 $ 32,831 $ (163) 68,577
======== ======== ========
Corporate overhead......... (8,233)
---------
Operating Cash Flow........ 60,344
Other expenses:
Depreciation and amortiza-
tion..................... (16,996)
Interest expense.......... (24,461)
---------
Income before taxes and ex-
traordinary item.......... $ 18,887
=========
Segment assets............. $ 67,918 $ 95,836 $ 48,550 $ 212,304
======== ======== ========
Corporate assets........... 12,608
---------
Total assets............... $ 224,912
=========
Capital expenditures....... $ 4,674 $ 4,163 $ 1,652 $ 10,489
======== ======== ========
Corporate capital expendi-
tures..................... 2,635
---------
Total capital expendi-
tures..................... $ 13,124
=========
1995:
Net revenue................ $ 93,177 $ 72,429 $ 41,791 $ 207,397
Segment operating ex-
penses.................... (61,199) (42,447) (45,180) (148,826)
-------- -------- -------- ---------
Segment Operating Cash
Flow...................... $ 31,978 $ 29,982 $ (3,389) 58,571
======== ======== ========
Corporate overhead......... (7,517)
---------
Operating Cash Flow........ 51,054
Other expenses:
Depreciation and amortiza-
tion..................... (13,243)
Interest expense.......... (25,010)
Litigation expense........ (14,200)
---------
Loss before taxes.......... $ (1,399)
=========
Segment assets............. $ 53,281 $ 83,366 $ 38,353 $ 175,000
======== ======== ========
Corporate assets........... 14,882
---------
Total assets............... $ 189,882
=========
Capital expenditures....... $ 3,099 $ 3,922 $ 7,262 $ 14,283
======== ======== ========
Corporate capital expendi-
tures..................... 815
---------
Total capital expendi-
tures..................... $ 15,098
=========
</TABLE>
F-19
<PAGE>
THE ACKERLEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 season (the first, second, and fourth quarters) and by
increased advertising activity in the second and fourth quarters.
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Financial Accounting Standards Board Statement
No. 128. The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
1997
Net revenue............. $71,454 $68,207 $52,605 $78,909
Operating Cash Flow..... 12,212 18,718 10,182 19,311
Net income.............. 3,194 10,469 940* 18,326**
Net income per share.... .10 .34 .03 .58
Net income per share--
assuming dilution...... .10 .33 .03 .58
1996
Net revenue............. $62,927 $68,235 $45,842 $70,294
Operating Cash Flow..... 12,674 19,986 11,255 16,429
Income before extraordi-
nary item.............. 3,123 9,147 379 3,480
Extraordinary loss...... -- -- -- 355
Net income.............. 3,123 9,147 379 3,125
Net income per share.... .10 .29 .01 .11
Net income per share--
assuming dilution...... .10 .29 .01 .10
</TABLE>
- --------
* Includes stock compensation expense of $4.7 million and adjustment to
litigation accrual of $5.0 million.
** Includes adjustment to deferred tax valuation allowance of $14.6 million
and additional stock compensation expense of $4.6 million.
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY OF THE UN-
DERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PRO-
SPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION INCLUDED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 17
Price Range of Common Stock.............................................. 17
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 31
Management............................................................... 50
Certain Relationships and Related Transactions........................... 56
Principal and Selling Stockholders....................................... 57
Description of Capital Stock............................................. 59
Underwriting............................................................. 62
Legal Matters............................................................ 63
Experts.................................................................. 63
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
THE ACKERLEY GROUP, INC.
COMMON STOCK
[LOGO OF THE ACKERLEY GROUP, INC.]
-------
PROSPECTUS
, 1998
-------
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.................... $ *
NASD Filing Fee........................................................ $ *
New York Stock Exchange Listing Fee.................................... $ *
Printing and Engraving Expenses........................................ $ *
Legal Fees and Expenses................................................ $ *
Accounting Fees and Expenses........................................... $ *
Blue Sky Fees and Expenses (including fees of counsel)................. $ *
Transfer Agent and Registrar Fee....................................... $ *
Miscellaneous Expenses................................................. $ *
----
Total................................................................ $ *
====
</TABLE>
- --------
*To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Article SEVENTH of the Company's Certificate of Incorporation and
Section 9.1 of the Company's Bylaws, the Company indemnifies all directors,
officers, employees, agents, and other persons whom it may identify to the
full extent permitted by the Delaware General Corporation Law against any
liability and the expenses incurred in defense of such liability. Nothing
contained in the Company's Certificate of Incorporation shall be deemed to
require or make mandatory the purchase and maintenance of insurance permitted
under Section 145(g) of the Delaware General Corporation Law. The Company will
pay the expenses of any director or officer in defense of such liability in
advance of the final disposition of the matter upon receipt of an undertaking
by or on behalf of such director or officer to repay such amounts if it shall
ultimately be determined that such person is not entitled to such
indemnification. In addition, the Underwriting Agreement, a copy of which is
filed as Exhibit 1.1 to this Registration Statement, provides that each
Underwriter will indemnify and hold harmless the Company, its directors and
its officers who sign this Registration Statement and each person, if any, who
controls the Company within the meanings of Section 15 of the Securities Act
or Section 20 of the Exchange Act from and against certain specified
liabilities and expenses caused by any untrue statements or omissions in the
Registration Statement based upon information furnished in writing to the
Company by such Underwriter expressly for use therein.
The Company maintains directors' and officers' liability insurance for the
directors and principal officers of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has not sold any securities within the past three years which
were not registered under the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Third Restated Certificate of Incorporation (1)
3.2 Certificate of Amendment dated May 11, 1994 to Third Restated
Certificate of Incorporation (1)
3.3 Certificate of Amendment dated October 1, 1996 to Third Restated
Certificate of Incorporation (2)
3.4 Certificate of Amendment dated September 26, 1996 to Third Restated
Certificate of Incorporation (2)
3.5 Amended and Restated Bylaws (11)
*5.1 Opinion of Graham & Dunn PC as to legality of securities
10.1 Credit Agreement dated January 28, 1998, by and among The Ackerley
Group, Inc., First Union National Bank, Fleet Bank, N.A., Union Bank
of California, N.A., and KeyBank National Association (11)
10.2 Pledge Agreement dated as of October 1, 1993 between the Company and
First Trust of California, National Association (5)
10.3 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1988 (4)
10.4 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1989 (6)
10.5 Amendment No. 1 dated October 18, 1991 to Note Agreements dated
December 1, 1988 and December 1, 1989 (7)
10.6 Agreements of Waiver and Amendment dated as of September 30, 1990,
relating to the Note Agreements (8)
10.7 Implementation and Waiver Agreement dated October 18, 1991 (7)
10.10 The Company's Employee Stock Option Plan, as amended and restated on
March 4, 1996 (9)
10.11 Nonemployee-Director's Equity Compensation Plan (10)
10.12 Amended and Restated Limited Partnership Agreement of New Century
Seattle Partners, L.P. dated July 14, 1994 (3)
10.13 Premises Use and Occupancy Agreement between The City of Seattle and
SSI Sports, Inc. dated March 2, 1994(1)
10.14 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 (5)
10.15 Form of Specimen 10 3/4% Senior Secured Note Due 2003 (5)
*10.16 Credit Agreement dated February 17, 1998, by and among New Century
Partners, L.P., First Union National Bank, Fleet Bank, N.A., and
KeyBank National Association
21 Subsidiaries of the Company (11)
*23.1 Consent of Graham & Dunn PC (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24 Powers of Attorney for each of Barry A. Ackerley, Gail A. Ackerley,
Richard D. Cooley, M. Ian G. Gilchrist, Michel C. Thielen, Denis M.
Curley, and Keith W. Ritzmann
27 Financial Data Schedule
</TABLE>
II-2
<PAGE>
- --------
* To be filed by amendment.
(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 3.1, 3.2, and 10, respectively,
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
(3) Incorporated by reference to Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994.
(4) Incorporated by reference to Exhibits 3.3 and 10.12, respectively, to
the Company's 1988 Annual Report on Form 10-K.
(5) 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.
(6) Incorporated by reference to Exhibits 10.13 and 10.16, respectively, to
the Company's 1989 Annual Report on Form 10-K.
(7) Incorporated by reference to Exhibits 10.9, 10.10, and 10.16,
respectively, to the Company's 1991 Annual Report on Form 10-K.
(8) Incorporated by reference to Exhibits 10.20 to the Company's 1990 Annual
Report on Form 10-K.
(9) Incorporated by reference to Exhibits 10.10 and 27.1, respectively, to
the Company's 1995 Annual Report on Form 10-K.
(10) Incorporated by reference to Exhibits 99.1 to the Company's Registration
Statement on Form S-8, filed on May 14, 1996.
(11) Incorporated by reference to Exhibits 3.5, 10.1, 24, and 27,
respectively, to the Company's 1997 Annual Report on Form 10-K.
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SEATTLE, STATE OF
WASHINGTON, ON APRIL 9, 1998.
THE ACKERLEY GROUP, INC.
/s/ Barry A. Ackerley
By: _________________________________
BARRY A. ACKERLEY
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE
OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Barry A. Ackerley Chairman and Chief April 9, 1998
- ------------------------------------- Executive Officer and
BARRY A. ACKERLEY Director (Principal
Executive Officer)
* Co-Chairman and Co- April 9, 1998
- ------------------------------------- President and Director
GAIL A. ACKERLEY
/s/ Denis M. Curley Co-President and Chief April 9, 1998
- ------------------------------------- Financial Officer,
DENIS M. CURLEY Secretary and
Treasurer (Principal
Financial Officer)
/s/ Keith W. Ritzmann Senior Vice President April 9, 1998
- ------------------------------------- and Chief Information
KEITH W. RITZMANN Officer, Assistant
Secretary and
Controller (Principle
Accounting Officer)
* Director April 9, 1998
- -------------------------------------
RICHARD P. COOLEY
* Director April 9, 1998
- -------------------------------------
M. IAN G. GILCHRIST
* Director April 9, 1998
- -------------------------------------
MICHEL C. THIELEN
/s/ Denis M. Curley April 9, 1998
*By: ________________________________
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S>
*1.1 Form of Underwriting Agreement
3.1 Third Restated Certificate of Incorporation (1)
3.2 Certificate of Amendment dated May 11, 1994 to Third Restated
Certificate of Incorporation (1)
3.3 Certificate of Amendment dated October 1, 1996 to Third Restated
Certificate of Incorporation (2)
3.4 Certificate of Amendment dated September 26, 1996 to Third Restated
Certificate of Incorporation (2)
3.5 Amended and Restated Bylaws (11)
*5.1 Opinion of Graham & Dunn PC as to legality of securities
10.1 Credit Agreement dated January 28, 1998, by and among The Ackerley
Group, Inc., First Union National Bank, Fleet Bank, N.A., Union Bank
of California, N.A., and KeyBank National Association (11)
10.2 Pledge Agreement dated as of October 1, 1993 between the Company and
First Trust of California, National Association (5)
10.3 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1988 (4)
10.4 Composite Conformed Copies of Note Agreement between the Company and
certain insurance companies, dated as of December 1, 1989 (6)
10.5 Amendment No. 1 dated October 18, 1991 to Note Agreements dated
December 1, 1988 and December 1, 1989 (7)
10.6 Agreements of Waiver and Amendment dated as of September 30, 1990,
relating to the Note Agreements (8)
10.7 Implementation and Waiver Agreement dated October 18, 1991 (7)
10.10 The Company's Employee Stock Option Plan, as amended and restated on
March 4, 1996 (9)
10.11 Nonemployee-Director's Equity Compensation Plan (10)
10.12 Amended and Restated Limited Partnership Agreement of New Century
Seattle Partners, L.P. dated July 14, 1994 (3)
10.13 Premises Use and Occupancy Agreement between The City of Seattle and
SSI Sports, Inc. dated March 2, 1994(1)
10.14 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 (5)
10.15 Form of Specimen 10 3/4% Senior Secured Note Due 2003 (5)
*10.16 Credit Agreement dated February 17, 1998, by and among New Century
Partners, L.P., First Union National Bank, Fleet Bank, N.A., and
KeyBank National Association
21 Subsidiaries of the Company (11)
*23.1 Consent of Graham & Dunn PC (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24 Powers of Attorney for each of Barry A. Ackerley, Gail A. Ackerley,
Richard D. Cooley, M. Ian G. Gilchrist, Michel C. Thielen, Denis M.
Curley, and Keith W. Ritzmann
27 Financial Data Schedule
</TABLE>
<PAGE>
- --------
* To be filed by amendment.
(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 3.1, 3.2, and 10, respectively,
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996.
(3) Incorporated by reference to Exhibit 10 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994.
(4) Incorporated by reference to Exhibits 3.3 and 10.12, respectively, to
the Company's 1988 Annual Report on Form 10-K.
(5) 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.
(6) Incorporated by reference to Exhibits 10.13 and 10.16, respectively, to
the Company's 1989 Annual Report on Form 10-K.
(7) Incorporated by reference to Exhibits 10.9, 10.10, and 10.16,
respectively, to the Company's 1991 Annual Report on Form 10-K.
(8) Incorporated by reference to Exhibits 10.20 to the Company's 1990 Annual
Report on Form 10-K.
(9) Incorporated by reference to Exhibits 10.10 and 27.1, respectively, to
the Company's 1995 Annual Report on Form 10-K.
(10) Incorporated by reference to Exhibits 99.1 to the Company's Registration
Statement on Form S-8, filed on May 14, 1996.
(11) Incorporated by reference to Exhibits 3.5, 10.1, 24, and 27,
respectively, to the Company's 1997 Annual Report on Form 10-K.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts," "Summary
Financial Data," and "Selected Consolidated Financial Data" and to the use of
our report dated February 27, 1998, except for Note 12, as to which the date is
March 23, 1998, in the Registration Statement on Form S-1 and related Prospectus
of The Ackerley Group, Inc. for the registration of 2,300,000 shares of its
common stock.
/s/ Ernst & Young LLP
Seattle, Washington
April 3, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
The undersigned Director and executive officer of The Ackerley Group, Inc.
("Company") appoints each of Gail A. Ackerley, William N. 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 Registration Statement on Form S-1 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 1933,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 19th day of March, 1998.
/s/ Barry A. Ackerley
------------------------------------
Barry A. Ackerley
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") 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 Registration Statement on Form S-1 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 1933,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 19th day of March, 1998.
/s/ Gail A. Ackerley
------------------------------------
Gail A. Ackerley
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") 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 Registration Statement on Form S-1 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 1933,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 19th day of March, 1998.
/s/ Richard P. Cooley
------------------------------------
Richard P. Cooley
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") 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 Registration Statement on Form S-1 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 1933,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 19th day of March, 1998.
/s/ M. Ian G. Gilchrist
------------------------------------
M. Ian G. Gilchrist
<PAGE>
POWER OF ATTORNEY
The undersigned Director of The Ackerley Group, Inc. ("Company") 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 Registration Statement on Form S-1 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 1933,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 19th day of March, 1998.
/s/ Michel C. Thielen
------------------------------------
Michel C. Thielen
<PAGE>
POWER OF ATTORNEY
The undersigned executive officer of The Ackerley Group, Inc. ("Company")
appoints each of Barry A. Ackerley, Gail A. Ackerley, William N. Ackerley, and
Keith W. Ritzmann 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 Registration Statement on Form S-1 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 1933,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 19th day of March, 1998.
/s/ Denis M. Curley
------------------------------------
Denis M. Curley
<PAGE>
POWER OF ATTORNEY
The undersigned executive officer of The Ackerley Group, Inc. ("Company")
appoints each of Barry A. Ackerley, Gail A. Ackerley, William N. Ackerley, and
Denis M. Curley as 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 Registration Statement on Form S-1 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 1933,
this Power of Attorney has been signed by the following person in the capacity
indicated on this 19th day of March, 1998.
/s/ Keith W. Ritzmann
------------------------------------
Keith W. Ritzmann
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,656
<SECURITIES> 0
<RECEIVABLES> 54,421
<ALLOWANCES> 1,498
<INVENTORY> 0
<CURRENT-ASSETS> 92,521
<PP&E> 232,420
<DEPRECIATION> 137,452
<TOTAL-ASSETS> 266,385
<CURRENT-LIABILITIES> 80,502
<BONDS> 0
0
0
<COMMON> 329
<OTHER-SE> (45,238)
<TOTAL-LIABILITY-AND-EQUITY> 266,385
<SALES> 0
<TOTAL-REVENUES> 271,175
<CGS> 0
<TOTAL-COSTS> 210,752
<OTHER-EXPENSES> 46,666
<LOSS-PROVISION> 814
<INTEREST-EXPENSE> 26,219
<INCOME-PRETAX> 13,757
<INCOME-TAX> (19,172)
<INCOME-CONTINUING> 32,929
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,929
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.04
</TABLE>
